If you’re considering investing in Vancouver real estate, you might have heard of presale condos. These are properties that developers sell before they are completed. But why invest in a property that doesn’t exist yet? In this blog, I will explore why presale Vancouver condos are a smart investment and the advantages they offer to potential buyers.
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What is Presale Vancouver Condos?
Presale Vancouver is a real estate term used to describe the sale of condos in a development that has not yet been fully constructed, often before construction has even begun. As a buyer, you purchase the right to the future property, and while you are ultimately responsible for paying the full purchase price, you do not have to take out a mortgage immediately.
Instead, you are only required to pay a deposit, which typically ranges from 5 to 10% of the purchase price at the time you buy, with another 10 to 15% paid in installments over the course of construction. The deposit is held in a trust account, and the developer does not gain access to the money until completion. If the developer fails to complete the project, the buyer is entitled to a full refund of their deposit.
Why it’s a Brilliant Investment in Presale Vancouver Condos?
- Buying presale Vancouver condos means taking possession of a brand new property upon completion. This is a huge advantage as you won’t have to deal with the wear and tear of an older building. Additionally, you often have the ability to customize your suite in ways that are unavailable in the resale market.
- Locking in a price at the purchase date can be a significant advantage. If the real estate market in Vancouver rises, you stand to benefit without the costs of monthly mortgage payments, property taxes, and maintenance fees. In fact, you can secure the purchase of a presale for as little as a 15-25% deposit. If the property increases in value before completion, you could see a significant return for very little money actually invested.
- Investing in presale Vancouver condos is a low-hassle investment. The property follows real estate market trends, with prices rising and falling just as existing properties do. But as an investor, you can benefit from potential capital appreciation without the worry of tenants, the cost of property taxes, and monthly maintenance fees.
Advantages of Presale Vancouver Condos for Investors
As mentioned above, presale Vancouver condos allow you to secure the purchase of a property for as little as a 15-25% deposit. Should the property increase in value before completion, you could see a significant return for very little money actually invested. This can result in a substantial return on investment if the property’s value increases before completion.
For instance, let’s say you decide to purchase a $500,000 presale condo with a planned completion date of 5 years in the future. To secure the property, you make a 15% deposit of $75,000. Due to an increase in the real estate market, your condo is worth $580,000 two years later, and you decide to sell the property, which is known as selling the assignment of contract. You would walk away with your $75,000 deposit along with the value-added to the property, which is $80,000, resulting in a 173.3% return on your initial investment.
If you decide to hold on to the same property until completion, and the price remains constant, the condo would still be valued at $580,000. When you approach your mortgage broker to acquire a mortgage, you would have more than 20% in equity ($80,000+$75,000 = $155,000, which is 31% of the $500,000 mortgage), allowing you to avoid costly CMHC high ratio insurance premiums that are required for properties purchased with less than a 20% down payment. In this case, you have managed to have a 31% down payment on your mortgage with only putting 15% down initially, which is a significant advantage.
2. Effortless Investment Experience
Like any other real estate investment, presale Vancouver condos are subject to market fluctuations, with their values going up and down over time. However, the advantage of investing in a presale property compared to an existing one is the opportunity to enjoy potential capital gains without concerns about managing tenants, paying property taxes, or handling monthly maintenance fees.
3. Minimal Ownership Expenses
Condos constructed by reliable developers typically demand fewer expensive repairs or maintenance tasks for owners and investors during an extended period after completion. This contrasts with older buildings, which may require more frequent and costly upkeep.
4. Comprehensive Warranty Coverage
Every presale construction in BC benefits from the 2-5-10 Year Home Warranty Insurance. This warranty coverage commences only after the building’s completion, and in most instances, guarantees investors reduced expenses and minimal inconveniences throughout the warranty period.
5. Attractiveness to Tenants
Tenants typically favor newer buildings for several apparent reasons — contemporary design, updated fixtures, and appliances; the absence of repair work or bothersome and expensive maintenance; and the array of amenities often included in modern buildings, such as swimming pools, fitness centers, saunas, hot tubs, and concierge services.
6. Higher Rent Potential
Frequently, tenants prefer to pay a higher rent for a newly built suite rather than an older unit, primarily due to the advantages mentioned earlier, such as modern design, updated fixtures, and access to various amenities.
Is Purchasing a Presale Vancouver Condo Secure?
The presale market in British Columbia is regulated by the Real Estate Development Marketing Act, providing substantial protection for buyers. Moreover, buyers have the right to rescind the contract to buy the property within 7 days after the offer has been accepted.
During construction, the deposit is held in a lawyer’s trust account, ensuring that your deposit is refunded if any construction issues arise or if the developer goes bankrupt. Lastly, the developer is required to furnish you with a Disclosure Statement containing essential information about the future property.