So it’s been a while since my last post, I think at least 6 weeks. Lots of you have been asking us when are we writing my next blog. For those that followed us on Facebook, you knew we went to Asia for 3 weeks with our baby Zoe. It was tiring but krazy fun!
Before we go into this week topic of the must-ask question on buying pre-sale condo, just to reflect on my previous post regarding the effect we predicted when the government announced the new home owner helper program. And this was what we wrote in our blog in Jan 2017:
And this was what the Globe and Mail article stated on Mar 2, 2017, after the roll out of the helper program, basically confirming what I said two months ago.
Last weekend we were at open houses for various type of housing in Burnaby area just to confirm our predictions in January. An old single house was asking for $1.6M and realtor told me just a month ago they were asking $2.0M and they advise client to “drop the price (by $400k!!!!!) to induce demand”. And we also drop by a small 3 bed townhouse with asking price at around $620K. It was first open house and when we asked the realtor what’s the situation, he told us there were already 3 offers the owner rec’d pre-open house and already accepted with subject removal above asking price. This first open house basically is seeking back up offers. I noticed even penthouse condos, which cater to a very niche market and were a tough sale even during the krazy last few years , are now finding buyers and deals are closing.
I’ll provide more market predictions in one of my next blog, but for now let’s talk about what the most important thing pre-sale condo buyers need to know before buying that often get forgotten.
For those of you that bought pre-sale condos in the past few years, you would most likely already asked the following questions about the condos/projects:
- how much strata fee?
- comes with parking?
- where are the surrounding towers (to choose a good view)? https://colinngblog.wordpress.com/2017/01/04/how-to-pick-the-ideal-direction-when-buying-a-pre-sale-condo/
- completion date?
- what kind of amenities?
- deposit structures?
- does it includes this furnishing and that furnishing in the show room?
- ceiling height?
- close to school? close to shopping? train station? etc etc
Those are pretty standard questions you or your realtor will lead you to ask, and are typically included in the information sheet. These are all important info to know when deciding to purchase or not.
However one of the question which we believe is very important, especially as a investor that plans to rent out the units, and it often never mentioned by the sales representatives or bought up by some realtors, is …
“are there any purpose built rental units/buildings in this overall project?”
“if yes, are they market rentals or affordable housing units”
It happened to us a few times, let me give you 4 case studies MBA style:
***I removed any names in the pictures to keep the buildings & locations anonymous.***
This was quite a while ago when we were pre sale investor noob so we never asked this question. We were at the sales center couple times, we asked all the standard questions listed above, the sales were very knowledgeable about everything. Then by chance I was reading local newspaper about the agreement between the developer and the city for this project, and noticed afterwards the low rise in between the two towers are purpose built rental units.
By this time we were intermediate level pre sale condo investors. We noticed in the price list is level 25-30 level up (don’t remember exact floor) and we asked why is that? Oh the bottom half is rental units to be retained by the developer. We were turned off immediately when we knew we have to share the same structure with min 50% renters? We know most renters are nice and care the building, but based on Colin & Angel Think Tank, there is a positive correlation between the number of rental units and the issues a build will have over time. And Think Tank also suggested insurance rate is higher the more rentals a building as. Maybe dice for you, but no dice for us.
By this time we are above average pre sale condo investors. Noob will not pick this up. These towers are almost all sold out now, and we are quite confident, to this day, that min 90% of buyers (and that’s like hundreds of them) still have no clue that this project includes a decent size purpose built rental portion. As always we were examining the project at the sales center, and the low rise on the right was not included in the 3D model. The only reason we noticed was on a flat sheet and project plan we saw a square labelled “future phase” that’s in additional to these three towers. We immediately asked a sales what’s this 4th square in the diagram? He said “oh it is expected to be strictly a 6 story rental building to be retained by the developer“. Oh thanks for letting us know, we are sure this is not important for us to know when making our buying decisions. And we were at this packed sales center for a good couple hours and we swear to God no purchasers noticed this building. I feel sorry for the buyers level 4-6 facing that direction. But I guess that’s what you get when you do not reading our blog.
By now we are expert level pre sale condo investors. So this time we walked in and the sales introduces the project and the first phase will be these 4 towers, we will be selling tower 1 first. To cut the bulls, we asked is there any purpose build rental? Sales replied softly, “oh tower 4 will be purpose build rental.” As soon as we hear this we immediately ran out of the presentation center, hopped into our SUV and drove home and play MJ for the rest of day, or maybe watched Canucks lose, don’t remember.
The fact that there will be a rental building very near by is not necessary a bad thing. I am listing out the pros and cons in point form so you can make your own decisions (or email us to get our opinion on a specific project):
- developers are very smart and always do their due diligent, the fact that they plan to hold and run rental units there means there must be good demand in that area, they basically did the research for you, in street term, “they have skin in the game”, and as investors we like that.
- huge increase in rental supply, especially at the beginning when lots of units available at the same time, we all know what supply will do to pricing I will not go any further here
- your rental pricing power reduced substantially as the developer basically set the price and you may be able to go a bit higher or lower but that’s about it.
Both of us hope you all got something out of this blog today, except those that already purchased on of the units above. In that case, we sincerely hope you knew all the rentals building situation BEFORE your purchase.
To clarify, in no way we are suggesting the developers are hiding these info from buyers. At the end of the day, the information is out there somewhere, maybe local news paper, the city database, disclosure statements, in the presentation center. If you choose to work with us, we will make sure you are aware of this and make sure there is no surprise for you. If your realtor already informed you this topic the last time you bought a pre sale, great! If not, hm…. good luck!
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Until next time!
Disclaimers: We are in no way suggesting the above projects are good or bad investments. This is simply an education blog. They are our personal opinions only and there are possibility that the project scope might have changed since.