Buyers, Condos, Developers, Investing, Presale Condos, Vancouver Presale Condos Series

Updated by Matt Scalena PREC August 12, 2024

Top Eight Reasons Investors Love Presale Condos in Vancouver

One note for those interested in presale condos: the team at Vancouver Real Estate Podcast has recently acquired www.skytraincondo.ca. This provides us and our clients with one more exceptional tool to find the best presale condo options in Metro Vancouver.

Investing in presale condos has long been popular with savvy investors in Vancouver looking to begin or expand their portfolios in one of Canada’s most dynamic real estate markets. This interest is driven by the unique opportunities that presale condos present – opportunities that differ significantly from other property investments. With Vancouver’s real estate market always evolving, understanding why presale condos are a top choice for investors is more crucial than ever.

In this article, you will learn:

– Why presale condos can be a lucrative investment in Vancouver.

– Key benefits that attract investors to presale condos.

– Insights into Vancouver’s real estate market dynamics. (For a 2024-specific Vancouver presale forecast, click here)

As we dive into the reasons behind the popularity of presale condos among investors, you’ll gain valuable insights into making informed decisions in Vancouver’s real estate landscape.

Presale Condos vs. Built Properties

For anyone thinking of purchasing in Vancouver, it is important to have a clear understanding of the options available. At the core, buyers choose between presale condos and built properties, each with its distinct characteristics.

A Presale Condo: 

A presale condo is a unit sold by developers before the building has been completed and most often sold before any construction has begun. You are effectively buying the rights to a future home – a timeline that is usually anywhere from one to four years in the future. Buyers purchase based on the detailed project plans without seeing the actual finished product.

A Built Condo: 

A built property refers to exactly what you think: a property that exists, that is already built and that you can walk in and view. These are most often marketed on MLS and accessible through our fantastic research tools. Buyers can physically tour and inspect these properties before making a purchase.

Key Distinctions:

– Purchase Timing: Presale condos are bought before construction completion, offering potential long-term gains. Built properties are available for immediate use, catering to those seeking quick occupancy or rental income.

– Payment Schedule: Presale condo deposits are typically staggered followed by a lump sum payment upon completion. For built properties, the financial commitment is upfront, often requiring a mortgage and down payment based on the full market value.

– Condition and Customization: Presale condos provide opportunities for customization, allowing buyers to select finishes and floor plans. Built properties are sold as-is, with any modifications or upgrades being the responsibility of the new owner.

These are main differences between presale and built properties.

It may seem counterintuitive to be more interested in something that does not exist as opposed to an existing condo in which you can immediately get a tenant and start cashing rental cheques. But for many it is not.

Here are the top eight reasons investors love presales:

1. Appreciation Potential

One of the most compelling reasons investors buy presale condos in Vancouver is the potential for significant appreciation. Presale condos offer a unique advantage in this regard; investors can lock in a purchase price at today’s market value, potentially years before the project is completed. This period of construction can see the market value rise, often resulting in the property being worth more upon completion than what was initially paid.

Is price appreciation a sure thing? 

Of course not! Nothing is a sure thing but Vancouver’s real estate market has shown robust price appreciation growth over the years, supported by strong demand and limited supply, especially in sought-after neighborhoods. Greater Vancouver Realtor Stats indicate that presale condo investors have frequently enjoyed substantial equity gains by the time they take possession of their units. In the last 10 years, Lower Mainland condos have appreciated 111.4%. This appreciation is not just beneficial for those looking to sell immediately upon project completion but also serves as a substantial equity boost for long-term investors.

The smartest investors will ask where to find condo presale deals?

2. Lower Initial Investment: Financial, Energy, and Time

The allure of investing in presale condos in Vancouver is not only rooted in locking in a property at today’s prices to benefit from price appreciation but also in the significantly lower investment required up front to do so.

Financially, a presale condo can be purchased with as little as 5% to 10% deposit (and usually at the most 25%). This allows you to potentially benefit from a large asset without having paid anywhere near the entire amount ultimately due yet & put off a mortgage, a tenant

From an energy and time perspective, purchasing a presale condo streamlines the investment process substantially. Unlike the purchase of built properties, which involves inspections, negotiations, potential renovations or immediate maintenance, a presale condo eliminates these steps. The property is brand new upon acquisition, and investors can avoid the immediate hassle and energy expenditure associated with readying a property for occupancy.

For built properties, investors must immediately embark on the process of marketing the property, vetting prospective tenants, and managing rental agreements. This process can be time-consuming and fraught with challenges, especially in competitive markets. In contrast, the timeline for presale condos allows for a more strategic approach to planning for occupancy. Investors have the lead time to market the property, understand the rental demand, and secure renters without the pressure of immediate vacancy costs.

3. A Hedge Against Inflation

Investing in presale condos not only provides the opportunity for appreciation and a lower threshold of initial investment but also serves as an effective hedge against inflation. Real estate is historically recognized as one of the most reliable ways to protect wealth from the eroding effects of inflation and presale condos offer a unique advantage in this regard.

The principle behind real estate as an inflation hedge lies in its tangible value—property prices, construction costs & rental incomes tend to rise with inflation, maintaining the purchasing power of the investment. Presale condos, purchased at today’s prices for future value, capture this principle exceptionally well. As construction progresses and the general cost of living increases, the value of the condo is likely to increase correspondingly, sometimes even outpacing broader inflation rates due to the high demand for housing in Vancouver.

This is especially true in a place like Vancouver where there is a chronic shortage of skilled labour & increasing costs year over year made only worse with the recent spike in inflation.

As Beau Jarvis, President of one of Western Canada’s largest developers Wesgroup, recently explained on the podcast:

the cost of delivering this housing just will not get cheaper. I would say the biggest inflationary force there is now is labor. We have a massive and acute labor shortage, and that’s really what’s going to be keeping costs high in my mind. So it’s not getting any cheaper.

4. Warranty Protection

One of the distinguishing advantages of investing in presale condos in Vancouver is the comprehensive warranty protection that comes with new constructions – the 2-5-10 year home warranty. This warranty, mandated by law in British Columbia, offers a level of security and peace of mind that is not available with older, built properties. 

The warranty typically includes:

– 2 years on labour and materials, which covers issues like faulty workmanship in windows, doors, and finishes.

– 5 years on the building envelope, including protection against water penetration.

– 10 years on the structural integrity of the building, ensuring the building’s core components are safeguarded against major failures.

This layered warranty protection mitigates the risk associated with potential defects or construction issues.

For investors, this means predictable costs.

One way to think of an investment property is like a car.

One of the benefits of a new car is that you know that all the potentially expensive components of a brand-new car should not require repair or replacement for some time. Your brake pads are at a 100%, for instance, as opposed to say 35% on a car that is 10 years old & you will not be stuck with an expensive, stressful & time-consuming visit to the mechanic.

Similarly, the major systems in a building – the pipes, the roof, the elevator – have an economic life span that is predictable. The elevator may have an estimated service life of 27 years, for instance. You can expect to own a brand-new condo for many years before you are hit with high repair or expensive replacement costs & if there are issues the warranty should take care of them.

This means a reduction in unforeseen expenses related to repairs and maintenance, especially in the critical early years of property ownership.

5. Modern Features, Sustainability, and Work-Life Integration

Investing in presale condos in Vancouver offers forward looking design with an appealing combination of modern amenities, sustainable building practices, and designs that cater to the evolving trend of hybrid work lifestyles accelerated since Covid. These condos are at the forefront of accommodating the shifting needs of homeowners, for instance those who balance working from home with office life. 

Modern Amenities and Flexible Floor Plans: The architectural design of presale condos incorporates modern amenities and flexible spaces that can easily adapt to a variety of living and working scenarios. High-speed internet access, soundproofing, and built-in workspaces allow for seamless transitions between home and work activities. Common areas, like rooftop gardens and quiet lounges, offer alternative environments for work and relaxation, acknowledging the importance of separating work from personal life even within the home setting.

Sustainability: Sustainability is an important factor in all new developments, if only because the building code has become so focussed on net zero building. Energy-efficient appliances, green roofing, and water-saving fixtures contribute to a reduced environmental footprint. These sustainable practices not only appeal to environmentally conscious buyers but also lead to long-term savings on utility expenses, enhancing the overall investment value.

Adaptability for Hybrid Work: The inclusion of more up-to-date amenities such as conference rooms, private meeting spaces, and high-tech lounges within condo developments reflects a deep understanding of the hybrid work model (Contact us for list of next level new developments that showcase these types of amenities). These facilities offer residents the flexibility to work effectively from home, participate in virtual meetings, or collaborate with colleagues without having to commute to an office. This adaptability is increasingly valued by professionals who seek a balanced work-life integration, making presale condos an attractive option for a wide range of buyers and renters.

7. Leverage and Financing Benefits

The financing and leverage opportunities associated with presale condos in Vancouver present maybe the most attractive feature for investors. Leveraging, or using borrowed capital to increase the potential return of an investment, is a common strategy in real estate. Presale condos offer unique advantages in this regard.

Lower Down Payment Requirements: The structure of a presale condo transaction often requires a lower down payment compared to purchasing a built property. A presale property can be purchased with as little as 5% to 10% deposit (and usually at the most 20% staggered over time). This allows you to potentially benefit from price appreciation of a large asset (the full value of the condo) without having paid anywhere near the entire amount ultimately due.  This initial cost-saving allows investors to enter the market with less capital upfront, preserving cash flow for other investments or expenses, while still benefitting from any appreciation on the larger asset. Put another way: if you put down 15% deposit on a presale, every 1% appreciation on the larger asset results in a 6.67% return on your cash deposit.

Staged Payments: The payment schedule for presale condos typically involves staged payments throughout the construction period. This approach not only aids in budgeting and financial planning but also allows investors to leverage their capital over time. By not having to tie up the entire investment amount from the start, investors can potentially earn returns on the capital that would otherwise be locked into the property.

Capital Growth Leveraging: For investors who plan to sell upon completion, the potential appreciation in the property value from the presale price to the market price at the time of completion can result in a substantial return on investment. This capital growth, achieved with a relatively low initial outlay, highlights the leveraging potential of presale condos as a strategic investment choice.

Let’s take an example with easy numbers: Say you bought a condo with a completion three years out. You pay $500,000 for the condo with 10% down or $50,000 up front.

We are now three years later and the property is just completing and will be ready for possession next month. If we look at the Greater Vancouver Realtor Stats, condos in the Lower Mainland have appreciated 21.7% over the last 3 years. Using this average appreciation, your condo would now be worth $608,500. 

Without having paid any more than your initial 50k deposit, then, you have made $108,500 in capital appreciation or a 217% return on your cash – 72.33% per year.

Financing Flexibility: 

Let’s say, however, that you do not want to sell your property at completion to lock in those gains but decide to get a mortgage.

You have put 10% down already, so you must come up with another 50k to avoid expensive high ratio mortgage insurance at completion, right?

Wrong.

The property is no longer worth 500k but assessed at $608,500, so, after getting an appraisal, you now have over 80% as a down payment ($108,500 in appreciation + $50,000 deposit = $158,500 on a mortgage of $450,000) with only putting 10% down in the first place.

8. Developers Transform Neighborhoods and Increase Value

We have talked a lot on the podcast about exciting upcoming areas in Vancouver & how to benefit from large developers rebranding existing neighborhoods through massive capital investments. 

The clearest opportunity is to follow developers & transit routes, as community plans in Metro Vancouver organize density & community amenities around existing and upcoming transit hubs. This is where our new resource, www.skytraincondo.ca, is extremely beneficial for our clients as the site is focused on this strategy exclusively. Here we make a clear case for focusing on Skytrain Vancouver condo s.

The absolute easiest way to bet on up-and-coming areas is to buy a presale unit in a larger project near transit as early as possible in the sales cycle & then continue to benefit from the hype machine developers put in place for a long term sales project. 

As neighborhoods develop and amenities are added, property values in the area tend to increase. Presale condo investors are often among the first to benefit from this uplift, securing properties in prime locations near transit at prices that reflect the area’s potential rather than its immediate status. This is one strategy to achieve outsized returns on capital appreciation.

Closing thoughts on New Developments Vancouver

These are the top eight reasons investors are drawn to presale condos in Vancouver. From the potential for significant appreciation and the lower initial investment—in terms of both finances and personal commitment—to the strategic advantages offered by leverage and financing opportunities, presale condos present an exciting investment proposition. The added appeal of warranty protection, coupled with the modern features and sustainable practices that cater to the evolving needs of homeowners and renters alike, especially in the context of remote work, underscores the multifaceted value of these investments.

– Appreciation Potential: The chance to lock in prices today for properties that will potentially appreciate by the time of completion offers an exciting avenue for capital growth.

– Lower Initial Investment: The financial, time, and energy savings make presale condos particularly accessible and manageable.

– Leverage and Financing Benefits: The structure of presale deals provides unique opportunities for investors to amplify their returns through savvy financial strategies.

For those looking to delve deeper into Vancouver’s real estate market or consider their next investment move, understanding the nuances of presale condo investment is crucial. The strategic insights provided here serve as a foundation for making informed decisions in this vibrant and dynamic market but there is nothing better than becoming a PRESALE VIP to keep updated with the best presale options in the Metro Vancouver market.