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Some advice from somebody who's actually gone through this and knows what he's talking about (lol @ all the renters chiming in):
New construction will save you a HUGE amount of money, and in spite of what some of the financial gurus here are telling you, you'll most likely have made a decent profit by the day you take possession. My information comes from my own condo, which is brand-spankin' new (moved in at the end of '07 and most units weren't finished until around April '08), and from people who are actually in the real-estate market, including family members who have no reason to colour the truth and business contacts who can't make shit up.
Simply stated, it's a good financial move. For me, given the quadruple leverage of the mortgage, I've made a return of about 80% on my initial capital, with nowhere near the kind of risk associated with more volatile equities.
There are still risks, obviously, and I don't mean to downplay those, but all investments are risky and you can do a lot worse than a new-construction condo in the GTA.
Now, having said that, money isn't everything. If you go for the new construction option you will have to deal with a shitload of headaches. Just off the top of my head:
- They drive you crazy with the upgrade process. If they're offering exactly what you want, then you're golden, but if you try to step even a tiny bit outside their standard, be prepared for endless arguments and stonewalling. The builder is not interested in your satisfaction after you've already signed a deal; he is interested only in keeping things as simple and straightforward as possible for the contractors. I replaced a toilet once while construction was still going on elsewhere in the building and ended up in a pissing match with their project manager.
- Speaking of toilets, and other plumbing fixtures, you'll probably have very little choice over what they put in, and what they put in is almost always crap (may or may not be the case in a pre-owned condo).
- You will have to take occupancy long before the construction is actually finished, and you will have to deal with all the hassles of literally being in a construction zone (noise, unfinished areas, waiting forever for the elevator, you get the idea)
- During the occupancy period you will have to pay occupancy fees, which is effectively the same as rent. It may be several months before you actually take possession. None of this goes toward your equity - you're basically pissing away money, and it's at the builder's mortgage rate, which will be higher than yours.
- Condo fees will go up almost right away. You can take whatever estimate they gave you, rip it up and burn it, because that's how relevant it'll be after your first year of occupancy.
- When you sign a builder's contract, you sign away all your rights, including the majority of tax incentives you might be eligible for. My closing document is literally 10 pages of explanations of all the miscellaneous expenses I had to pay for. It doesn't negate the ROI of new construction, but nevertheless it will surprise and annoy you. Enlist a good real-estate lawyer so you'll understand it all.
- Be prepared for a total clusterfuck with respect to common areas during the first 6 months to 1 year. IIRC, it took 2 weeks before I got a working garage door opener and 3 months before I could access my locker. Electrical, HVAC, security, elevators, fire alarms - you can bet that at least one and probably several of those things will cock up.
- Part of this is luck, but condo boards can be unstable for the first couple of years due to people not knowing what the hell they're doing. And if you've got a lousy condo board, you're in for all sorts of problems down the road. This can happen in an older condo too, but it's more likely with a new one.
- Edit: And, oh yeah, I forgot to mention all of the in-suite repairs you'll have to deal with once you move in, because they will screw it up. You don't have to pay for any of it, but it's a pain.
I'm probably making this sound worse than it really is, but the point I do want to make is that new construction is not for the faint of heart. Some builders are better than others, but no matter what you buy, you'll need to have a pretty high stress tolerance.
In the end, what it all comes down to is how much convenience you're willing to trade for money. When I bought my condo, money meant a lot to me, I was just a few years out of university with a relatively modest savings and really wanted a half-decent space. The whole point was to break into the market. If I had to make the same decision today, though, I would definitely go for pre-owned (preferably 3-5 years).
Hope that helps.
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Last edited by DigiNut on Nov-18-2009 at 04:09
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