PROS & CONS OF BUYING PRESALE

PROS & CONS OF BUYING PRESALE

Hi, I am JESSI Johnson, a best-selling author, Metro Vancouver realtor with eXp and mortgage broker since 2006.

In this video podcast, I plan to cover the Pros and Cons of Buying Presale

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  • There are many golden nuggets in this video for real estate purchasers and investors to learn
  • Whether you are new to real estate or a seasoned investor, watch, take notes, comment below or call me for more information
  • First off, did you know that you don’t necessarily have to complete a presale purchase?
  • Many contracts are assignable or flippable, to a new buyer, before the completion
  • For example, you can purchase a stunning condo in Burnaby, British Columbia today, for $800,000 that completes, in 4 years
  • Let’s say in 2 or 3 years that condo is now worth $1,000,000, which is very reasonable to assume in Greater Vancouver, especially considering we are about to have another boom
  • You now have made, on paper, $200,000.
  • If your realtor was careful with having you sign the right contract, you will have the option to sell or flip “the paper” contract for a profit, at minimal cost
  • This is called an assignment sale
  • Some developers do pose high penalties to assign contracts so be careful what you sign
  • Ask me for a list of projects without low to no assignment fees
  • You also do not even need to qualify for this because no mortgage is involved
  • Does this sound too good to be true?
  • Well, it can be so lets review that too
  • If you can’t sell the contact or don’t want to for the price a buyer offers, you must complete on the transaction
  • So, make sure that you qualify to complete, in the event that you must
  • Also, what if the market drops, this is unlikely but still possible 
  • If the market declines say, $50,000 and the value is now $750,000 at completion, you must cover the difference and your down payment
  • I seriously doubt Greater Vancouver properties will lower in a few years and here is why
  • The Canadian government has changed their focus back to immigration but kinda forgot to fix housing crisis first
  • Almost 800,000 new people arrived to Canada in 2022 and the government has set a goal of 500,000 every year, for another 4 years
  • This will more than likely cause home prices and rental prices to keep going where, straight up
  • We literally have no where to put these people with record low inventory
  • This is great for owners and investors but terrible for renters and those trying to get into the real estate market…
  • There are more pros than cons in presale which is why I like them so much
  • Let’s quickly review a list of more pros when buying presale 
    • You own 100% of the asset but buy it at a fraction of the cost
    • Often with only a 15% to 25% investment or even less
    • If a million dollar condo does up only 20% in 4 years, which is about half of the historical equity gains in greater vancouver, you just literally doubled your investment
    • Not too shabby
    • Presales allow time to save up for your total down payment
    • As mentioned, you can assign or flip the contract
    • They are low maintenance, the building and unit will be brand new
    • I find you generally attract higher quality tenants if you plan to rent it out
    • There is a full warranty, just like buying a new car!
    • No bidding wars, the prices are fixed
    • HUGE potential for value increases before you even take possession  
    • Buy at today’s prices with tomorrow’s value
    • Presale amenities are generally very nice and high-end
    • You would generally be grandfathered into the strata and avoid restrictions such as pets, mid or long term rentals
    • The purchase process is fun and easy
    • Currently, at the time of this recording, presale homes up to a certain price are exempt from PTT (property transfer tax) for first-time buyers
    • And, there is a seven day recision period if something changes in mind
  • Now lets quickly review a short list of cons when buying presale 
    • You need to wait to move in, some times up to 5 years!
    • The closing date is not fixed, delays usually happen
    • Larger deposits are needed but you can get some back at completion, ask me how in the comments
    • You do pay a premium for new
    • The layouts are often better but smaller
    • GST is an additional cost in the purchase acquisition but I will talk about a trick below
    • Most importantly, the market could drop and you must cover the difference
  • Leti’s talk about GST on new homes
  • It is important to have your realtor arrange the presale contract to have GST, if applicable, inclusive in the contract
  • This means if the presale contract is for $1,000,000 + 5% GST, the actual cost is $1,050,000
  • Many buyers, and realtors, don’t know that you can request a change to the presale contract so the purpchase price is $1,050,000 including GST
  • Why is that important you might ask?
  • Well, lets run numbers on a $1,000,000 presale contract with and without making GST inclusive
  • John buys a $1,000,000 presale condo and at completion he must come up with 20%, or $200,000, plus 5%, $50,000, for a total of $250,000 plus closing costs
  • Jane, aka smarty pants, buys that same presale with GST inclusive but only needs 20% of $1,050,000. So, she now needs $45,000 less than John to buy the same condo
  • Are there any discounts, as in price reductions or incentives, when buying presale, you might ask
  • Great question, there are not really discounts, pretty much everyone pays the same, in most circumstances
  • However, there certainly can be incentives, so look out for those
  • Some incentives examples are:
    • 1 year of mortgage payments
    • Upgraded appliances
    • Decorating allowances
    • Smaller deposit structures, as low as only 10% down
    • I have even seen entry-level BMW car’s offered 
  • The deposit forms the down payment at completion
  • You might be thinking, can any realtor help you buy a presale?
  • The answer is yes!
  • But, I highly recommend a realtor experienced in this different type of purchase
  • Can any realtor help you assign or flip a presale?
  • Yes again, but this can be very complicated so, definitely use a realtor experienced in presale transactions
  • Also, once a realtor gets in with a developer, they can achieve VIP status, which I personally have on the majority of presale projects in Greater Vancouver
  • VIP status means you get the best incentives, superior unit selection for your clients and learn of upcoming projects before the average realtor and certainly the general public
  • When buying presale, you want to get in first for the best unit selection at the lowest price
  • Existing clients who previously purchased through that developer often can get in on the friends and family first choice offerings
  • Deposit structures are different for each developer, nothing is set in stone
  • Once you sign a contract, 5% is generally require immediately, then the remaining deposits will be set in a schedule dictated by the developer
  • Did you know that there is a safeguard for buyers in presale transactions, this is called a recession period
  • Essentially a buyer can back out of the contract, with no obligation and receive a refund on any, if any, deposits paid
  • This is supposed to be for buyers remorse
  • I haven’t dealt with this myself much, primarily because my buyer know exactly what they are buying, have seen all options and are confident in their decision
  • Do your research and know what you are buying
  • I am often asked, can I get a mortgage rate hold for presale
  • The answer is generally know but some big banks do offer them
  • However, the rates are usually very high and not worth it
  • Even if you plan to assign or flip a presale contract, make sure you have a mortgage approval or back up plan for in the event you need to close on the deal
  • I will post a link in the description to all presale projects in Greater/Metro Vanouver and you can easily organize per city
  • I hope that was helpful, feel free to leave any questions in the comments.
  • If you are interested in becoming a realtor and joining our team at eXp. We have one heck of a program for new and experienced agents. 
  • That’s all for this episode, don’t forget to pick up a copy of my best-selling book on Amazon, Rockstar Real Estate Investing if you haven’t yet and we are here for your questions at any time.
  • See you again soon, thanks