In Toronto’s hot real estate market, pre-construction condo investing still remains a lucrative investment opportunity in the longer term. When you look beyond the quick wins of flipping property, holding the property in the longer term and having a tenant pay off your mortgage can create passive income for you well into your retirement years.

Here are FOUR reasons we believe in investing in pre-construction condos:

#1. Deposit – you don’t need as much for a down payment saved up as you may think!

Most pre-construction condos require approximately 20%  deposit of the total purchase price. Often this deposit down payment is broken down into several 5% instalments to be paid over the course of the project’s construction phase, 3 to 5 years (depending on the project). 

For a $500,000 investment a 20% down payment would be $100,000. Not many people have that amount of cash on hand to pay upfront. This is one of the reasons why buyers and investors prefer pre-construction condos for their extended and flexible deposit plans. 

Investors really like the extended payment plans as it allows them to plan for the upcoming payments. For first time home buyers, these payment plans are very important allowing them time to save up for closing costs.

#2. Leverage: Invest less and get more for your money 

You are leveraging the developer’s money on the full value of the property. When investing in a pre-construction condo, the investment appreciates at the property’s total value and not just on the invested amount. That’s significant! When you invest with a 20% down payment (as required in pre-construction condo purchases), the bank funds the balance 80%, but the property appreciates at 100% of the total property value. The bank finances the increase in equity.

Let’s use numbers to illustrate the above: a condo investment of $600,000 with a 20% down payment.  Assuming the average rate of real estate continues to climb by 5% per year, as construction completes in 4 years time, the condo would now be valued at $729,304. That’s a $129,304 gain in equity and your return on investment is approximately a whopping 108%!!  This all happened while you were waiting for the condo to complete and before you moved in. 

With the current historically low interest rates, the borrowing costs are low and with the right property, the rental income will pay down the principle. You own the property as your tenant pays your mortgage. 

Real Estate is a buy and hold strategy for the long term.

We have seen historically low rates in 2020. Savvy  investors are taking advantage of the cheap cost of money to build their real estate portfolios. What’s amazing about real estate and leverage is that the tenant pays off your mortgage for you, and over the years you will eventually end up with a mortgage-free property that will generate cash flow.

Imagine owning multiple properties, let’s say 5 condos with their mortgages paid off and you are collecting $2000 per condo in rent for each. That sums up to $10,000 per month of passive income cash flow coming to you forever…

Real Estate is a long term play. It is not short quick wins like the stock market. Real Estate is how you create generational wealth over the longer term. Smart Investors make smart real estate investments because they understand the power of leverage.

Are all pre-construction condos created equal?

Not all pre-construction condos are great investments. My team and I work closely with the city’s top builders to bring you carefully selected investment opportunities that we believe are great investments. Give me a call, i would love to chat with you to understand your investment goals and present opportunities to you that closely match those.

Happy Investing!

We have great blog posts that help you understand the pre-construction condo investing process. Check these out:

5 Tips for starting your Pre-construction Condo Search
Is Condo Living for you?
Government Assistance Programs to help Home Buyers