Investing in a pre-construction property might seem intimidating, especially when it comes to financing. However, securing the funds you need is not only easier than you might think but also entirely achievable. The real perk here is the flexibility you have when it comes to financing. There’s no need to get pre-approved for a mortgage right off the bat. Instead, you can make your deposits using personal funds or loans and have until the final closing—usually 2-3 years from your initial deposit—to secure a mortgage.
As a realtor specializing in Canada’s pre-construction market, I can’t stress enough the importance of smart financing. It’s not just about buying a property; it’s about making an investment that pays off. So, let’s go through some financing options that I personally consider game-changers for anyone looking to thrive in the pre-construction market in GTA.
1. Personal savings
By setting aside a portion of your income, you gradually build up enough to cover the initial deposit. It’s prudent to start this saving process well before you’re planning to invest, so the financial hit feels more like a tap. You can save this money in a high yield savings account and receive 3-5% interest in return.
2. Pre-Approved Line of Credit
With a pre-approved line of credit, you’re authorized to borrow up to a certain limit.It gives you the flexibility to jump on opportunities or handle unexpected costs, without feeling the immediate pinch of interest charges. It’s a smart financial tool, especially for something as significant as investing in pre-construction properties where costs can sometimes be unpredictable.
3. Home Equity Line of Credit
Your existing property isn’t just a home; it’s an asset. By using a Home Equity Line of Credit (HELOC), you convert part of your home’s value into a flexible loan. What makes a HELOC appealing is its lower interest rates compared to other types of loans, plus you can draw from it as needed, much like a line of credit.
4. Pool Resources from Friends and Family
Pooling resources for a pre-construction property investment essentially creates a joint financial venture. Each party contributes capital, sharing in both the profits and risks. For the sake of transparency and to mitigate disputes, it’s highly advisable to outline clear terms, ideally formalized within a legal agreement. This document should specify how profits and losses will be distributed, the procedure for an investor’s exit, and a predetermined approach for conflict resolution.
5. RRSP Home Buyers’ Plan
For Canadians, the RRSP Home Buyers’ Plan is a rare opportunity to use retirement savings without any immediate tax penalties. You can withdraw up to $35,000 ($70,000 for couples) and have up to 15 years to put it back into your RRSP account.
6. Partnership with Other Investors
Partnerships offer the chance to invest in a more substantial property, perhaps in a more desirable location. By sharing the financial load, each partner can also diversify their investment portfolio without taking on enormous debt. Just like pooling resources, it’s important to outline terms and expectations clearly.
7. Deferred Payment Plans
Some developers offer flexibility in payment structures, allowing you to defer portions of your deposit until certain construction milestones are reached. This gives you more time to secure financing while also freeing up capital for other immediate investments or opportunities. This also means your payments will be more frequent, for example, paying $1,000 every month instead of paying $5,000 every 3 months.
Thinking of investing in a pre-construction condo in Ontario? I’ve got access to some amazing yet affordable projects by Ontario’s most renowned builders. Contact today for more details.