The current housing market in the Greater Toronto Area has taken locals by storm. Once upon a time, pre construction did have a reputation of being cheaper than resale. We’ll get into why that’s no longer the case later on. Because of that past reputation, many have asked, “is it cheaper to buy a pre construction in Toronto?”
There is no straightforward answer to this question because it depends on several factors. Price, customization, potential return on investment, financial bandwidth, are just some of the things to take into consideration when choosing between pre construction and resale.
When buying real estate, it’s important to understand what you’re paying for, whether you plan to live in the property or lease it out. In this article we’ll dive into some of these things in more detail.
Initial Costs and Price Appreciation
As mentioned earlier, a common preconceived notion about pre construction is that it’s cheaper than resale.
While this may have been the case years ago, over time construction costs have gone up making it more expensive to build. This has especially been the case pre pandemic, which means that pre construction homes have become pricier than resale, particularly in cities like Toronto.
Even though pre construction may generally be more expensive than resale, it can still be a great way to invest in real estate.
Is buying pre construction in Toronto a good idea?
Pre construction being more expensive does not necessarily mean that you would be better off buying a resale property. It really comes down to what works best for your individual situation. As a real estate investor, it’s important to run the numbers and have a good idea of potential ROI before making a purchase. Some things to consider include rental prices in the area, city growth, future developments, potential property appreciation, etc.
There are several factors you should consider to decide whether you should buy pre construction or go down the resale route and we’ll go over them in this article.
Downpayment
Extended deposit structures are often a major incentive for buyers interested in purchasing pre construction.
If you’ve an investor, an extended deposit structure helps minimize your upfront costs, which could benefit your bottom line if you keep the property or assign it.
If you plan on living in the pre construction unit when it’s ready, you have more time to budget and plan your finances accordingly before closing.
On the other hand, resale properties have more upfront costs as you are required to make a downpayment and carry a mortgage right away. This could be a challenge for those who don’t have the cash available and depending on location, can also present a high barrier to entry to first time home buyers.
If you’re someone who has the cash, but not the time to wait a couple years for a new home to be built then resale would likely be a more sensible route to take.
Builder incentives
Many builders offer various incentives encouraging buyers to invest in their project. These incentives usually help reduce some of the costs associated with purchasing pre construction. Examples include free assignment, capped development fees, free storage locker, free parking, etc. With incentives like these a buyer can easily find themselves saving tens of thousands on a purchase.
Closing costs
Both pre construction and resale have closing costs that need to be accounted for. However, pre construction does have a few other closing costs that are not applicable to resale, such as development charges and other fees.
Brand new
Unlike resale, everything is brand new in a new construction home. While you will have to pay a premium for that new factor, you won’t have to worry about wear and tear, maintenance, or renovations early on.
With resale properties, it’s typically a good idea to do a home inspection before finalizing the purchase to highlight any problems in the house. Depending on how old the home is, you may opt for renovations at the time of purchase or later on.
So is it cheaper to buy pre construction in Toronto?
Whether or not pre construction is a better option than resale is entirely dependent on your current situation. It’s important to consider all the necessary factors and make sure your finances are in order before making a decision.