Dear Reader,
It’s one of the first decisions you make when it comes to buying property overseas. Should you find a move-in ready home…or buy pre-construction for potentially-stronger return on investment?
Today, we’ll look at the pros and cons of both options. Let’s start with re-sale property.
Re-sale Pros:
- The most obvious benefit is that you are buying what you see. You can judge the layout, check if your furniture fits, see the views and chat with your neighbors.
- Because it’s move-in ready, you can also move in…or rent the property to generate income immediately. And if you’re renting your property out, you don’t have to try to predict what the rental demand or rates will be a few years from now.
- Sellers usually include some fixtures and fittings (lighting, air conditioning, water heaters) that don’t come as standard in most pre-construction properties.
- With older properties you often get more square feet for your buck. They tend to have larger living and outside spaces than brand-new properties, and you’ll usually pay less per square meter.
Re-sale Cons:
- You have a short timeframe to close, and you’ll need to pay for the property in full at closing (either with cash or a mortgage). In many markets, financing will be difficult or impossible to obtain. When buying a property overseas, you’ll likely need cash. Bank financing is harder for foreigners to get, and it comes with very high interest rates.
- Unless the property is fairly new or recently-refurbished, you’ll probably have to do some repairs or even replace big-ticket items (heating or cooling systems, for example). Older properties don’t have the insurance of a builder’s guarantee to fix faults. You’ll probably want to change the décor, too, if it’s not to your taste.
- You usually have to compromise, since you don’t have the choice of options that a builder may give you.
- Unless the property is fairly new, it probably won’t represent the current style…which can affect finishings, room sizes, etc. This can limit your potential market at resale time if you sell near-term.
Pre-Con Pros:
- Price. If you get in early enough with pre-construction property, you can save a considerable sum compared to waiting and buying a finished unit.
- Leverage. You usually only pay up to 30% in stages during the construction period. If you sell before completion, that can mean strong profit margins on a small outlay. Let’s look at an example. Buy a pre-con condo at $100,000. Pay $30,000 during construction. Sell before completion…for $130,000. That nets you $30,000 profit…on a $30,000 outlay. Many developers offer attractive developer financing, too, where you pay as little as 1% a month during construction. That gives you even more leverage.
- You normally get a builder’s warranty, covering defects in the property so you won’t have to deal with repairs.
- You can make changes to the property if you buy early…to the layout, the finishings…and you normally get a choice of items such as counter tops, tiles, paint colors, or flooring.
- You won’t face a bidding war, as you may do with re-sales. If you pick your unit, and pay a refundable deposit to lock-in your price… then you can do your due diligence while the developer holds the unit for you. He won’t sell it to someone else for a higher price while you’re doing your due diligence…which happens sometimes with re-sales.
Pre-Con Cons:
- Pre-construction holds the promise of bigger returns…but it also carries a risk. You’re relying on the developer finishing the project and delivering what you expected. If you’re buying a unit due for delivery in two or four years’ time, you’re betting that property prices will rise in the next two to four years, or that you’ll have a strong rental demand.
- You’re also betting that your own circumstances won’t change…that you can afford to close on the unit two to four years down the line. You really need to choose your market, your location, your developer and your project carefully…and make sure that you will have enough funds to close the sale.
- You’re buying a drawing. Reality may not match the artist’s sketch. If you’re buying for investment (to sell or rent) that’s not such a big deal. Buying a pre-con property as a primary home when personal taste comes into play is trickier.
- Condo fees are guesstimates. You have no accurate measure of how much the actual monthly fees on your unit will cost on completion.
- You could face substantial delays. It’s relatively rare that pre-construction properties are delivered on time. Most over-run their projected completion date.
It’s really up to you…if you’re buying for investment, you’ll probably go for pre-construction. If you want something that’s ready now, re-sale is the way to go.
Remember, though, whether you decide on a re-sale or pre-construction home, always perform due diligence before you commit to buying.
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