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How to Strategically and Successfully Invest in Pre-Construction Properties in Ontario?

How to Strategically and Successfully Invest in Pre-Construction Properties in Ontario?
“A small leak can sink a great ship”

As an investor, you may always be cautious about where you put your money. Just like a tiny hole in a ship can lead to a disaster, an even seemingly small investment misstep can erode your wealth in no time.

This is especially true for real estate investors. Unlike stocks or bonds, a real estate investor cannot sell a property so easily and quickly if they need money. Also, if the property you brought has no appeal or growth potential, you may have a hard time finding tenants or buyers for the home.

In this blog, we’ll be guiding investors on how to strategically bet their money on a trendy investment venture - pre-construction properties. From introducing you to the risks associated with this investment to suggesting smart investment strategies, this blog is a must-read for anyone aspiring to be a successful pre-con home investor.

Risks Associated with Investing in Under-Construction Properties

Here are the risks that you need to be aware of before diving into this investment venture in the Ontario housing market -

FINANCIAL RISKS:

  1. Market Fluctuations - The housing market can be really unpredictable. Between signing the contract and completion of the project (it could be years), a market downturn could leave the final property value significantly lower than your purchase price.

  2. Deposit Loss - Buyers have to pay a significant upfront deposit to secure a pre-construction home, sometimes reaching 20%. And in case the property developer comes across financial trouble or cancels the project, there is a risk of losing this deposit amount.

  3. Carrying Costs - The extended wait for completion means you won’t be receiving any rental income until the property is completely built. If you own another investment property, you’ll have to keep on paying the existing mortgage while waiting for your new investment to start generating income.

CONSTRUCTION DELAYS AND CHANGES:

  1. Timeline Uncertainty

Construction delays in pre-construction properties are common. The expected completion date can be pushed back many times because of material shortages, labour issues, or permitting problems. This can disrupt your financial plans and investment goals significantly.

  1. Changes in Design or Quality

Another bummer that you may have to face with an under-construction home is that the final product may be different from the initial plans and those glossy brochures. The developer can substitute materials or adjust the layouts, potentially affecting the property’s value and functionality.

Strategies to Mitigate the Risks and Successfully Invest in a Pre-Con Home

  1. Research, Research, Research

Before investing in a pre-con property, do your homeownership by researching as much as you can. You must research the developer of the property, the location it is situated in, and the housing market trends.

Make sure the property developer has an excellent track record of completing projects on time and within budget. Check out the neighbourhood to see if it’s developing and if there’s demand for new properties in the area.

  1. Understand the Costs

Buying a pre-construction property in Ontario means you’ll be playing today’s prices for a property that won’t be ready for a while. So, you’ll have to factor in and brace up for the cost of delays, changes in the market, and potential increases in interest rates. Make sure you have a buffer in your investment budget to handle any unexpected expenses.

  1. Get Legal Advice

Real estate transactions are complicated, especially when it comes to an under-construction property. This is why hire an expert real estate attorney to review the contracts and agreements before you sign anything regarding the deal. These professionals can help you understand your rights and obligations and assist you in identifying any potential pitfalls.

  1. Know Your Financing Options

Under-construction homes often require a larger down payment than ones already built. Also, the financing options are different. So, explore different mortgage options and talk to multiple mortgage lenders to find the best option for your situation. Also, get a mortgage pre-approval so you can know exactly how much you can afford to borrow.

  1. Have a Contingency Plan

Things don’t always go according to plan in the housing market. For that reason, while investing in pre-construction properties, have a backup plan in place in case the project gets delayed or the market experiences a downturn. You can have extra funds set aside or explore other investment options in addition to the pre-con home.

  1. Look for Incentives

Property developers often offer incentives to early buyers to lock in sales and reduce risk. For instance - the developer may offer a discount on the purchase price itself, provide free upgrades to the units, or waive certain fees associated with the transaction. Investors must ask for these incentives while sealing the deal on the pre-con home to potentially increase your profit margin.

  1. Inspect the Site

Always visit the construction site physically before parking your money on a property. Assess the quality of the materials that are being used and also the site layout and design. Make sure to also check out the surrounding neighbourhood and look at the amenities nearby.

  1. Stay Informed

Keep an eye and ear on the progress of the pre-construction project and stay informed about any changes or developments that may affect your investment. You must attend project update meetings if possible and stay in touch with the developer to get regular updates.

  1. Think Long-Term

Investing in pre-construction properties is not a get-rich-quick scheme. It’s a long-term investment that requires patience and careful planning. So, evaluate if your investment goals are long-term and accordingly make decisions that align with your overall financial strategy.

Read More:

Successful Real Estate Investors Master the Art of Conquering Risks

Successful real estate investors are adept in one thing - risk management. They proactively identify potential pitfalls before investing in a property and develop effective strategies to mitigate these risks.

This cautious approach is especially important when it comes to a pre-con property where unforeseen delays or market fluctuations can significantly impact your investment. So, switch on your foresighted mode, address the risks and increase your chances of a successful investment in an under-construction property.

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