Are you looking to buy a pre-construction condo? There are four things you need to know about buying a pre-construction condo.
One, is the down payment structure. Typically within the first year/ year and a half, you're looking at 15% of the purchase price, and the last 5% is due at occupancy. If you're an international buyer, or a non-resident buyer, then the down payment structure is a little bit different. So, instead of 20%, you'll have to put down 35%.
The second thing you need to know about is the 10 day cool off period. Ten calendar days, not 10 business days, there's a difference there, is where you take the purchase agreement to your lawyer for review. This is where you do your due diligence, double check your financing, talk to your accountant and talk to your lawyer. All these, things you need to do in those 10 days, because you can cancel, or get out of the purchase agreement within those 10 days, without being penalized. Once those 10 days have expired, your purchase agreement is firm, and now you are committed to close on that specific condo.
The third thing you need to know about is interim occupancy. This is the gray area period. This is where the condo is finished, you can move in or put a tenant in there, but you still do not own the condo. It is still owned by the developer. During that period of time, this is where you have to issue interim occupancy checks. Those checks cover the cost of the property tax, the maintenance fees, as well as the interest portion on the mortgage.
This is a little bit of a dicey area because as an investor you want to put a tenant in there, but you do not own the condo yet, it's still owned by the developer. There are certain things you have to look out for, and make sure it is okay for you to rent the condo during the interim occupancy period.
Last but not least are closing costs. There are multiple closing costs you need to be aware of. The first one is HST. As an investor, you have to pay HST on closing, and then file for a rebate. In order to get a rebate, there are certain factors and conditions you have to meet. You have to have a tenant for one year, so you have to show a one year lease agreement. There are CRA forms you have to fill out and then the CRA will also need your statement of adjustment and a copy of your purchase agreement.
The other closing costs you need to know about are land transfer tax. In Toronto, we have two. The city of Toronto as well as the province. You have your legal fees and then there are development charges that are paid on closing, as well as section 37 and park levees.
All those costs can be discussed with your lawyer up front and in the 10 day cool off period that I mentioned initially, so you are well aware of what you're getting yourself into, and you know how much capital you need on closing.
If you're looking to buy a pre-construction condo, please feel free to connect. I'm happy to share with you the calculator that I developed which compares buying re-sale versus a pre-construction condo, as well as my HST rebates calculator.