[Canada] Buying Pre-Construction - Need Advice Beyond "Don't Buy It"

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > [Canada] Buying Pre-Construction - Need Advice Beyond "Don't Buy It"

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

# ¿ Aug 1, 2014 16:00

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# ¿ Apr 29, 2024 15:43

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?

# ¿ Aug 2, 2014 03:34

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.

# ¿ Aug 2, 2014 15:56

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.

# ¿ Aug 5, 2014 00:10

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > [Canada] Buying Pre-Construction - Need Advice Beyond "Don't Buy It"