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Spadoink
Oct 10, 2005

Tea, earl grey, hot.

College Slice
I am looking to buy a pre-construction unit in Toronto, and need more information. We are the only ones in our circle that have ever considered buying pre-construction, and I don't have handy access to information resources - the internet mainly provides me with lists of pros/cons, and a few generalities to the process, so I'm hoping to find more help here. I do understand the difference between occupancy and ownership, and am lucky to live in Ontario with our Tarion warranty for new builds.

Background: I'm married, and we have 0 debts (no car, no kids, no loans, pay off our credit cards monthly). I've been preapproved for a mortgage and we have our 20% deposit available in liquid funds. Our mortgage pre-approval is not for 80%, but my in-laws will be helping us and providing the difference in cash.

We have a specific project and unit in mind, have researched the developer, the project, and the neighbourhood well. We are not using a realtor at this point, but would use one if we don't move forward on this particular project, and need help finding something else. The project is small, townhouses and condos in an up-and-coming (legitimately) neighbourhood located in the actual city of Toronto. The project is not currently open to the public, only to appointments, and is scheduled for occupancy in September 2016.

Questions: Some will seem pretty dumb, but I don't mind looking like a fool for the internet :)

If we are to buy, what do we need to show the developer at the time of signing? Do we need the in-law's cash in hand to cover the shortfall between the purchase price and our pre-approval + own cash?

Since there is a two year period over which the 20% will be paid to the developer, could we have the in-law's cash in hand only for the time of the signing, give it back to them for the two year period that we are paying the down payment, and then hand it over at the time of occupancy/ownership?

When will be the first time I can see the contract for sale? I know there are things I want to negotiate, like capping the fees that come at the end, towards occupancy, and hustling for some add-ins like a free locker, but will the I have to sign the sales contract the same day I see it?

I know that after signing the contract I can bring it to a real estate lawyer for review, but are there options to amend the contract, or only to quit the contract?

When do I actually take on my mortgage? In two years when the property is registered and I take ownership?

Any questions I should be asking but have missed? Any other information I should know? .. besides "don't buy pre-construction"

Thanks :)

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Saltin
Aug 20, 2003
Don't touch
The only rationale for buying a pre-construction condo, tying up your cash for a number of years with literally nothing to show for it, is that you're getting a discount. You're not getting a discount are you? Likely not, but I am sure they have a shiny brochure with questionable math showing how it'll be worth more when it's finally built. Guess what? It's not 2006 anymore and that poo poo would put the developer in jail if they were selling mutual funds.

There are 105,000 condos empty or about to come online in Toronto. Food for thought.

Also, you have 20% but the bank still won't pony up the remaining 80%, ever wonder why? CMHC won't cover that mortgage and the bank thinks you're a lovely risk. You can't afford it. Approach a different bank and tell them you have 10%. They are more likely to pony up the 90% because the risk will be CMHC's. This hosed up logic is why your condo will be worth less when it is eventually built than what you're going to pay today for it.

Don't believe me? Cross post this in the Canadian Housing Bubble Thread, and know that the Toronto condo market is ground zero for the pop.

tldr; You are in good shape financially so you're clearly clever enough. Read up about the condo market in Toronto. Don't Buy it.

Saltin fucked around with this message at 21:35 on Aug 1, 2014

Spadoink
Oct 10, 2005

Tea, earl grey, hot.

College Slice

Saltin posted:

The only rationale for buying a pre-construction condo, tying up your cash for a number of years with literally nothing to show for it, is that you're getting a discount. You're not getting a discount are you? Likely not, but I am sure they have a shiny brochure with questionable math showing how it'll be worth more when it's finally built. Guess what? It's not 2006 anymore and that poo poo would put the developer in jail if they were selling mutual funds.

There are 105,000 condos empty or about to come online in Toronto. Food for thought.

Also, you have 20% but the bank still won't pony up the remaining 80%, ever wonder why? CMHC won't cover that mortgage and the bank thinks you're a lovely risk. You can't afford it. Approach a different bank and tell them you have 10%. They are more likely to pony up the 90% because the risk will be CMHC's. This hosed up logic is why your condo will be worth less when it is eventually built than what you're going to pay today for it.

Don't believe me? Cross post this in the Canadian Housing Bubble Thread, and know that the Toronto condo market is ground zero for the pop.

tldr; You are in good shape financially so you're clearly clever enough. Read up about the condo market in Toronto. Don't Buy it.

This is actually not what I'm looking for - I know the bubble and condos coming on the market etc etc but am not just looking for a good deal in a highrise with a bunch of amenities I can't use and a lack of closet space in Queen's Quay or Liberty Village or some other hastily cobbled together 'neighbourhood'.

For additional information, the bank pre-approval is for 80% of a price range I thought we might be reasonably looking at, before even looking at properties seriously - though I have been keeping tabs on mls and new developments for about 5 years on a less and more serious note, to get a good sense of what's available and what can be expected for prices, size, etc. When we finally decided to seriously consider units, the one that we found ended up costing nominally above the pre-approval, and the in-laws are gifting us the difference based on a similar gift to their other child. We did a lot of research, and want to live in that area, where there aren't condo developments on every corner (nor will there be), and where we have a reasonable commute to our work. We'll probably never be able to afford a single family home in the downtown core, and I don't relish the idea of being responsible for roofs and lawns and snow plowing and all that jazz - especially since neither of us are handy. I wouldn't be considering just any pre-build, but the amount of research we put into this one makes us feel like this is the place we are willing to put our money towards, and would want to live there on a long-term basis.

tl:dr: can anyone help me with the questions in my first post?

big shtick energy
May 27, 2004


Just out of interest, what are the numbers like for the payoff point on renting vs. buying in that area?

FrozenVent
May 1, 2009

The Boeing 737-200QC is the undisputed workhorse of the skies.
You never have to sign a contract and you should bring it to a real estate lawyer BEFORE signing it, trying to get it changed afterwards will be a pain in the sass. The contract should include all the fees that will come up - hence why you want a professional to read it - as well as everything you're getting. So if you want an extra drat closet, it needs to be in the contract. The contract will include a fee schedule.

"Pre-public", "special limited time offer" and "if you don't act now you'll miss your chance" are pressure sale tactics, don't fall prey to them.

Seriously, you should have someone familiar with this process assisting you; the developers are in the business of fleecing unprepared buyers.

I know that's not what you want to hear, but Saltin's points are extremely valid, and if you're about to spend three times your yearly gross on something you have not seen yet, you really need to meditate on them.

Spadoink
Oct 10, 2005

Tea, earl grey, hot.

College Slice

DuckConference posted:

Just out of interest, what are the numbers like for the payoff point on renting vs. buying in that area?

Toronto is crap for renters, which is one of the reasons we're looking to buy, but its also crap for buyers so, there we go. Rent on a place like we are looking to buy would be out of our price range, about 80-90% of our net monthly income, while buying is absolutely nowhere near that high.

We're not absolutely positively 100% moving forward on this - I like to know a process inside and out before going ahead, hence my asking the questions I'm asking.

FrozenVent
May 1, 2009

The Boeing 737-200QC is the undisputed workhorse of the skies.
Keep in mind that rent is the maximum you'll pay in a month, whereas a mortgage payment (Plus condo fee, plus taxes, plus insurance) is a minimum. Tree falls on the house, sewers back up, ice dams, you're going out of pocket (At least until the insurance reimburse you, if they do).

You're only building equity after closing fees, interest, mortgage insurance, taxes, maintenance, repairs, condo fees and negative market fluctuations. So keep that in mind the next time someone's telling you that renting is throwing money away and that mortgage payments basically come back to you.

spwrozek
Sep 4, 2006

Sail when it's windy

We considered buying a new condo before we bought our house. They were just about to start building and we would have had to wait about 7 months for it. First thing to do is walk away. They will keep calling. The price started at $275k when we first went in. Dropped to $255k Two months later (then bought our house). Nearing the end of the year they had not sold enough units and the price dropped to $235k. Granted when building that price was likely to go way up with probably $35-50k in upgrades.

Not saying the same will hold true but just some experience we had (this was in Denver).

spwrozek fucked around with this message at 03:03 on Aug 3, 2014

Ira Glass Jaw
Oct 21, 2010

Spadoink posted:

I am looking to buy a pre-construction unit in Toronto, and need more information. We are the only ones in our circle that have ever considered buying pre-construction, and I don't have handy access to information resources - the internet mainly provides me with lists of pros/cons, and a few generalities to the process, so I'm hoping to find more help here. I do understand the difference between occupancy and ownership, and am lucky to live in Ontario with our Tarion warranty for new builds.

Background: I'm married, and we have 0 debts (no car, no kids, no loans, pay off our credit cards monthly). I've been preapproved for a mortgage and we have our 20% deposit available in liquid funds. Our mortgage pre-approval is not for 80%, but my in-laws will be helping us and providing the difference in cash.

We have a specific project and unit in mind, have researched the developer, the project, and the neighbourhood well. We are not using a realtor at this point, but would use one if we don't move forward on this particular project, and need help finding something else. The project is small, townhouses and condos in an up-and-coming (legitimately) neighbourhood located in the actual city of Toronto. The project is not currently open to the public, only to appointments, and is scheduled for occupancy in September 2016.

Questions: Some will seem pretty dumb, but I don't mind looking like a fool for the internet :)

If we are to buy, what do we need to show the developer at the time of signing? Do we need the in-law's cash in hand to cover the shortfall between the purchase price and our pre-approval + own cash?

Since there is a two year period over which the 20% will be paid to the developer, could we have the in-law's cash in hand only for the time of the signing, give it back to them for the two year period that we are paying the down payment, and then hand it over at the time of occupancy/ownership?

When will be the first time I can see the contract for sale? I know there are things I want to negotiate, like capping the fees that come at the end, towards occupancy, and hustling for some add-ins like a free locker, but will the I have to sign the sales contract the same day I see it?

I know that after signing the contract I can bring it to a real estate lawyer for review, but are there options to amend the contract, or only to quit the contract?

When do I actually take on my mortgage? In two years when the property is registered and I take ownership?

Any questions I should be asking but have missed? Any other information I should know? .. besides "don't buy pre-construction"

Thanks :)

Before you sign anything you generally talk about what floor plan/upgrades you want and factor all of that in before you sign anything. Your "contract" will be about 40 pages long and will generally be heavily one-sides towards the builder. Pay close attention to what penalties there are for the builder being late. Generally speaking they can delay the closing date a set number of times for x number of months each time before they start incurring penalties. Also get a real estate lawyer to look over the contract, if you have a real estate agent they can generally recommend one. Once you sign that contract, that's it so make sure everything is in order before you sign it. If you try to back out anytime after signing that contract, say goodbye to your 20k so make sure you are absolutely sure this is what you want, the contract will outline the penalty for backing out and its usually you forfeit your 20k deposit. Like I said all of these contracts are heavily one-sided towards the builder, since you're new to this process I highly suggest you seek out a professional to help you.

I'm not sure how it works with whatever particular builder you're dealing with but generally speaking most of these places have you put down 20k as a "deposit" which is used as your downpayment. You pay 10k then in 6 months or a year depending on their schedule you give them the other 10k and that's that. Any other money that you want to put down you go through the mortgage company. Your mortgage starts the day of the closing date which will be when you assume occupancy. You're not on the hook for a mortgage payment during that 2 year period where you're waiting for the place to be built, the only thing you're on the hook for is your initial deposit.

My last piece of advice is be prepared to wait longer than that 2 year building period. Unless this builder has an amazing reputation and proven track record for consistently delivering on time, they'll be late. Might be a few weeks, might be a few months, more often than not it can be a few years late.

This is all stuff I learned buying my townhouse, I didn't buy directly from the builder I bought it off the guy who bought it from the builder before they finished construction. It's call an assignment of agreement so basically they transferred their contract from the builder over to me, which in itself was a giant pain in the rear end and would never do it again.

Hope that helps a bit.

Elephanthead
Sep 11, 2008


Toilet Rascal
Hope for a pop between now and two years for now. You might get lucky and pay the actual cost of construction instead of the preconstruction price assuming the developers financing doesn't get pulled and every prebuyer doesn't lose everything.

SubjectVerbObject
Jul 27, 2009

Spadoink posted:



I know that after signing the contract I can bring it to a real estate lawyer for review, but are there options to amend the contract, or only to quit the contract?


I am not sure if this is different in Canada, but in the US, if you take the contract to a lawyer after you sign it, all they will do is charge you to tell you how you are getting screwed and how next time you should not sign a contract without talking to a lawyer first. A lawyer should be able to suggest amendments that give you more rights. The developer may not accept them however.

The best advice you are being given here is take your time. The builder has a lot of units to sell, and if they can get you to buy by saying OMG limited offer, going fast buy now! then you are making it easy for them. Don't make it easy. Visit multiple developers, let them give you their best price, and tell them you need to think about it and run the contract by a lawyer, and then still leave when they come back with additional incentives to BUY TODAY! This is just like buying a car.

Spadoink
Oct 10, 2005

Tea, earl grey, hot.

College Slice

Skulduggery posted:

Before you sign anything you generally talk about what floor plan/upgrades you want and factor all of that in before you sign anything. Your "contract" will be about 40 pages long and will generally be heavily one-sides towards the builder. Pay close attention to what penalties there are for the builder being late. Generally speaking they can delay the closing date a set number of times for x number of months each time before they start incurring penalties. Also get a real estate lawyer to look over the contract, if you have a real estate agent they can generally recommend one. Once you sign that contract, that's it so make sure everything is in order before you sign it. If you try to back out anytime after signing that contract, say goodbye to your 20k so make sure you are absolutely sure this is what you want, the contract will outline the penalty for backing out and its usually you forfeit your 20k deposit. Like I said all of these contracts are heavily one-sided towards the builder, since you're new to this process I highly suggest you seek out a professional to help you.

I'm not sure how it works with whatever particular builder you're dealing with but generally speaking most of these places have you put down 20k as a "deposit" which is used as your downpayment. You pay 10k then in 6 months or a year depending on their schedule you give them the other 10k and that's that. Any other money that you want to put down you go through the mortgage company. Your mortgage starts the day of the closing date which will be when you assume occupancy. You're not on the hook for a mortgage payment during that 2 year period where you're waiting for the place to be built, the only thing you're on the hook for is your initial deposit.

My last piece of advice is be prepared to wait longer than that 2 year building period. Unless this builder has an amazing reputation and proven track record for consistently delivering on time, they'll be late. Might be a few weeks, might be a few months, more often than not it can be a few years late.

This is all stuff I learned buying my townhouse, I didn't buy directly from the builder I bought it off the guy who bought it from the builder before they finished construction. It's call an assignment of agreement so basically they transferred their contract from the builder over to me, which in itself was a giant pain in the rear end and would never do it again.

Hope that helps a bit.

Thanks - this helps a lot.

Ira Glass Jaw
Oct 21, 2010

Spadoink posted:

Thanks - this helps a lot.

No problem. I just remembered that when you apply for your mortgage if you're getting any money from your in-laws whoever is financing is going to want to see where that money is coming from. My girlfriends dad gave us money to help out and we had to sign some form saying it was a gift. I went with a mortgage broker so that process might be a little different if you go directly to a bank, im not sure though. I'd recommend going with a mortgage broker because they'll get you the best possible interest rate. Banks were quoting us something like 4-5%, mortgage broker got us 2.79%. Just something to think about.

Lead out in cuffs
Sep 18, 2012

"That's right. We've evolved."

"I can see that. Cool mutations."




Also, read this thread:

http://urbantoronto.ca/forum/showthread.php/10043-Centrium-Condos-(Centrust-Developement-Liberty-Development)-Real-Estate/page11

Katali
Jul 30, 2005

Stopgap Measure
Pillbug
Thread was a couple weeks old when it got bumped so you may have already done this. I bought mine (in Toronto) probably ten years ago so some of this might be old info. Also, standard I am not a lawyer warning.

quote:

If we are to buy, what do we need to show the developer at the time of signing? Do we need the in-law's cash in hand to cover the shortfall between the purchase price and our pre-approval + own cash?
When you buy pre-construction all the developer cares about is a deposit cheque. I would be worried about your in laws changing their mind, being unable to get the money, having an emergency between now and then or you breaking up with their daughter. If any of those events happen and it means you can no longer cover the future deposit payments you will probably lose anything you've already paid in. If you were using CHMC and the money is a gift I believe they require a form filled out stating that it is a gift and not a loan.

quote:

Since there is a two year period over which the 20% will be paid to the developer, could we have the in-law's cash in hand only for the time of the signing, give it back to them for the two year period that we are paying the down payment, and then hand it over at the time of occupancy/ownership?
The deposit is paid out on the developer's schedule, it is very unlikely you will get the whole two years to pay it off, they want your money in their hands as fast as possible, the schedule will be part of, or an amendment to, the contract. You really should have the full deposit available to you before you sign. It would be a very bad idea if the reason you are buying pre-construction is so that you can "force" yourself to save up the deposit over the two years or something. There is no way you could shift the money back and forth between your in-laws, it will all be held in trust by the developer's lawyers.

quote:

When will be the first time I can see the contract for sale? I know there are things I want to negotiate, like capping the fees that come at the end, towards occupancy, and hustling for some add-ins like a free locker, but will the I have to sign the sales contract the same day I see it?

I know that after signing the contract I can bring it to a real estate lawyer for review, but are there options to amend the contract, or only to quit the contract?
They will happily give you a contract as soon as you walk in the door. The people you are talking to are salespeople, not lawyers, they don't have any room to modify the contract outside of the dollar values. It is unlikely you could start changing the wording or striking out some sections you don't like because then they would have to bring the contract back to their lawyers. If you decide you want to buy it you will have to sign the contract there. Assuming it is a condo you are buying Ontario has a ten day 'cooling off' period during which you can cancel the contract after you have signed it (this only applies for pre-construction condos, not houses, not resale). You need to bring it to your lawyer as soon as possible during this period to have them read it. If you do want to cancel I would suggest paying that same lawyer to draft the letter and do the cancellation. Ten days isn't a lot of time so have a lawyer picked out and an appointment made before you even sign.

quote:

When do I actually take on my mortgage? In two years when the property is registered and I take ownership?
You only take ownership and start paying a mortgage when the development incorporates. There is an interim period between when you move in and when the incorporation happens where you are essentially paying rent to the developer. This is another drawback of buying pre-construction. During that interim period your condo is also, essentially, still under construction. Your floor's hallway won't have carpet, paint or fixtures. Your elevators will have wood boarding inside to protect them. You will be walking through mud between your condo and the street.


Other notes:

We keep using the phrase "two years" from now. Realize there is no way it will actually be on time. If they haven't started digging out a foundation yet it is already delayed. This brings me to a huge mistake I made when I bought my condo. I was under the impression that I could cancel the deal if they delayed too often. I brought my contract to the terrible lawyer I hired to read it and the one question I had was to make sure that I could cancel and get my money back if this dragged on too long. He said yes. He was wrong. The date on your contract will be a tentative occupancy date, they can change this as much as they want with no penalty. Only a firm occupancy date means anything, they will not give you this until the entire building is up and standing and they are sure they can make it. My condo didn't even break earth with heavy equipment for two years. I really hate that lawyer. Hire a good real estate lawyer. I bought back when prices were still going up so it worked out in the end but that isn't happening anymore, the condo market has been flat for years and most people assume condo prices are going to drop. The only real debate is how bad that drop will be.

You should go to an open house for a unit of comparable size to the one you are thinking of buying. They keep building them smaller and smaller. Looking at the floor plan is a terrible way to imagine the space. You need to go and see a place with walls and think if you could live in that much space, especially if there are two of you.

The condo fees the developer list are fictitious. The developer has to pay the difference between the condo fees and what it actually costs to run the building for the first year. So to lure people in and sell units faster they set a very low fee and eat the loss. Once that first year is up and your condo corporation actually has to pay the bills itself those fees will have a massive jump.

Be very careful in your final inspection. They will have someone there with you when you do it, this person will pretend to be your friend and on your side, they are not. They work for the developer and want to gloss over any problems. Make sure everything is level and square, that the outlets work, that the finishes you asked for were put in, that the paint is up, that the tiles aren't cracked. Make sure the water runs and the pipes are hooked up. One of the things I found on my inspection is that the drain hoses from the dishwasher weren't attached to anything, imagine if I had run it and flooded my brand new kitchen on day one? Speaking of which, be sure to buy condo insurance (any mortgage will insist on insurance anyways). The most important aspect of condo insurance is liability protection. If I had flooded the kitchen that would have been bad but the water leaking into the ceiling of the next three units below me would have been disastrous and is what liability insurance is for.

Most people expect interest rates to rise over the next two years so your pre-approved mortgage needs to be 'locked-in' at today's rates. If rates do go up and your pre approval expires your monthly payment will be much higher. The pre approval has a time limit, it probably won't last until your condo is actually built (due to delays) and so it will need to be extended. It is very doubtful they will choose to extend your good rate from today's market if rates have increased significantly. As soon as interest rates start going up there is going to be a lot of damage in the condo market. You could wind up with a delayed condo that is worth less than what you paid and at a higher interest rate than what you agreed to.

I know you said you don't want advice along the lines of "don't buy it" so I won't directly say that but I am curious about your reasoning for this. I bought mine ten years ago when prices weren't as high as they are now, back then you got a discount for buying new. They had to sell condos which weren't built significantly cheaper than similar ones which were already built. They somehow manage to not do this anymore so I don't know why people bother with all the headaches of pre-construction condos. It would be radically better to just save your money for a couple years, especially since the consensus is that condo prices have to fall at some point.

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Rime
Nov 2, 2011

by Games Forum
LOL @ "Pre-Buying" A Condo

quote:

Police have reportedly arrested 63-year old Toronto laywer Meerai Cho, who dealt with a purchase and sale of pre-construction units.

She is alleged to have taken the deposits for retail units and condominiums and never returned the money.

Toronto Police say up to $12.4 million is involved but The Law Society of Upper Canada says that amount is closer to $15 million.

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