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Why Invest in the Toronto Pre-Construction Market?


Investing in a pre-construction condominium unit can be quite lucrative but its not for everyone, there are some downsides and pitfalls to this investment, that require you to have a flexible investment strategy, which you are able to commit to long term. If you are only able to commit to one investment due to budgetary constraints a pre-construction Condominium investment probably is not an ideal investment for you, as most developers require between 20 and 30 percent of the total unit price paid in installments over typically the first two years immediately after purchase, sometimes longer but it's up to the developer so always have your agent and lawyer bring the exact schedule to your attention! This money paid out over the specific time frame stipulated by the developer and specific project does not give you a cash flow return, nor does it accrue interest, so if you are needing an investment that gives you some sort of immediate return or cash flow, or you might have need of this cash for a rainy day or an emergency a pre-construction condominium investment may not make sense. If you are already a homeowner and currently have a mortgage on that home, but have extra cash you would like to invest, make sure you are able to be pre-approved for another mortgage equal to the full purchase price of the condo minus the cash you will be paying in the deposit schedule. If you are unable to gain a second mortgage approval, though varying from developer to developer you are probably unlikely to be approved for the purchase of the Condominium unit even though you can pay the 20-30% over time, so your money is better invested elsewhere. Finally if your needing of this unit is time specific, whether that is within the next week, year or even the exact date the developer has estimated for the project completion as all completion dates listed by the developers are purely estimated and more often than not get delayed, you should look to invest your money another way, or look to purchase an already completed condominium unit or perhaps purchase a unit being assigned in a building that construction has already commenced on.

If you can weather the storm so to speak of committing a large sum of money to a pre-construction unit without need of immediate cash-flow or interest and are able to gain the mortgage pre-approval, you are potentially entering a fantastic investment with great potential for equity growth secured against a hard asset the unit itself. With every investment comes a certain level of risk, however in buying a pre-construction unit some of that risk is mitigated by a couple things, one being the Tarion new home warranty deposit protection, which covers some of the delays in occupancy, closing, covers defects in workmanship of your finished unit, and in the very rare circumstance that the builder goes bankrupt or the project is cancelled for any reason help get some of your deposit back. As bad as that may sound just think about what portion of your money you would get back if a company went bankrupt you purchased stock from likely 0% as stock investments are typically not insured in anyway against risk. The unit itself once complete turns into a hard-tangible asset, so even if there is an economic downturn during the period its being built you own that unit which is worth something and likely will rise in value again. Luckily for investors in the Toronto market we have seen nothing but growth in average condominium sales prices every year for the past decade, averaging nearly 6 percent over that decade and with a jump of almost 10% this past year from last 9.15% to be exact, with no news or evidence to suggest that growth will either level out or decline in the coming year(s). So as your asset is likely to appreciate year over year until it is complete creating equity that you may leverage late on when it is ready, average rental prices in Toronto have also been growing at an even faster pace a whopping 9.1% from last year the highest ever recorded single year growth in the city, and by far higher than any other major city in Canada. Average rent in the city of Toronto from 2012-2017 grew by 50% and vacancy rates are down this year to 1% which is a good indicator that current supply is not meeting the demands of an ever-increasing population shift towards the city. These numbers are not only good insurance that the value of your unit should grow every year until its complete, but also that if you plan on renting your finished unit out, average rent will have increased as well, with your pre-approved mortgage locked in at the value of your unit approximately four years earlier and with your rate locked in at that time too this could mean some pretty great cash flow for your condominium asset. Besides the numbers, when buying a pre-construction unit you are buying something brand new never lived in and built with the newest technologies, and materials; not to mention amenities which are tailored towards how we live life now such as dedicated rideshare pick up and drop off points. Buying pre-construction also gives you the opportunity to choose a unit layout that is perfect for your personal needs or the needs and wants, as well as picking out materials and finishes within the unity to suit the needs of what your plans for the unit are i.e. materials and finishes more suitable for a renter or materials and finishes more suitable for your own personal living requirements and tastes.

To start with the obvious, Toronto is a fantastic and growing city, with a high quality of life and lots of employment opportunity, with a free spirited and accepting culture, great food and arts it truly is one of North America's premier metropolitan destinations, also Us News world report and Wharton school have named Canada the #2 country to live in Globally and 1st in overall quality of life. Due to this it is not uncommon to see cranes swinging throughout the city constructing more condominium units to meet the ever-demanding needs of new generations of Canadians wanting to live in the city. But where is this growth coming from? National Immigration in recent years have reflected this, between 2011-2016 of Canada's total immigration intake 30%, or 356,930 chose to call Toronto home; second only to Canada's oil booming west and nearly double that of second highest metropolitan destination of Montreal. The Government of Canada has increased the number of Immigrants entering the country every year since 2011 and have no plans of curbing that trend for 2019 or beyond. Research also shows Ontario’s largest segment of single-family home owners, the baby boomers aged (53-72) are starting to retire and looking to downsize from the single-family home market to the condominium market. Millennials Canada’s newest generation of skilled workers and potential homeowners have also started to jump on to the property ladder, 87% of which think owning a home is a good investment, and 69% of those hope to own a home in the next five years the condominium market being the likeliest starting point for this segment to owning that first home. With continued limited inventory and with all the driving factors towards an increased population in the city and an increased demand in condominium units adding a pre-construction condominium asset to your portfolio can be a very savvy and lucrative investment for your future. Toronto is also a very attractive destination for new and exciting global businesses, with many of North America's top tech companies having offices in the city (Google, Linkedin, Uber, Facebook, Nvidia) and companies like Amazon reportedly interested in joining some of its competitors here, and google proposing to dramatically expand its operations with the proposed Google sidewalk a mini 12 acre high tech community along the Toronto Lakeshore, which would be massive for attracting new high paying jobs. Toronto has always been a national pillar of education with the University of Toronto a sprawling university of around 90,000 students not including faculty, and other big-name schools like George Brown, Ryerson, Laurier Business school, and a bevy of smaller technical colleges which will always create demand for off campus living rental units.

While pre construction investments are not for every investors, those who could afford it in the past are ripping the reward today as Toronto is becoming ever more attractive. Toronto could welcome almost 170, 000 immigrants in the next 3 years as per the government strategy. This growth of Toronto is getting noticed by the big investment players. The city is attracting more investors like Allied Properties REIT, a billion dollar asset management fund. The fact that big players are betting on the Toronto real estate market is a sign that Toronto is a city of the future, and the pre construction condo one of its major pillar.

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