1. Extended Deposit Structure

Each pre-construction project comes with its own deposit structure, for which your down payment is spread out over the period of construction. Typically, buyers pay small percentages of the down payment at predetermined intervals. The advantage here is that it’s easier to set aside smaller amounts, you don’t have to lock up the whole cash amount at once, and you can put the dollars to work somewhere else while your investment rides the market.

2. Assignment Sale

As the value of the unit appreciates during the construction period, you can sell the ownership of the unit before completion at whatever price the current market value has risen to. This is done by selling the contract under assignment. As you’ve only invested your down payment, this appreciation is typically a massive multiple of the initial amount that you have invested. An example:

Estimating a modest 5% annual appreciation in the housing market (which increased over 20% on average in 2020), a $500k home would see its value rise above $600k in 4 years.

With a 20% down payment of $100k, this $100k return doubles your investment. If you bought with a 10% down payment, this $100k return would triple your investment. 

With lower down payments, or higher annual appreciation (up to 40% in 2020), this figure only rises.

This stays true for real estate in general; with pre-construction, you can do this without incurring a mortgage. This brings us to:

3. Mortgage Timing

Typically, in order to secure a pre-construction home, builders require a mortgage pre-approval letter or mortgage commitment from a bank or mortgage broker.

However, you are not registered on title until the final closing date, and for condominiums, the mortgage does not actually register until some time after occupancy. This means that a sale under assignment will subvert the actual loan in your name, and you will be able to profit from the real estate market while registering zero financial liability.

Typical Closing Costs:

a. Land transfer tax is calculated in incremental brackets, and typically amounts to 1-1.5% of the closing costs for starter homes. As the value of the home increases, so does the tax implication. 

An accurate calculator can be found here: https://www.ratehub.ca/land-transfer-tax

b. Lawyer fees typically range between $500 and $1500, depending on the scope of work involved in the closing process.

c. Other closing costs may include but aren’t limited to inspection fees, appraisal fees (ballpark of $300), property insurance, title insurance (will depend on your provider and specific criteria), mortgage insurance, and prepaid property taxes.

Hidden Costs

When you purchase a home from a builder, there are a few sources of hidden costs:

• HST (Harmonized Sales Tax)

HST is due on the purchase of all homes and upgrades from the builder. If you are purchasing the unit for your own occupancy, you will be able to apply for an HST rebate after one year of ownership. If you purchase the property for the purposes of flipping, you will be liable to pay HST on the purchase price as well as on the profit. Speak to your tax professional for more details.
 

• Development charges 

It's important to verify whether these are capped by the builder (typically around $10-15k), otherwise they can very quickly exceed upwards of $30k on closing, depending on the value of the home and municipal requirements.

Click the link below to find out more about our pre-construction inventory: 

Pre-Construction Inventory