Investing in Pre-construction

Summary

In this video, Rashab Gandhi, founder of PreConstructionGuide.com, shares essential insights for purchasing or investing in pre-construction properties. He discusses key factors like location, builder reputation, and contract clauses to consider before making a purchase. He highlights important aspects such as builder types, rights to assign or lease during occupancy, and pre-delivery inspections. Additionally, Rashab covers the advantages of buying pre-construction over resale, the benefits of Teron warranty coverage, and Canada's growing demand for housing due to immigration. His expert advice helps potential buyers make informed and strategic decisions in the real estate market.

Takeaways

• 😀 Pre-construction properties include condos, townhouses, and detached homes that are sold before being fully built, often in the 3-4 year range.
• 😀 Location is the most critical factor when buying pre-construction; consider factors like population, proximity to highways, schools, and amenities.
• 😀 Research the builder thoroughly before purchasing, focusing on their history, reputation, and whether they are registered with Tarion Warranty Corporation.
• 😀 The Agreement of Purchase and Sale is a legally binding document; always consult a real estate lawyer before signing.
• 😀 Key clauses to watch for include 'Right to Assign' your unit and 'Right to Lease' during interim occupancy, which can help investors profit.
• 😀 During interim occupancy, you can move in or rent the unit but will pay fees like maintenance, property taxes, and interest on the purchase price.
• 😀 Pay close attention to development charges and whether they are capped to avoid unexpected costs.
• 😀 The pre-delivery inspection allows buyers to check for defects or incomplete work before taking possession of the unit.
• 😀 Pre-construction properties offer a longer deposit period, typically 1-2 years, which is more flexible compared to resale properties that require a down payment within 60-90 days.
• 😀 Pre-construction properties in Ontario come with a Tarion Warranty covering defects in materials, plumbing, electrical, and major structural issues.
• 😀 Canada's growing population, with over 1.5 million immigrants expected by 2025, will drive demand for more homes, making pre-construction properties a good long-term investment.

Q & A

What is pre-construction property?

Pre-construction property refers to real estate like condos, townhouses, or detached homes that are sold before they are completed, typically 3 to 4 years before construction finishes. This type of property is a popular investment opportunity in Canada.

Why is location important when buying pre-construction property?

Location is crucial because it influences the property's long-term value. You should consider the city's population, proximity to highways, amenities like schools and places of worship, and the potential for price growth in that area.

What should you look for in a builder when considering pre-construction properties?

It's important to evaluate the builder's reputation, past project completions, quality of their work, and whether they are registered with Tarion (Ontario's new home warranty program). Look for a builder who has a track record of delivering good-quality projects.

What are the four types of builders described in the video?

1. Builders with poor marketing and poor quality. 2. Builders who invest heavily in marketing but deliver low-quality products. 3. Builders with little marketing but good-quality products. 4. Builders with both strong marketing and high-quality products. The 3rd and 4th types are the most recommended.

What should be considered when reviewing the project details?

When reviewing a project, look at the floor plans, price list, finishes and features, construction timeline, and any additional fees or charges. It's essential to understand all these aspects before making a decision.

Why is it recommended to consult a real estate lawyer before signing the agreement of purchase and sale?

A real estate lawyer helps you understand the legal terms of the contract and ensures you are fully aware of any binding obligations, including hidden costs like closing costs, legal fees, and maintenance fees, which could be significant.

What is the 'right to assign' clause in a pre-construction contract?

The 'right to assign' clause allows buyers to sell or transfer the property before closing without taking on the full mortgage. This is particularly beneficial for investors looking to sell the unit at a profit before the property is officially owned.

What does 'right to lease during interim occupancy' mean?

This clause permits the buyer to lease the property to tenants during the period between construction completion and official ownership, allowing income generation before officially taking possession.

What are the typical interim occupancy fees?

Interim occupancy fees typically include three components: maintenance fees, property taxes, and interest on the balance of the purchase price. These fees are usually lower than the mortgage payments you’ll face once you officially own the property.

How does the Terion warranty work in Ontario for pre-construction homes?

The Terion warranty provides three levels of coverage: 1-year for material and workmanship defects, 2-years for issues related to water penetration and plumbing/electrical systems, and 7-years for major structural defects. It’s an important protection for pre-construction buyers in Ontario.