I’m really excited about this post because I got to learn about the pre construction sale and process. When I was looking at getting a home, I toyed with the idea of getting a pre- construction (still considering it) but I didn’t get a full idea of what the process was like. In my books, seeing is believing so buying a whole condo or home of a floor plan is a very BOLD move, one I am not sure about yet. Anyways, in this post, Ada shares all about her experience buying a pre construction and also shares some tips you should have in mind before you commit 15% of the total sale price to a developer based on a floor plan.
Side Bar: A pre-sale or pre construction is a home (condo, house etc) that is sold before it has been built or completed.
When did you buy your place?
I officially signed in August 2021 but will close in 2024 when the building is completed.
What kind of place did you buy?
I bought a one bed and a den condo with parking, presale.
What inspired you to get a place?
I grew up reading finance books like rich dad, poor dad so I knew buying a home was something I wanted to do to attain financial wellness and freedom.
Did you buy your place alone and how old were you at the time?
I bought my place alone and I was 23 at the time.
Why did you buy a presale?
I couldn’t afford a place in Vancouver for the standards I was looking for, lol so a presale seemed like the best option. Buying a presale also gave me the opportunity to save for the place. For example, depending on the building you could have instalment payments to pay over a certain period.
What was the process like for you?
I got a pre approval from the bank then found a realtor and gave him my preferences i.e what I was looking for in my place etc.
Within a week he showed me the presentation/show room for 2-3 places. These were set ups of what the apartments were going to look like since the apartment hasn’t been built yet. I went there and I liked all 3 of them but decided on the one I got since it has a den and a good price.
I had two days to sign the contract and put down $10k which would have been part of the first 5% deposit I needed to put down. I had another two days to commit to the place and put down the rest of the 5% deposit that was needed.
Within a month, I had to put down another 5% and six months later, I put down another 5%. When it closes in 2024, I’ll put down another 5% and then get a mortgage, pay for legal fees, GST, property taxes, insurance and the occupancy fee.
The 5% down at closing is not compulsory but I want to get to 20% so I don’t have to pay insurance on my mortgage since I already put down 20% of the purchase price of the home.
Did you do research on your developer before hand?
100%. I also trusted my realtor and he delivered on the developer research.
Any advice for those who are trying to buy pre cons?
- You want to know what other buildings the developer has done.
- You want to know how delayed their projects are and the quality of their work.
- Read articles written about the developers and their industry track record.
What are some of the pros of buying a pre construction?
- I get to live in a brand new apartment.
- I think it is better quality
- As a first time home buyer, I didn’t want to deal with maintenance fees, repairs etc and with my new build, I have a warranty for ten years which means I get lower maintenance fees.
What are some downsides of buying a pre construction?
- You are still renting and paying someone else while your property is being built.
- You literally buy something off a floor plan and are hoping it is what you hope for.
- They ask for more upfront costs than an already built house.
None, I had mentors who had gone through the process and I did my research so before I went it so none yet.
What’s your biggest fear going through this process?
My biggest fear is the price of the house going down with everything happening now in the economy with the mortgage rates etc.
During my conversation with Ada, she mentioned having to pay occupancy fees for pre constructions. We spoke about it a bit and I did a bit of research and apparently, occupancy fees (aka phantom rent) are paid to the developer upon completion of a new condo. The occupancy period could be about 3-6 months and the higher your unit it, the shorter your occupancy period could be. Essentially when you get a new condo, the condo still belongs to the developer and you pay monthly interest on the balance of the condo for the period you will occupy it till when it becomes yours. So say I get the keys to my condo on October 1st, 2022 however I do not own it yet and haven’t received a mortgage for it or paid up the full balance and will not do so till January 1st, 2022. If the house cost me $500k and I already put down $100k, I still owe $400k on the house and will pay interest on the outstanding balance of $400k to the developer till I become the owner of the house and pay off the outstanding $400k to the developer. If interest is 5% monthly, I will have to pay the developer occupancy costs of $1667/monthly till I finally gain full ownership of the condo.
Hope you enjoyed reading this post and learnt a thing or two about pre constructions and the process? Would you get a pre construction? If you enjoyed this post, please like, share with your friends and leave me a comment! I would certainly love to hear from you.