Welcome friends, today we are going to explore objectively the ever-famous contest between choosing Pre-Construction vs. Resale Real Estate. I will delve into every aspect of this to make it an easier choice for you based on your family aspirations.

As you decide to pull the trigger on your Real Estate purchase, choosing between Pre-construction or Resale will majorly depend on your personal goals. Let me point out to you some specific reasons to make it much easier to decide and to make an informed decision.

Resale properties are previously owned homes available for purchase on the current market. In the Greater Toronto Area, similar to the majority of areas in North America, we have a robust MLS system where we get a continuous inventory of Resale properties. This inventory keeps recycling every week with new homes coming on the market and old ones being sold.

Upside of Resale:

Immediate Occupation: 

In Resale Real Estate, the wait time is considerably less, as after firming up the deal, within 2-4 months, you can move into the property.

If the property selected is vacant, the closing could be even sooner, and if you desire so, you can get everything completed in a fortnight. This also means that if I am trying to buy a property as a rental investment, my yield in terms of rent starts much sooner. Compare this to a pre-construction scenario where we are, say, closing in 3 years. In that case, my down payment is paid mostly in the first year, and then I wait for the rental yield to start for three years.

Visualization Becomes Easier:

Another significant benefit of Resale properties is that I can enter the property and see and feel the same, whether it fulfills my vision for the home and various living and bedroom dimensions are tuned to my needs. Whether the neighbourhood is aligned with my goals and aspirations, the schools, parks, amenities, transit friendliness etc. It gives major control to us as a purchaser when we are reviewing a built property in a neighborhood.

Negotiation Room:

In Resale Real Estate, price negotiation is another factor to consider, as in most situations, based on the prevailing market, the seller's disposition on how quickly they want the sale proceeds, and the current state of the home, purchaser is able to negotiate.

No Appraisal Concerns:

This is another major point that I want to highlight, as we saw the market dramatically changed for market value in 2022 and 2023. 

There were a lot of folks who bought a pre-construction in late 2021 and early 2022 timeframe, and committed to a higher price with the builder. And with the subsiding of the market, the lender is now not willing to pay the same amount as the market value is not the same and has reduced substantially. This results in a very difficult situation for the buyers on how to arrange the funding and complete their obligation with the builder. However, in the Resale world, there is not much time between firming up an agreement and the final closing; the lender sees the same market value in their appraisal as it was negotiated, as both happen in the same timeframe. The situation never comes where the lender doesn't see the value in the property you have agreed on, as long as we did our fair market analysis correctly while purchasing.

Mature Neighbourhoods:

The streets are matured in older neighbourhoods with grown trees, which provide an abundant supply of oxygen, and aesthetically, the community looks more green and pleasing at the same time. They go a long way to keep the city cool in the hot summer months and provide shelter from ultraviolet rays. They further help to reduce noise as they absorb sounds, contributing to making a neighborhood quieter. With mature neighbourhoods also come established schools, parks, recreation centers, transit facilities, market plazas, and libraries. These amenities would take years to mature in a newer subdivision. In the older neighbourhoods, you would also observe much wider frontages and a lot of offsets between the lots. This gives a lot of breathability and makes the neighbourhood look less dense and inviting.

Downsides of Resale:

Maintenance and Renovation Costs:

If the property is older, it might require some maintenance updates, like the replacement of roof shingles, repair/replacement of windows,

 update to appliances, light fixtures, kitchen or bath updates, flooring, painting, mold issues in attic due to leaky roof etc. These costs are totally related to the state of the subject when you purchased it and could be substantial if it was not a well-kept home. As a buyer, you might require to commission such expenses.

Energy Efficiency:

This is another overlooked factor, as older homes might have older windows and less insulation in the home based on the standards back then. The heating and cooling costs, due to this reason, might be more for older properties. Like in the new Insulation Building code 2021, the insulation R-Value has change to R-60. The R-Value defines how well an insulation layer will resist the air leakage.

Let us move on to Pre-construction; these are brand new, never lived-in homes purchased from the builder or developer during the construction time.

Upside of Pre-construction:

Customization Options - In the contemporary Greater Toronto Area landscape when we go into a pre-construction project, especially for a low-rise freehold opportunity, the builders generally offer a fair bit of customization and updates that can be done on the property based on your

 needs. The scale and degree of updates and customization will again differ from builder to builder. The majority of them would also allow changes in the material in their existing layout; a few of them would allow the layout to be customized as well slightly.

Modern Design and Finishes:

When we get into pre-construction ownership, this is one major benefit that is foremost. The layout design is contemporary, and the finishes of material and workmanship are modern. For instance, when we speak about the Kitchen in a modern home in 2024, it would have more shaker-style doors or flat panel doors. This was not the norm 10 years back when the design was still more traditional. When it comes to colors, the modern kitchens, for instance, will be White, Gray, or wood-tone in color. There is a lot of contrast color usage in the islands. These things were not commonplace 10-15 years back. Countertops would be mostly Quartz as of 2024 in a modern Kitchen setup. Similarly, in a newer bath, White or wood is the color of choice as of today for vanities, White color usage prevails in shower tiles as well as vanity countertops.

Potential for Growth:

If you get into the pre-construction opportunity with the correct pricing and the market supports, it could very well be a great way to increase your equity. If not already, please refer to our last discussion in which we discussed how to identify a good Pre-construction opportunity and to ensure the pricing is commensurate to the market. This potential for growth would not work at all if we buy an overpriced opportunity; in fact, it would just work in reverse and would take us more time to observe appreciation.

Downsides of Pre-construction:

Wait Time:

The pre-construction projects come with an inherent wait time for the project to translate from paper to life. And this would mean that your home ownership or investment plans would be deferred to a later date. This is especially counter to the investment aspect of Real Estate. Let's consider that I give a 15% down payment in 1 year to a builder for occupancy in 3 years, and I wanted to buy for an investment. 

This would mean that my 15% of money as a down payment is blocked, and my rental revenue will only start after 3 years; of course, my mortgage also will start at the same time. However, if it were a resale asset, the rental yield would start 3 years sooner. So, if my rental was, say, $2,500 for the subject, it would mean $90,000 of revenue, which would eventually go for my mortgage payments, and part of the mortgage payment is the principal repayment. So, in a resale property, I end up building more equity during this wait time. This is not possible in the pre-construction setup. Further, there could be delays in the timelines due to various reasons. Like in covid time, the majority of the builders had delays in deliveries due to bottleneck in supply chain issues, and their development stopped, all of this is beyond the control of a consumer.

Lack of Visualization:

When we get into pre-construction Real Estate, we are buying a layout and plan on paper; many times, I have observed it becomes difficult to visualize how the final output would be. A living room of 14 ft x 10.5 ft looks good on paper; however, when it is developed, it might not be the right one for your family size. An L-shape kitchen of 10 ft x 7 ft might look wonderful on paper but could happen that it's not able to fit all your appliances and equipment and feels restricted. In the resale world, you can walk into the kitchen and clearly see whether it fits the bill and meets your aspirations or not.

Deposit Structure:

Typically, in a pre-construction landscape in the Greater Toronto Area, the deposit requirement is 15-20% of the purchase price, usually between 6-12 months of initial signing. This becomes steep for many homeowners, and the reason they are not able to get into this. Especially the first-time homeowners who are not having such a measure of liquid cash to contribute towards their real estate purchase.

Narrower Lots:

With the advent of time, the lot sizes and their frontages are getting narrower, especially when we speak about freehold subdivisions being built in the Greater Toronto Area and beyond. This is happening as Real Estate is getting more prime in the region, and builders, due to sheer economics, want to ensure that they can get the highest efficiency from the land in their projects. You would see that not just frontage but the depth as well is reduced in newer builds when you compare this with older builds. A conventional 2-storey double garage detached, it was commonplace to have a 45 ft x 125 ft lot around 35-40 years back. And as of today, similar double garage detached 2-storey home are built on 35 ft x 90 ft lots. The backyard land front yard looks and feels stunted.

Ultimately, whether we go for a Resale or Pre-construction Real Estate, it totally would depend on your personal goals and needs. It would differ family to family; it's not one size fits all, and as we discussed here, both have their own unique merits and challenges. What might be great for you might not be good for someone else.

Thank you for your time today. If you find this information useful, please share it with friends and colleagues. Our dedicated team at Elixir is always here to offer personalized real estate advice. 

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Off: 416-816-6001 | [email protected]