Risks & Rewards of Buying Pre-Construction Condos in Canada

Buying a pre-construction condo in Canada is a risky proposition, but it can have its rewards. The right condo real estate investment can give you the asset you need to flip, rent or add to a lucrative portfolio for future investments. Architectural plans may look promising on paper – but is the pre-construction condo in an area that can support a profitable return for your real estate investment?

It's no secret that the real estate market fluctuates with the economy, and real estate investments are ultimately at the mercy of the conglomerate domino effect of politicians, the media, and science. Every investment is a risk because it's based on speculation and the unknown exists in the future. However investing intelligently minimizes the risk and maximizes profit potential in real estate investments.

Here's how to invest intelligently in pre-construction condos in Canada, and the risks a pre-construction condo investor needs to be aware of:

Invest at the right time. 

You do not invest in pre-construction condos when the real estate market is at its peak. Your costs to purchase the condo will be higher if you do and you'll risk losing profit. Investing when the real estate market is at its height means you're at the tipping point when the market falls. You'll be stuck with a mortgage payment, maintenance fees, taxes, and other costs of condominium living without an investor, renter or equity in sight until the market ticks upwards again.

Buying when the real estate market is just starting to improve and lender rates are low means a lesser financial investment and a higher potential for profit return. Realize it can take five years for a condominium property to be constructed – and rates and regulations will change during that period. Your down payment at the early stage is only part of the investment game. Your “pre-approval” financing from the past may not be affirmed in the future if circumstances change. Evaluate your down payment financing, and your future financing, with two different market scenarios in mind.

Invest in the right place.

Look at population changes, neighbourhood growth, transportation, labour availability, small business climate, local housing trends, occupational trends, office space rentals, tourism investments, big business investments, and local political climate. You're not just buying a condo, you're investing in a neighbourhood. Look for strong development growth potential, interest from other investors in the surrounding area, and a local governing climate that supports and doesn't suppress growth, innovation, and housing trends.

You can have a condo in a great neighbourhood, but if zoning regulations are strict, the politicians haven't entered the 21^st century, taxes always go up and there's no room for new growth – you risk being stagnant or stuck.

Invest in the right builder.

The success of a condominium complex depends on the builder. Shoddy work and lingering unfinished projects increases legal risk and financial loss. Investigate your builder thoroughly. Make sure the builder has the finances and labour to complete the condo in a reasonable time frame using quality construction standards.

Pre-construction condominium investment is risky, but if you dig deep into the current economic conditions, the neighbourhood and politics, and the builder's reputation, you minimize your risk for loss, and increase your chances for a substantial return on your investment. For long-term real estate investments, pre-construction condo investments are risky.

But what investment isn't without a risk? Research more than just the real estate. Invest intelligently, and reduce the risk.