A good pre-construction condo investment will do three things: appreciate, build equity, and—assuming you’ve rented it out at a good price—generate positive cashflow. All with minimal effort from you, the investor. Sounds too good to be true, right?
I’m here to tell you that it’s not. And I’m living proof of that.
The catch? You have to be willing to invest time and effort up front. That means evaluating all potential investment opportunities and identifying the one likeliest to help you reach your financial goals. Trust me, it’s totally worth it.
Thankfully, this fall has been among the hottest condo launch seasons in Toronto’s history. There are tons of options out there. But finding the right one can be tricky. After all, not all developments are built equally.
To help you along in the process, here’s how I evaluate a pre-construction condo investment opportunity. Or, feel free to get in touch, and I can walk you through the process myself.
Reputation is Everything
Buy from a reputable builder. Always. This is huge. A big name in the development game reduces the risk that comes with buying pre-construction.
Remember, the agreement you sign with a developer is just a piece of paper. Developers have plenty of leeway when it comes to what they market to you versus the finished product. With a highly respected builder, not so much. They deliver.
Finally, a good developer will be your advocate should problems arise after the project is finished. Lots of developers have customer service for this very reason.
Finding the Best of the Best
Thankfully, there are some resources out there to help you find builders with street cred.
- First, check out Tarion’s builder directory to look at a specific developer’s history. Tarion is a third-party organization empowered by the Ontario Ministry of Consumer Services to administer and enforce the Ontario New Home Warranties Plan Act and Regulations.
- The Building Industry and Land Development Association (BILD) hosts annual awards recognizing the top developers in the game. Scanning the list of current and past winners provides excellent insights into who the reputable builders are.
- Each year, J.D. Power and Associates releases a “New Condominium Builder Customer Satisfaction Study” for developers that have great customer service. This year’s is here. Builders who rank highly here are the best ones to buy from because they care about you.
- Finally, talk to people! And don’t be afraid to take a peak at a builder’s past developments, either. You can find plenty of resources online, too. Some of my clients use thedirt.co, a condo review platform.
You’re also welcome to take a look at my projects page. I only invest in projects from developers I trust.
Location! Location! Location!
When it comes to determining a worthwhile investment, location is another key factor to consider. Buy in a trendy, built-up area and you’ll initially be spending more. On the other hand, if you acquire a unit in no man’s land, you run the risk of holding onto an investment that doesn’t appreciate at the rate you might have expected.
While it’s impossible to anticipate what a neighbourhood will look like years after buying into it, it’s something you should be thinking about. Buying in low on an up-and-coming hood promises higher returns. If you want to talk about Toronto hoods, let me know. I have plenty of insights here.
Okay, so what makes for a good pre-construction condo location?
Demographics: Who lives there? Is it a community of young professionals, families, students? Remember, these are your prospective renters. To get demographic info, check out Toronto’s neighbourhood profiles, all generated from 2016 census data.
Walkability: How close is your condo to, well, everything? Driving is a serious drag, and people want to live in the heart of the action. Ideally, you want a place with a walk score of 90-100, a so-called “walker’s paradise”. Basically, a place where daily errands don’t require a car. Plus, you can rent out your parking slip.
Transit Score: Living close to transit is convenient—and not just for renters. Condos near transit systems retain value. Big time. A development like E2 Condos, for example, is right on Eglinton Station, with access to the LRT system.
Amenities: Is it close to a popular city district? Hospitals? Universities?
Future Investment: Look for neighbourhoods receiving infrastructure upgrades. An example: Lakeside Residences, which is being developed steps away from Google’s one-billion-dollar “Smart City”. How do you think Toronto’s proposed Rail Deck Park will affect investments in City Place, Fort York, or King West? Something to think about…
Which brings us, finally, to…
Assessing real building value is the last piece of the puzzle when it comes to determining whether a certain pre-construction condo is a worth your money.
Because the development won’t actually exist at this point, your decision to purchase a particular unit will be partly informed by the model suite. A couple things to ask:
- Ceiling heights. Most model suites have deceptively high ceilings. Confirm how high they’ll actually be.
- Make sure the model suite you’re looking at isn’t fully upgraded. What will a standard unit look like, for example?
Things to consider:
- Project Comparables: What’s the resale for comparable units in the same neighbourhood? How about the percentage of units sold?
- Neighbourhood Trends: What has the average price per square foot for condos sold been? What about rental prices? Condos.ca has fantastic historical data for all the GTA’s hoods. Definitely consult it. For rental prices, also feel free to check out rentometer. Since you’ll likely be renting out your unit, be sure you’re investing in a hood that sustains higher rents. Because higher rents = more cash flow.
- Floor Plans: Look for units that use space wisely.
- Project Amenities: Renters love amenities… does the development have a pool? A gym? An indoor bowling alley? How about ground floor retail?
- Views: While not essential, securing a view can add value to your investment. You have to pay for the privilege, of course.
Phew, that was a lot to take in, I know. When it comes to evaluating a prospective pre-construction condo investment, due diligence pays. Without exception.
If you need help—at all, with absolutely anything—just get in touch. While my project page contains developments I’m personally investing in, there’s plenty more out there.
Thanks for reading!