Success in pre-construction condominium investing can be boiled down to one thing; access. The truth is investors deal with finite inventories when purchasing at Toronto’s premiere developments. Below are five tips for those looking to invest in pre-construction real estate throughout Toronto and surrounding communities.
Buy Small – Studios and one bedroom units are your safest investment. They offer the largest rental market, lowest starting prices, minimal carrying costs and over time it’s much easier to diversify and add to your portfolio of real estate holdings.
Buy Early – Arguably the number one rule of condo investing, period. The fastest rates of appreciation occur closest to the start of a project sales cycle. If you can walk in off the street and buy a condo, you’re buying the wrong one. The key is to be in the first percentile of buyers at a given project.
Buy What You Know – There’s a certain comfort in buying into a neighbourhood or community that you know. While not all condos are built equally, it can be most profitable to look first at projects in areas you are familiar with.
Find Your Insider – The realtor who sold you your four bedroom house is not an insider and doesn’t know pre-construction real estate. Pre-construction is as different to resale as commercial real estate is to other real estate markets. Developers work with very small groups of agents and give them priority access and pricing. Find them and use them. We strongly suggest looking at these guys.
Look For Leasebacks – Leaseback programs are a staple of deals we negotiate with builders and their sales teams. They are tailored for investors and effectively guarantee a fixed rental rate for a set period of time (usually one to two years) after tenants take Occupancy. These can lead to early cash flow and create turnkey investment opportunities.
Last week we saw vacancy rates in Toronto rise (ever so slightly!), which might mean that rental rates will likely level off (and perhaps even come down… ever so slightly). Hamilton makes headlines again as we see the city becoming more of a metropolitan area with new condos that are very popular for young individuals and first-time buyers looking for low-cost city living when compared to Toronto. And we have great news for variable mortgage holders with Bank of Canada maintaining its interest rate!
You may have heard some of the recent reports stating that a good chunk of Toronto Condos have a negative carry; meaning the inward cash flow on a property—the money received from rent—does not cover the cost of mortgage and condo fees at the end of each month.
If you know what you’re doing, negative carry is hardly a concern.