PROS & CONS OF BUYING PRESALE

Hi, I am Jessi Johnson, a best-selling author, Metro Vancouver realtor with eXp and mortgage broker since 2006.

In this video podcast, I plan to cover the Pros and Cons of Buying Presale

• Thank you for joining again
• This weekly video podcast is created to keep you informed about the Greater Vancouver real estate market, trends and strategies for your success
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• There are many golden nuggets in this video for real estate purchasers and investors to learn
• Whether you are new to real estate or a seasoned investor, watch, take notes, comment below or call me for more information
• First off, did you know that you don’t necessarily have to complete a presale purchase?
• Many contracts are assignable or flippable, to a new buyer, before the completion
• For example, you can purchase a stunning condo in Burnaby, British Columbia today, for $800,000 that completes, in 4 years
• Let’s say in 2 or 3 years that condo is now worth $1,000,000, which is very reasonable to assume in Greater Vancouver, especially considering we are about to have another boom
• You now have made, on paper, $200,000.
• If your realtor was careful with having you sign the right contract, you will have the option to sell or flip “the paper” contract for a profit, at minimal cost
• This is called an assignment sale
• Some developers do pose high penalties to assign contracts so be careful what you sign
• Ask me for a list of projects without low to no assignment fees
• You also do not even need to qualify for this because no mortgage is involved
• Does this sound too good to be true?
• Well, it can be so lets review that too
• If you can’t sell the contact or don’t want to for the price a buyer offers, you must complete on the transaction
• So, make sure that you qualify to complete, in the event that you must
• Also, what if the market drops, this is unlikely but still possible 
• If the market declines say, $50,000 and the value is now $750,000 at completion, you must cover the difference and your down payment
• I seriously doubt Greater Vancouver properties will lower in a few years and here is why
• The Canadian government has changed their focus back to immigration but kinda forgot to fix housing crisis first
• Almost 800,000 new people arrived to Canada in 2022 and the government has set a goal of 500,000 every year, for another 4 years
• This will more than likely cause home prices and rental prices to keep going where, straight up
• We literally have no where to put these people with record low inventory
• This is great for owners and investors but terrible for renters and those trying to get into the real estate market…
• There are more pros than cons in presale which is why I like them so much
• Let’s quickly review a list of more pros when buying presale 
  • You own 100% of the asset but buy it at a fraction of the cost
  • Often with only a 15% to 25% investment or even less
  • If a million dollar condo does up only 20% in 4 years, which is about half of the historical equity gains in greater vancouver, you just literally doubled your investment
  • Not too shabby
  • Presales allow time to save up for your total down payment
  • As mentioned, you can assign or flip the contract
  • They are low maintenance, the building and unit will be brand new
  • I find you generally attract higher quality tenants if you plan to rent it out
  • There is a full warranty, just like buying a new car!
  • No bidding wars, the prices are fixed
  • HUGE potential for value increases before you even take possession  
  • Buy at today’s prices with tomorrow’s value
  • Presale amenities are generally very nice and high-end
  • You would generally be grandfathered into the strata and avoid restrictions such as pets, mid or long term rentals
  • The purchase process is fun and easy
  • Currently, at the time of this recording, presale homes up to a certain price are exempt from PTT (property transfer tax) for first-time buyers
  • And, there is a seven day recision period if something changes in mind
• Now lets quickly review a short list of cons when buying presale 
  • You need to wait to move in, some times up to 5 years!
  • The closing date is not fixed, delays usually happen
  • Larger deposits are needed but you can get some back at completion, ask me how in the comments
  • You do pay a premium for new
  • The layouts are often better but smaller
  • GST is an additional cost in the purchase acquisition but I will talk about a trick below
  • Most importantly, the market could drop and you must cover the difference
• Leti’s talk about GST on new homes
• It is important to have your realtor arrange the presale contract to have GST, if applicable, inclusive in the contract
• This means if the presale contract is for $1,000,000 + 5% GST, the actual cost is $1,050,000
• Many buyers, and realtors, don’t know that you can request a change to the presale contract so the purpchase price is $1,050,000 including GST
• Why is that important you might ask?
• Well, lets run numbers on a $1,000,000 presale contract with and without making GST inclusive
• John buys a $1,000,000 presale condo and at completion he must come up with 20%, or $200,000, plus 5%, $50,000, for a total of $250,000 plus closing costs
• Jane, aka smarty pants, buys that same presale with GST inclusive but only needs 20% of $1,050,000. So, she now needs $45,000 less than John to buy the same condo
• Are there any discounts, as in price reductions or incentives, when buying presale, you might ask
• Great question, there are not really discounts, pretty much everyone pays the same, in most circumstances
• However, there certainly can be incentives, so look out for those
• Some incentives examples are:
  • 1 year of mortgage payments
  • Upgraded appliances
  • Decorating allowances
  • Smaller deposit structures, as low as only 10% down
  • I have even seen entry-level BMW car’s offered 
• The deposit forms the down payment at completion

• You might be thinking, can any realtor help you buy a presale?
• The answer is yes!
• But, I highly recommend a realtor experienced in this different type of purchase
• Can any realtor help you assign or flip a presale?
• Yes again, but this can be very complicated so, definitely use a realtor experienced in presale transactions
• Also, once a realtor gets in with a developer, they can achieve VIP status, which I personally have on the majority of presale projects in Greater Vancouver
• VIP status means you get the best incentives, superior unit selection for your clients and learn of upcoming projects before the average realtor and certainly the general public
• When buying presale, you want to get in first for the best unit selection at the lowest price
• Existing clients who previously purchased through that developer often can get in on the friends and family first choice offerings
• Deposit structures are different for each developer, nothing is set in stone
• Once you sign a contract, 5% is generally require immediately, then the remaining deposits will be set in a schedule dictated by the developer
• Did you know that there is a safeguard for buyers in presale transactions, this is called a recession period
• Essentially a buyer can back out of the contract, with no obligation and receive a refund on any, if any, deposits paid
• This is supposed to be for buyers remorse
• I haven’t dealt with this myself much, primarily because my buyer know exactly what they are buying, have seen all options and are confident in their decision
• Do your research and know what you are buying
• I am often asked, can I get a mortgage rate hold for presale
• The answer is generally know but some big banks do offer them
• However, the rates are usually very high and not worth it
• Even if you plan to assign or flip a presale contract, make sure you have a mortgage approval or back up plan for in the event you need to close on the deal
• I will post a link in the description to all presale projects in Greater/Metro Vanouver and you can easily organize per city
• I hope that was helpful, feel free to leave any questions in the comments.
• If you are interested in becoming a realtor and joining our team at eXp. We have one heck of a program for new and experienced agents. 
• That’s all for this episode, don’t forget to pick up a copy of my best-selling book on Amazon, Rockstar Real Estate Investing if you haven’t yet and we are here for your questions at any time.
• See you again soon, thanks