The Safest Way To Buy A Presale Condo In 2025
The Safest Way To Buy A Presale Condo In 2025
People all around Canada are losing their shirts on presale condo investments.
If you’re thinking about buying one in 2025 you HAVE to read this blog or it could end up costing you 10’s of thousands of dollars or potentially every single thing you currently own...
I’ve sold probably close to 100 presale condos myself and i’m telling you presale condos can be a very risky purchase if done the wrong way.
So first I want to cover WHY so many people are losing money on these investments.
1. The environment when these condos were initially purchased.
The bulk of people losing money on these investments had purchased them at PEAK prices back in late 2021 to early 2022. Prices have come down considerably since these purchases. Anywhere from 5-20%.
Interest rates have soared 5% since these condos were purchased leaving investors to stomach LARGE cashflow-negative positions if they were to complete on their purchases. When these condos were initially purchased the overnight lending rate was 0.25% and was as high as 5.25%.
The result of this combination of unfortunate events is that buyers don't want to complete on their purchases OR even worse... They want to complete but the appraisals are coming in to low.
What do I by mean by that?
Example:
In a perfect world this is what would happen
Purchase price: 500k
Down payment required on closing: 100k
The current reality of what IS happening
Appraisal Value: 450k (bank will only lend up to 80% of this)
Down payment: 90k
Because these buyers still owe the developer 500k they will have to cover the short fall between the appraisal and the purchase price with CASH.
Cash required to close: 140k (20% of 450k PLUS the shortfall)
Now if the buyer doesn't have that additional 40k cash to cover the shortfall (if the appraisal came out at the purchase price they would only need 100k to close instead of 140k) then they would forfeit their deposit to the developer and risk being sued for damages.
This is what is currently running rampant in the presale condo market.
2. People are buying BAD presale condo floor plans
You're going to want to stay away from approximately 70% of the floor plans in any presale project. I would say there's only about 2-4 floor plans in any project that I would recommend purchasing.
The floor plan should be completely functional to appeal to the largest buyer pool on completion.
This means DO NOT FOCUS SOLELY on price per sqft. The unit should be big enough that its functional. It should typically have parking, storage and potentially air conditioning as well.
I would recommend staying away from 2 bed + den condos or any smaller 1 bed and dens.
3. Get a firm approval
Lastly, you're going to want to get something called a firm approval. A few lenders offer this program.
Essentially a lender will give you a firm approval and hold that approval for up to 48 months specifically on a presale condo purchase.
For this luxury they will usually approve you at a higher-than-market interest rate. For example, current interest rates might be around 4.5% and they may offer a rate of 5.5%.
You DON'T have to close with this approval. This approval is there to protect you from the downside risk of the appraisal coming low or if interest rates SKYROCKET to the moon, at least you have this approval.
If prices are higher and rates are lower in a few years when this unit is closer to completion you can get a NEW approval at whatever the interest rates are at that time.
