You’ve saved up some cash.  You’ve noticed your friends are investing in new condos through out the GTA.  You aren’t sure if you should invest or how the process works.  You see so many new condo projects on the market and aren’t sure which one to invest in!  What should you do?

Well before I tell you.  Let’s talking about what you shouldn’t do.

  1.  Go to the sales office and register with the builder’s sale’s agent.  Why?  their only interest is to convince you to buy a unit in that specific project so he/she can meet quotas and make commission.
  2.  You shouldn’t register online at a builder’s website for more information.  Once again they will be selling to you after booking an appointment for you to visit the sales centre.  Secondly, they will also refuse to pay commission if you get expert representation by a REALTOR®.  So it is best, just like in the regular housing market, to have representation first (Buyer’s Realtor) that takes you to the sales office (house/condo) to view the “property”  and will help you make sense of costs, views, floor plans, discounts, taxes, levies, deposits, 10 day cooling off period, etc.  I recommend you hire a REALTOR® who has invested and has helped clients invest.  It costs you nothing to have this peace of mind.

So what should you do?

If you are interested in investing you need to first ensure you have the “mindset” to invest.  What does that mean?  You should be able to detach yourself from the outcome.  If you are a worry-wart…  always stressed about money… no matter how rich you are… then I wouldn’t recommend investing.  Maybe a course on mindful meditation.  After all, money, condos, clothes, cars, etc. are just “things.”  They shouldn’t define you.  How and what you think about yourself does.  Hence the popular saying “change your thoughts, change your life.”

Anyways, before I digress to be a self-help-guru…. let’s analyze an example.

Say that you have saved $100K and are looking to buy an investment condo for around $500K.  You would most likely be paying four deposits of 5% over a couple years.  The project may take 4-5 years to complete.   So this $100K deposit is out of hand and out of reach for at least 5 years.  So you need to have enough income and build new savings that you should allow you to forget about the $100K.  If not, don’t invest.

Note: some Buyers borrow from their line of credits.  I’m not a big proponent of that as you are paying interest from the time you borrow.  Also this affects what you can borrow later for final closing and may cause some to borrow at much higher interest rates, just to close on the condo and save their deposit money.

After the deposit comes your Interim closing.  This is when your unit is “livable” and the builder hands you the key while condo construction is happening on floors above you.  Why?  The builder doesn’t want to hold any empty units until the entire building is complete.  It is all financial.  They play the role of the banker (landlord) at this time.  Charge you the “interest” on the remaining amount you owe them ($400K in our example).  Maintenance Fees.  Estimated Property Tax.  Effectively they have made you a tenant of the unit while construction is going on.  This expenditure can be $1500+ a month.  Fortunately, though not “legal”, many builders allow you to rent out your unit during occupancy.

How long can it take from Interim closing to Final closing?  The average range can be 1-6 months.  Usually the higher up you are the less time it takes to register the building and transfer ownership.  Sometimes both happen at the same time.

Now you need to be ready for Final Closing.  What can you expect?

As an Investor-
1.  You need your mortgage funds in place
2.  You need lots of cash to cover HST & closing costs.

On $500K condo this can be another $50K.  After which you would complete a form to get back some of the HST.

If you purchased the new condo to live, as your primary residence or for a child,  then your final closing costs will be $20K in this example.  The numbers are estimates as every builder has different closing costs.

If you are investing…then think about renting it out for at least 3-5 years.  Longer is preferable. This builds equity and gets you a decent rate of return.  Also don’t lie on final closing to save on the upfront HST payment.  CRA is cracking down are looking at past closings and charging huge fines and penalties.  It’s better to pay the HST and then file for a HST New Home Rental Rebate afterwards.

So if you are seriously looking to invest.  Want honest advice, NO B.S. on any project that you may have heard of or need information for.  We can get it for you.  We can walk you through the entire process, step-by-step, as we have done with all our clients.

Remember, investing has a risk associated with it, just like Mutual Funds and the Stock Market.  If you are risk adverse then you shouldn’t play this investment game.  Yes, it is a game.  The goal is to create long term wealth.  You must have the ability to fulfill your financial obligations.

Call or email: Jas Jagpal, Broker, 647.272.6629 to setup a no-obligation consultation and see what’s best for you.  Sometimes buying a “re-sale condo” and leasing it out now is a better investment option for my clients.

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