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Why Investing in a Pre-Sale Condominium is a Good Idea

We are seeing three categories of people purchasing our condominiums right now: young professionals looking for less expensive entrance into the competitive housing market; retirees downsizing from a big family home; and investors who want to buy a unit and rent it out to make a profit over time.

Quite a few real estate investors make a purchase at Triple Crown. That’s because real estate investors are catching on to the advantages of condo pre-sales, especially as the price of single detached dwellings skyrocket and become less financially tenable.

More Time to Save the Down Payment

The advantage of buying a pre-sales or pre-construction condo as a real estate investment is the flexible financial arrangement. If this is your first-time real estate investment, it’s difficult to come up with the required 20 per cent down payment. As of February 2018, the Victoria Real Estate Board (VREB) lists the benchmark price for condominiums in the Greater Victoria area as $463,100. The down payment for a condo at this price is $92,620. Keep in mind, if you plan to live in your condo, the down payment is much less, but don’t make the mistake of buying a condo under the pretense of living there when you intend to rent it out. It’s best to live in the property at least a year before you consider renting it, and it’s a good idea to contact your lender and let them know that the property is no longer your primary residence.

At Triple Crown, we require only $20,000 down with the remainder due after the building is complete and you take possession. That gives you much more time to save the necessary 20 per cent down and arrange to be a landlord.

You Win with Equity Gains

The equity you could gain with a pre-constructions condominium is terrific. The sale price is based on the price of condos at the time you make your initial payment and will not change through the construction process. Once the building is complete and you're ready to move in, you immediately benefit from any growth in equity during that time. For instance, everyone who bought one of our pre-construction condos last year did very well. This month, VREB reports a 20.3 per cent increase from last February to the end of February 2018! While there is no guarantee prices will continue to rise, it quite likely will, albeit at a slower pace. We’re still experiencing long-term low inventory, which means more price pressure and competition on homes of every type.

What does the vacancy rate mean for a landlord?

You will have little problems renting your unit. Last year, Canada Mortgage and Housing Corporation (CMHC) pegged the capital city's overall vacancy rate 0.7 per cent and West Shore’s vacancy rate was 1.3 per cent.

Since occupancy rate plus vacancy rate equals 100 per cent, that means there is a 98.7 per cent occupancy. Put another way, if you owned 10 condos, you would typically calculate your potential months of rental income by multiplying by the number of rental months in a year, that being 120 months. A 1.3 vacancy rate means nine of your 10 units will be fully rented, and the tenth will be rented for 10.5 months. Put another way, your condo will be rented almost all the time.

How Much Rent Can I Ask For?

In 2017, rents rose considerably throughout the Capital Regional District. In Langford right now, the average rent for a two-bedroom condo is $1,500 for an older one, and up to $2,100 for a new one with only one bathroom according to KijijiListings. Let's do some math: If you purchase one of our two-bedroom, two-bathroom condos for $405.900 as an investment property, after you put 20 per cent down, you would need a mortgage for $324,720. With a 3-year fixed rate mortgage at 3.62 per cent, your weekly mortgage amount is $377.42. That's $1635.49 per month. The condo fees on this unit will be $294 a month resulting in a total commitment of $1929.49.

We have no doubt you will be able to rent these condos at a premium. These are excellent places to live and your renter will be delighted by the opportunity to do so. The units all have quality fit and finish, six-piece appliance packages, stainless kitchen appliances (gas stove), full size in-suite washer and dryer, and 2 underground parking spots. The building also allows pets, which increases your potential number of renters. On top of that, the building is in an excellent location close to amenities in one of British Columbia’s fastest growing urban centers. Add that all up and it means you should easily break even when you take possession and rent your unit out.

How about maintenance? 

These are brand new units and should require little in the way of repairs for some time. Even so, it’s a good idea to put some money aside each month for contingencies. If you save $150 a month, that will quickly build up a healthy contingency with the added bonus that if you don't have to tap into it for the next ten years, you will save $18,000 plus interest.

There are a lot of excellent reasons to buy a pre-built condominium for real estate investment, and a Triple Crown condominium would make an excellent addition to your real estate investment portfolio. 

Give us a call at 250-474-4800 if you want to explore this idea and take action.

(Disclaimer: We are not lawyers or financial planners and this article should not be considered as legal or financial advice. You should seek appropriate counsel for your own situation. Please note, this article is directed towards a Canadian audience. If you reside outside of Canada and you are considering the purchase of a condo, we encourage you to thoroughly research recent and upcoming tax changes in British Columbia).


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