10 benefits of investing in presale projects

You searched and searched and here is your full detailed answer. If you’re still wondering what are the benefits of buying a presale or pre-construction project, in this video, we will be discussing 10 benefits.
Here is the list of 10 benefits of investing in presale projects:
 
 
1-Ample time to save money: Since pre-sales typically require a down payment but don't require full payment until completion, you have more time to save money for the final payment. In many cases developers spread the amount of deposit so you have time to save up for them as you reach their deadline. For example: A project that I attended with my client yesterday, required 20% deposit. was charging total of 10% at the beginning, then the second deposit of 5% is due 9 months later, the final 5% was due in 18 months after the first deposit. This deposits are in the lawyers account’s trust, where at the completion date, it counts toward your mortgage down payment. This is a great advantage for many real estate buyers to not only gradually save for their down payment, but also work on improving their finances for the next few years to meet the requirement of the mortgage lender by completion date. When it comes to obtaining mortgage, of course, every individual or family’s finances are unique and based on the agreed price of the property, amount of your mortgage lender required down payment changes.
Here is interesting fact. In Canada, you can put 7-10% up to price of $999,999 and it it hit $1m, which is a penny more, the required down payment jumps up to 20% (of course this is a general information and your individual case of what amount is required maybe different) as a result, although, you won’t be needing a mortgage for the next few years until this presale project is completed, it is certainly advisable to go through the mortgage pre-approval to understand the limit of your purchase or in other words, how much home you can afford, amount of deposit requirement from the mortgage lender based on your unique finances so there won’t be any surprises in the future. This is a must do whether you have a steady employment or you’re self employed with capricious income.  
 
2-Potential for price appreciation: In a rising real estate market, pre-sale properties may appreciate in value before they are completed, resulting in a potentially profitable investment. You want to keep in mind, no one can predict the future, but what we professionals work with is the past similar trends to understand how future may turn.
For instance, if you’re investing in a presale during a low activity market (other words buyer’s market), then the probability of the upward market shift is very likely in a few years and by the time the presale project is completed, resulting in better appreciation and profit. Nevertheless, it is also possible and it happened where investors purchased at a high activity market, where unfortunately by the time the completion arrived, the market turned downward in prices and consequently it resulted in their loss.
What’s is the best solution if this happens? Real estate is a long term investment, especially in Vancouver BC, where there is certainly shortage of land and expectedly a very high demand based on immigration and relocation. In the case, if the market is at a downward, the best solution would be to hold on to it until the market changes toward your benefit. It is best to always have the intention of holding a property for more than 5 years and this is similar to the presale project investment.
 
 
3-No other costs until completion: Biggest benefit of presale project is other that the required deposit, there are no other cost of homeownership until the project fully completes. There is no strata fees, taxes and or maintenance cost until the completion in a few years.
Few years back I got to know Brianna, a bright young presale investor. She was brilliant and extremely smart and wanted to leverage the time given to save as much possible. She thought me a great listen. She asked me to research the cost of the homeownership related to her unit in an excel sheet. I told her, Brianna, but, until the project is completed, there is no expenses other than the deposit. She insisted that it is important to her to have a close estimation of monthly expenses relating to owning that home. So I start gathering the estimation of these expenses. Strata fees, estimated property annual taxes and turn it into monthly cost, and estimation cost of hydro, internet and cable. (we did not factor in any repair and or maintenance cost, because it was a brand new project). The total estimated cost of monthly bill for all the items above was about $700 a month. Which is $8400 annually. She calculated if this project completed in 2 and ½ year from now, she can save $21,500 in comparison if the unit was purchased today.
I understood her intention and brilliantly she wanted to start putting away $700 a month as if she owns the unit and put it aside in her interest accumulating saving account. At the completion, she estimated a return of $30,000 if she used that account and invest gradually in a non-risky portfolio. Short story, at the completion of the project which was about a year ago, she exceeded her own expectation and ended up turning those monthly saving of $700 into $45,000 with the help of her financial adviser. What a smart young lady.
4-In case of appreciation, you benefited from 20%: imagine that. Since there is no cost of homeownership until the completion is involved, the only amount you invested was the gradual deposit of up to 20%. Let do a little math, stay with me, it’s not boring, I promise. If the property was purchased at $1m and you put down total of 20% deposit, that’s total investment of $200,000 right?
2 and ½ year later, if the market is in the right side and the project grow in prices by 10% appreciation, you have an equity of $100,000 in profit. That is 50% in profit from your $200k deposit not 10% from the $1m investment in total price. You see where I’m going with this?
 
5-More choices: When buying pre-sale, you may have more choices for floor plans, finishes, and customization options that may not be available in completed properties. You can choose from selection of customization in your unit colour them and finishes.
 
This is important to be early attendant into a presale project. A little secret you need to know. Developers usually have a release date for opening the sales gallery and announcing the projects detail. In most cases, the first week of this release is not available to public and it is marketed toward their existing previous buyers and their agents. That is extremely important to work with real estate adviser who has access to the first release information which in other world called VIP agent. Now you know how important it is who you choose to work with.
To emphasize, it is important to be early so you also can take advantage of incentives and bonuses offered at this stage which we call it platinum stage.
 
6-Newer construction warranty of 2-5-10: Pre-sales offer buyers the opportunity to own a brand new, never-lived-in property with modern features and amenities. It is a relief to have the warranty and not being worry about cost of repairs. In British Columbia, to increase the consumer protection for the brand new home purchase, under the Homeowner Protection Act regulations, licensed developers are mandated to provide the third party home warranty insurance since July of 1999. The 2-5-10 year: 2 year on Labour and material, 5 year on building envelope, and 10 year on structure. In addition to this piece of mind, in most cases, since your appliances are also brand new, you have 1 year manufacturer warranty on those. This is a great advantage of presale investment that can save you thousands in repair and maintenance cost.
 
7-Lower maintenance costs: Newer construction generally requires less maintenance, reducing ongoing expenses for the property owner for the first few years. Since the property is brand new, especially with the existence of home insurance warranty the cost of your share to maintain the property is much lower than older existing resale units. Strata fees are consist of entire property maintenance such as (Garbage removal, gardening, snow removal, cleaning and janitorial, concierge, amenity maintenance, and share of monthly expenses of common property like hydro and utilities), in addition, strata also needs to maintain the amount in their Reserve funds and a portion of strata fees, will be dedicated to it.
 
8-Better financing options: Some developers may offer special financing options or incentives to buyers during the pre-sale period. This is an interesting options specially at a time when the Canadian Federal Bank increases the interest rates. In order to attract buyers to their project, some developers assign specific mortgage lenders with much lower rates which in some cases they also guarantee the rate up until the closing date. Why not if you can take advantage of lower rate.
 
9-7 days of rescission: and that is without paying any penalty if you decide to rescind and walk away from your offer for ANY reason. Circumstances changes for everyone. If you like a project and it is at a platinum phase where there are lot of competition, you have short time to commit and make decision. This is a big decision and requires many due diligence, not only in your finances, but also considering and researching many facts about the project, for instance, Developer reputation, reading all disclosed properties, investigating about the location, zoning, amenities, crime rates and so many things that are important to you. Therefor you have 7 complete days after you signed the contract and made your offer to do your due diligence and if for any reasons, you had a deal breaker concern, you can walk away and rescind your offer.
 
10-Potential tax benefits: Depending on the location and local tax laws, pre-sale property buyers may be eligible for tax breaks or incentives that are not available for completed properties. I’m not a tax adviser and you need a professional who is expertise in that field to advise you. I can share the BC government website below for PTT (Property Transfer Tax fees exemption) make sure you review for additional knowledge.