Preconstruction condos have become all the rage. If you are considering buying a condo, you may wonder whether your best option would be to buy a condo in the preconstruction phase or buy an existing unit. There can be advantages and disadvantages to both options, and understanding what to expect in both scenarios can help you determine which option is right for you.
Pros of Buying a PreConstruction Condo
Among the biggest benefits to buying a preconstruction condo is the fact that since the unit has not yet been constructed, you have far more flexibility in your ability to customize the unit to truly make it your own. With an already existing unit, this would be much more difficult, time-consuming, and often expensive. Therefore, if you have specific tastes or have a certain idea in mind for your future home, a presale condo can be a good option to ensure your home is exactly how you would like it.
Additionally, buying a condo early in the development phase typically allows you to take advantage of the lowest pricing. In most cases, condo prices appreciate over time. If you wait until the unit is constructed, you will usually pay a higher price.
While you will generally need to put a down payment on a presale condo, known as a deposit, just as you would when buying an existing unit, when you decide to sell the unit, you can still bring in 100 percent of the unit’s value. A longer closing period also means that you have more time to save for the down payment.
There can also be numerous timesaving benefits to buying a condo in the preconstruction phase. Along with having more time to save, you also have more time to downsize and determine how you wish to furnish your new unit while it is under construction. If you are under a lease or other type of contract for another property, the construction period would also give you more time to complete that contract.
Cons of Buying a PreConstruction Condo
While there are obviously many advantages to buying a presale condo, there are also a few drawbacks to consider. For instance, when buying a presale condo, your money will be tied up during the construction period with no return on that investment until the condo is completed.
Developers strive to ensure projects are completed on time, but the reality is that there can be potential delays in completion due to labor shortages, weather, inspection problems, supplier issues, etc. By opting to buy an existing condo, you will know there will be no waiting period. As soon as the transaction closes, you can move into your new home.
Keep in mind that layout plans are subject to change, as the developer has the right to make such changes. During the construction period, a number of factors could come into play that could result in the developer needing to make changes. Buying an existing condo means that you can see exactly what you are buying. There is no need to imagine how your future home will look from specs and a floorplan. On the other hand, you can be assured that with a preconstruction condo, everything will be brand new and in excellent condition. When buying an existing condo, it may be necessary to set aside additional money to cover repairs and renovations.
It should also be kept in mind that market values can potentially change during the course of the construction period. Even so, when you purchase a preconstruction condo directly from the builder, the price is fixed. As a result, you do not have to worry about paying more in the event the value for the building increases. Preconstruction condos do have a tendency to be less expensive, largely due to the risk that the project could experience delays or might even be canceled. When buying an existing condo, you could easily find yourself in a bidding war for a condo in a popular building and face the decision of either dropping out or paying more than you originally intended.
Financing when buying a preconstruction condo can also be a bit trickier than when buying an existing condo. By comparison, when buying an existing condo, your mortgage is preapproved immediately, and you are able to calculate your monthly payment based on current interest rates. With a preconstruction condo, you will pay the builder in a series of payments, beginning with a deposit. The amount of the deposit can vary, usually based on the amenities offered and whether the building is located in an in-demand area and is expected to be popular.
You should also be prepared to pay what is known as phantom rent when buying a preconstruction condo. This means that when your unit is ready, you will be able to occupy it, but this does not mean that all of the building will be complete. You will not officially own the unit until the building is completed and the builder has officially registered it as a condominium corporation.
At the time you close on your condo, you should be prepared to pay a number of different fees, which are paid directly to the builder. If you opt to buy a preconstruction condo, it’s a good idea to ensure you are clear about those fees, what they are for, and how much you will need to pay.
Finally, remember that when buying a preconstruction condo, nothing is guaranteed. It could take years for a condo building to be completed. Furthermore, there is always the risk that the builder will not sell enough units in order for construction to proceed or may not be able to complete the building for other reasons. If that should happen, you will not get your unit.
Prior to buying a unit, make sure you have considered all of the pros and cons of purchasing a presale condo. Doing so can help to ensure you make the most informed purchasing decision.