Buying and Flipping New Construction Condos
So, you've committed to buy a new construction condo, and you expect to sell it at a higher price just before closing, walking away with a tidy profit. Simple eh? Maybe not.
There are a couple of issues. First, values for existing condo apartment units in the GTA are falling due to oversupply (new units coming on-stream in 2020) and decreasing demand (fewer people now working and living downtown). This means that today's pre-construction units might be over-priced, compared to predicted values in 2-4 years.
Second, lenders are increasingly mortgaging new units based on the pre-construction purchase price as opposed to the value when the unit is being bought in the marketplace. For example, if you buy pre-construction for $500K and in 3 years time the value (when you try to sell the completed unit) is $650K, what happens if your buyer can only obtain financing based on a valuation of $500K? S/he has to come up with a large down-payment to bridge the gap from $500K to $650K. As most condo purchases are first-time buyers, this is a stretch.
It doesn't mean you shouldn't buy pre-construction, but be prepared to close on the property and perhaps rent or live in it for a year before trying to sell. Basically, something that was a sure-fire success 5 years ago might not be such a great strategy now.
Contact me if you wish to discuss your options. I've been a mortgage broker since 2003, and my experience might be the difference between a wise financial move and a lot of sleepless nights.
BTW, the views above are based on my research and understanding of current market trends, but also factor in information released recently by Mortgage Professionals Canada. Kudos to that organisation for their research, advocacy and support of the mortgage broker channel.