The Truth About Pre-Selling vs. Resale Condo Units
One of the benefits of investing in the real estate industry is that you a variety of property and investment types to choose from. From residential lots to houses, flipping or foreclosed properties. But perhaps the most common and easy investment choice is to purchase a condo unit because of the vast supply in the market. However, as an investor,you also have the option of purchasing a resale unit or a pre-selling. In this article, we break down the pros and cons of both options.
Pre-selling- a pre-selling condo unit is still in the pre-construction stage and is being sold prior to the unit’s completion.
Pros of Pre-selling
1.Lower Costs and Flexible Payment Terms- Because of the unit is under pre- construction or still in construction, the prices of a pre-selling unit are much more affordable than finished ones. Developers also offer attractive payment terms from low to even zero down payment requirements and flexible installment plans. And because the market values has yet to increase, Pre-selling units are also often cheaper than the price after 4-5 years once the market matures.(However, it is important to note that some units may not necessarily than other resale property in the same area.)
2.More options,Newer Features-Opting for Pre-Selling gives buys more variety and the chance to get the pick of the inventory while it is still fresh. Buyers can also enjoy the option to choose their preferred location,proximity to amenities,etc. Many developers also introduce innovations in their upcoming condos including state of the art techology and lifestyle features to make their new condominiums more exciting.
3.Leverage of Fund- For experienced investors, a Pre-Selling unit and the flexible payment terms can give the investor ample time to leverage their funds. They can take advantage of the very low entry points to leverage loans for banks to acquire more property via good debt that will help build their credit record while improving the potential returns.
4.Lower Cost of Transfer-Since the property is unfinished,the taxes and costs for transfer through the deed of assignment are relatively smaller.
Cons of Pre-Selling
1.Buying Blind-Naturally,because there is no way for the buyer to physically see and inspect the unit before completion,the finished unit,the floor plan layout and orientation may not be what you expect. For example,there is no guarantee on the view from your unit,and a future building may block your view once construction is completed.
2.Subject to Change Without Prior Notice-There may be changes implemented during construction that will differ from the model unit in the showroom. These include changes in the features,amenities,and finishes used in the actual unit,as some details can be left subject to change during the construction stage.Certain contracts also stipulate that the developer is allowed to make such as technical changes without prior notice to the buyers.
3.Unforeseen Issues-Once constructed,the unit may have further unforeseen issues that may you have to deal with once you move in.This includes slight blemishes or plumbing issues that will take some time to uncover and address. In addition, you may also experience moving into a building that is still perfecting its amenities and is essentially under construction despite being turn over.
4.Patience is a Virtue-Finally, there is a long wait before the turn over or resale of the unit,and the developer may not be able to meet their target deadline.This is permissible in some contracts due to a delay clause that can go as long as year. In extreme scenarios,developers run the risk of bankruptcy and are unable to complete the building,and you may lose your deposit,the buyers are advised to study the terms in their deligently.
5.Delayed ROI- Finally, because of the long turnover,this also means that it will take time before you can create an income from your investment,whether you plan to rent it out, or to resell the unit.
This brings us to our next option,resales.
Resale-a resale simply means the buyer purchases a unit from its previous owner.
Pros of Resale
1.Inspect Before You Select-Unlike Pre-Selling, the best incentive to purchasing a Resale is that prospective buyers have the opportunity to physically see and inspect the unit before committing to purchase the property they like the best. This includes seeing not just the layout ,but the finishing,and the views from the window.
2.Ready for your use-Because the unit is completed buyers can immediately opt to schedule the move-in date or use the unit for passive income.
3.Disclosure of Information-Resales also enjoy the benefit of more detailed information from your realtor, who can advise you of all issues encountered during construction,including pertinent information about the building history,neighbors,and even sales data of units through the years so you can more accurately asses its value.
Cons of Resale
1. Higher Costs- Because Resale units are already completed and are located in established neighborhoods,they have already gained in value and are significantly more expensive than Pre-Selling options. This means that the downpayment will be greater. Developers are also likely to offer inflexible and limited discounts,sometimes even requiring full payment unless it will be paid via bank loans or in house financing.
2.Limited Options-Unlike Pre-Selling which offers a variety of options, there are limited units for resale in the market and will require interested buyers to do their research and digging to find properties that are available and suitable to their preferences.
3.Prepare of Renovations- Depending on the age of the building and the unkeep of the previous owners,some resale units are not in good condition. And if you are particular about the decor,the finishing may be out date.
4. Higher Cost of Transfer-Because the unit is considered a complete property,transfer taxes of a Resale is significantly higher.