Can You Sell A Pre Construction Condo Before It’s Built?
This is a question that we get all of the time – can I sell a pre construction condo before it is built?
The simple answer: yes.
The more complicated answer: it depends.
But, before we dive into the specifics, I just wanted to provide an overview as to what selling a pre construction condo before it is built involves and how you go about doing it.
When you sell a unit before it is built, it is called assigning. You are, in effect, assigning the contract, or the right to take possession of that particular unit at a later date, to another person.
Many investors, in fact, use this strategy successfully to make substantial returns on their investment.
Own 100% Of An Asset For 20% Or Less
When you buy a pre construction unit, you are getting the right to 100% of that unit by spending only a fraction of the total unit cost (the downpayment).
And, in pre construction, the downpayment is spread out over the course of construction according to the deposit structure.
The most common downpayment is 20%, and a typical deposit structure would be something like:
- $5,000 on signing
- Balance to 5% in 30 days
- 2.5% in 120 days
- 2.5% in 180 days
- 2.5% in 420 days
- 2.5% in 540 days
- 5% on Occupancy
We cover how downpayments work in more detail here.
The important thing here is that you only have to pay a fraction of the unit cost over the course of construction.
Avoid A Mortgage And Closing Costs
By assigning your unit, you don’t have to worry about getting a mortgage. And, you don’t have to pay any closing costs or other expenses – costs like development charges, utility fees, interim occupancy fees, land transfer tax, and more.
Part of the assigning investment strategy is that you have identified a project that will see an increase in value over the course of construction – which will offer you a solid return on your investment – and you sell before construction is completed to avoid these additional expenses.
You obviously won’t realize any future gains on the property, but you also don’t have to deal with the carrying costs of the unit or worry about getting tenants in to offset these expenses.
With this strategy in mind, let’s look at when you can assign, and when you cannot:
When Can You Assign?
This will depend on the Agreement between you and the developer.
Most projects do allow for assignment, but there will be some developers who do not. It is important to know this before you sign.
While the vast majority of pre construction projects do allow you to assign, there is typically a fee to assign your unit, ranging anywhere from $5,000 – $20,000 or more.
These fees can be negotiated, but there is never a guarantee that the developer will agree to lower them. You’ll have to factor this in when calculating your potential profitability.
Before you get scared off from assigning as an investment strategy: there are many projects that offer free assignments or reduced assignment fees. These are just some of the incentives that we are able to secure with developers on our projects – so always ask if that is what you are looking for!
Even with free assignments, though, there will typically be legal fees of around $500 – $1,500 that you will need to consider.
How Do You Assign?
Assigning is similar to resale (i.e. when you sell a home that is already built) in that you attract buyers, negotiate an offer, and agree to the deal.
Where assigning is different, however, is in how the deposit is structured, and when and how the deal closes.
Also, most developers will not allow you to list an assignment sale on the MLS or sites like Realtor.ca. So, in order to attract buyers, you will have to find alternative ways (fortunately, specialists like ourselves have a large network of buyers who are always on the lookout for assignment sales).
Here are the steps to assigning:
- Get approval from the developer before moving ahead. Most developers will have a requirement that they are made aware prior to beginning the assignment process, even with an assignability clause allowing buyers to assign. It’s important to know the process the developer will require when you sign the Agreement so you can avoid any unnecessary headaches before you even begin!
- Advertise your assignment. Whereas you typically cannot advertise on the MLS or aggregate sites like Realtor.ca, you can advertise it through buyer networks and other outreach sites. This is where having a pre construction and assignment specialist is very important – getting more people seeing your assignment is critical to having a great sales price.
- Negotiate with any offers. As offers come in, you will have to field any questions or concerns and generally just work with the buyer as you put together an Agreement that works for everyone.
- The deposit with the Agreement. A final offer will have a deposit to make it binding. This deposit is held in trust in a lawyer’s account or a real estate trust account and will become yours when the deal is fully executed and any conditions are dealt with.
- Address any conditions. Buyers will typically have conditions to their offers. Things like the condition that they are able to acquire financing, have a legal review of the Agreement and supporting documents – this is similar to any resale purchase, except that there are more documents to cover and the process can take longer than with a resale Agreement.
- Approval by the vendor. In most typical assignments, the vendor will require that they approve the new buyers (assignee) and check that they have proof of financing and nothing will go wrong upon close.
- The second deposit. The new buyer (assignee) at this point will provide the second deposit, which covers the deposit amount that has been made up to that point by you, the original buyer.
- Profit. With most assignments, you as the assignor will not receive the profit (i.e. the difference between the original purchase price you paid and the assignment price) until the closing of the unit.
A Chance For Large Profits
Assigning as an investment strategy, when done right, can be a massive boon to your bottom line. But, the key is that it has to be done right.
A couple of things to look out for:
- Buy in under-valued areas or areas that are likely to see investment and interest grow over the course of construction
- Buy early in a project – the later you wait to buy in, the lower your overall profit margin will be
- Think about what future buyers (assignees) will want – from amenities to the location; what are the factors that are going to attract buyers when it comes time to assign
We have an article that goes into more detail – you can find that here.
Assigning is a well-established investment strategy, used by many, to have a strong and lucrative investment portfolio. Once you have the basics covered, and you know what to look out for, finding the right projects is key.
That’s where we can help. Pre Construction Pros is, as you can guess, a pre construction realty specialty shop. We have a number of projects – and new ones coming online all of the time – and we can help steer you in the right direction – absolutely free.
And, we cover assignments as well. If that’s something you’re interested in, we would be happy to talk.
You can chat with a pre construction specialist at anytime by booking a free session here: preconstructionpros.ca/book
Do You Want To See The Latest Pre Construction Projects And Tips?
And You Stand To Save Over $45,000 On Your Purchase
Sign up for free to receive top tips, hear from professional investors, and see the latest and greatest of projects throughout the GTA and beyond.Sign Up And Get Top Tips And Project News Today