Navigating the complex landscape of real estate investment can be challenging, but one strategy consistently proves to be a game-changer: investing in pre-construction properties.
This approach, which involves securing a property before its completion, offers a unique set of benefits that can yield impressive returns. With the potential to purchase properties at today’s prices for tomorrow’s market, investors can anticipate an average increase of 5% per year in property value.
When we look at a purchase price of $750,000.00, a 5% annual increase in property value would equal an annual return on your deposit of 25%.
Moreover, the flexibility to select preferred units, floors, and views in a development project offers a level of customization rarely available in the resale market. By strategically investing in pre-construction properties, investors can unlock significant growth potential, making it a powerful tool in any real estate portfolio.
However, once you’ve made the investment and the property or condo is on the verge of being completed, you might be wondering about your options. What is the next step?
Romey Halabi, the Founder and Lead Broker of Toronto Realty Boutique, has worked extensively with investors who have purchased pre-construction properties. Whenever they ask about their options, Halabi tells them:
“It’s critical to always have an investment strategy in place when buying pre-construction. When I work with clients looking to invest, we always discuss their long-term goals and what their priorities are when it comes to buying properties.
With that in mind, we develop an investment plan that spans multiple years and multiple tiers of buying. But there are also some key options to consider when it comes time to close on the purchase, so having a plan for each is a major component of the investment strategy.”
With that in mind, here are three potential paths you can take: holding the property, renting it out, or selling it by assignment.
Hold It
Holding onto a pre-construction condo can be a lucrative long-term opportunity. As the real estate market continues to evolve, the value of your property is likely to increase over time. This is particularly true if you’ve invested in a developing location where prices are expected to rise as the area matures.
Moreover, holding the property allows you to bypass the current market cycle, especially in times of high inflation and rising interest rates. Since construction typically takes 3-5 years for condos, this gives the market ample time to stabilize.
Furthermore, holding onto the property allows you to benefit from potential capital appreciation. As the property value increases over time, so does your equity in the property. This can be a significant wealth-building strategy, especially in a robust real estate market.
Rent It
Renting out your pre-construction condo is another viable option. This strategy allows you to generate a steady income stream while still retaining ownership of the property.
When considering this option, it’s important to think like a renter. What amenities would attract top-quality tenants? Modern lifestyle amenities such as a rooftop patio, BBQs, outdoor dining, theatre room, co-working space, pet amenities, a workout room, and 24-hour concierge are highly appealing to potential renters.
Furthermore, properties with good transit and walk scores are often more desirable, as residents appreciate easy connectivity to the city’s major hubs. Therefore, investing in a pre-construction condo in close proximity to transit can increase its rental appeal.
Additionally, renting out your property provides a buffer against market fluctuations. Even if property values decrease, you’ll still have a steady income from your tenants. Plus, your tenants will be contributing to your mortgage payments, helping you build equity in the property over time.
And on top of that, there is currently a record-breaking demand for rentals in Toronto and the GTA. With so many potential tenants to choose from, you have the freedom to pick your ideal renters. This is definitely an area where bringing on an experienced Realtor® can help you!
Sell It by Assignment
Selling by assignment is a strategy where you sell your rights to the property before it’s completed. This can be a profitable option if the value of the property has already significantly increased since you purchased it.
When selling by assignment, it’s crucial to understand the legal and financial implications. You’ll need to ensure that your agreement with the developer allows for assignment sales, and you’ll also need to consider the tax implications.
One of the benefits of selling by assignment is that it allows you to realize your profits immediately. Instead of waiting for the property to be completed, you can sell your rights to the property and make a profit based on the increased value. This strategy is only available to those who invest in pre-construction.
Moreover, selling by assignment can be a great strategy if you need liquidity. Instead of tying up your capital in a property for several years, you can sell your rights to the property and free up your capital for other investments, possibly even another pre-construction project. This flexibility can be a significant advantage, especially in a volatile market.
When asked about the process of selling a pre-construction by assignment, Romey Halabi told us:
“Selling on assignment is still one of the best ways to make money in Toronto real estate. But the key is to buy wisely with this strategy top of mind. Buying first, when a project launches with a VIP Broker, will get you the best suite at the lowest price, ensuring a successful assignment sale.
There are also many purchase terms that buyers and their VIP agents will need to ensure are in the Agreement of Purchase and Sale, so an assignment sale is permitted.
These are complicated transactions that need detailed expertise to ensure both are protected. With all the I’s dotted and T’s crossed, Assignment Sales can prove to be a lucrative way to build wealth through real estate.”
Conclusion
Embarking on the journey of pre-construction real estate investment opens up a world of opportunities for maximizing your return. Whether you opt to hold the property, rent it out, or sell it by assignment, each strategy carries its unique set of advantages and considerations. However, navigating these options can be complex, and understanding them is crucial to making an informed decision that aligns with your financial and investment plans.
That’s where the value of expert advice comes into play. Real estate professionals can provide insights tailored to your specific circumstances, guiding you through the intricacies of pre-construction investment. Investing in pre-construction is a strategic move that, with the proper guidance, can show a significant return on investment and help you continue to build your wealth in real estate!
If you’re looking to invest in pre-construction in Toronto and the GTA, you can contact Romey Halabi and his expert team at Toronto Realty Boutique at info@torontorealtyboutique.com or call at (416) 999-1240.
