As time changes, your investment strategy may change as well. I’ve evaluated so many different types of real estate strategies in my own personal experience from rent-to-owns, buy and hold, flips, land, pre-construction, buy-fix-refinance-rent, secondary suits, student rentals, vacation homes, short-term rentals, some weird cocktail mix of various strategies, and so many more. The world is your oyster when it comes to real estate investments. Some people can get really creative! Of course, every strategy has its own pros and cons. It all really just depends on your end goal, level of experience, budget, and ultimately, your commitment to making it all work for you.
Pre-Construction Condo Outlook – By now, you may know me as the “pre-construction guy” because it’s been a great run in the past few years for the pre-construction strategy, especially with the rising condo prices. However, the market is slowly starting to change.
When I evaluate pre-construction investment opportunities, I always compare the sale price to existing resale condos of the same style in the area to see if the asking price is reasonable. Plus, I make sure that the projected rental income will cover the purchase price. However, it’s been getting increasingly difficult to go through all of the investment criteria on my list and still be able to call it “investment-worthy”.
Currently, as I write this Insight Article in mid-December of 2018, the difference between a pre-construction condo and a resale condo is the biggest I’ve seen it… EVER!
Recapping the Pre-Construction Condo World – Approximately 5-7 years ago, pre-construction condos were being sold at BELOW resale market prices because you were buying into what builders marketed as “potential for growth”. With the reward for potential growth came along the potential for risk.
- Pre-con was probably 5-10% below the price of the resale market at this point.
When projects were completing and the market had confidence in pre-construction, builders began removing incentives because they knew people were going to buy their product regardless. At this point, “potential growth” seemed like a sure-fire win for investors, with minimal risk attached.
- Pre-con was probably 0-5% below the price of the resale market at this point.
Then shortly after that, pre-construction projects were marketed as “new build homes”. Essentially, this meant that you were going to pay an amount on par with resale or more for your pre-construction condo.
- Pre-con was the same price as the resale market at this point.
Fast forwarding to present day, many of the pre-construction condo projects are more expensive than most resale buildings in the same area. There is a premium put on location, supply and the “newness factor”.
So What Now? There are many reasons that led the market to its current position. Does it mean that pre-construction isn’t worth investing in anymore? Well, not necessarily – it just means that it will be more difficult to find the correct project to invest in.
Condo Projects By the Numbers – When you factor in the rising condo prices, the initial investment in pre-construction is getting larger and larger, and therefore making it very difficult for first-time investors to get started. In the downtown core, condos are currently selling at close to $1,000 per square foot. Some of the newer buildings are closer to $1,100 per square foot.
Below are projects that came out in the downtown area in 2018, their respective initial starting price, and when they were released:
Jan/18 – 357 King St W – $950 per square foot
Jan/18 – Theatre District – $970 per square foot
Mar/18 – Playground – $850 per square foot
Apr/18 – in.De – $1,000 per square foot
Apr/18 – Garden District – $1,000 per square foot
Jul/18 – Maverick – $1,300 per square foot
Aug/18 – Sugar Wharf – $1,100 per square foot
Sep/18 – Encore – $1,100 per square foot (This is Theatre District Phase 2)
Sep/18 – 543 Richmond St W – $1,100 per square foot
Oct/18 – 533 King St W – $1,700 per square foot
Oct/18 – YSL – $1,400 per square foot
All of this is not meant to scare you, but rather, it is meant to give you a better understanding of exactly what is going on in the market. Theatre District Phase 1 and Phase 2 were released 8 months apart and these 2 projects offered essentially the same product, BUT the price went up 13.4%!
There is some arbitrage right now if you are looking to invest in the resale market. Developers have to price their product to “future-proof” their profits and the rising costs of development, the latter of which is one of the main reasons why prices have jumped so high recently. If the builders are bullish on the condo market, then why not profit from it and buy resale right now?
Still in the Pre-Con Condo Game! If you still prefer the pre-construction strategy, there are a few projects coming up in 2019 that will provide some good investment value, so make sure you let our team know to keep you informed about these new releases! We know these upcoming projects are going to sell out fast given that the prices on some of these latest released projects have been absurd.
The Wrap – Of course, with so many strategies and so many constantly changing factors in the market, your personal situation makes a big difference in which strategy you should execute. If you’re looking for the best strategy that suits you specifically, then give us a quick call to discuss your next move!
