Purchasing Brand New
Presales and Assignment Sales
How to judge the risk and maximize the rewards
In a glitzy showroom filled market that moves fast,
here are the tools to get you literally onto the "ground floor"
in this specialized real estate investment.
Presales and Assignments
What's the difference?
Let's take a look at Presales
A presale is a condo that is not yet built but is available for "purchase". It is released onto the market by a Developer in some cases, before the construction has even begun. Typically, a Developer launches the development's presales in a showroom that provides all of the details of the future development. What it will include for amenities, what suites will look like. You are even able to choose what final colour palette your future home or investment will have all by choosing features in the showroom.
Presales are often very easy to get into. You typically only need to pay a deposit and agree to a schedule of future deposits which helps some people to break the initial investment into stages that are more affordable. Keep in mind you will still need to qualify with your lender to pay the full price but at least you don't have to qualify for that mortgage right away.
For some, presales are a great way to get into the market affordably. However, if the market values fall over the two or so years it takes for the Developer to complete the building, converting your presale to an assignment sale that looks like a good opportunity to buyers may be a challenge.
Presale Pros and Cons
Easy to Get Into
But what about getting out?
Qualifying for your mortgage happens often years after your initial deposit is paid. Which provides time for you to improve your financial picture while securing your future home. Sometimes, it's a little too easy...
Getting to be one of the first purchasers in a development can sometimes get you rebates on GST, or bonuses from the developer provided to you as credits to help with furniture known as "designer bonuses".
Reading the fine print on these "bonuses" is critical.
Locking in Value
While in a falling market this could set you up to convert your winning presale into a losing assignment, in a rising market, it's a different story.
On an upswing, your presale price becomes an unheard of bargain when prices have risen around your investment.
Brand New Comfort
Some feel the warranty behind a brand new development is all the piece of mind they need in a home purchase.
For this reason, it's imperative to research a developer's track history of honouring warranties on other developments.
What About Assignment Sales?
So, what is an Assignment Sale anyway?
An assignment sale is a sale of the rights to the purchase of the presale that a buyer has previously purchased. With an Assignment Sale, a seller is known as an "assignor" and the buyer is known as an "assignee".
Sometimes an assignor wants to flip the purchase of their presale. This becomes especially popular when the market has risen because the Assignor then has a chance to gain sometimes what is a significant profit by selling the rights to their presale purchase. Sometimes, it's the other way around, the market has fallen and an Assignor cannot get the mortgage qualification approved.
Purchasing an assignment sale can sometimes be a great investment strategy, however as with all things, there is much to be aware of.
Assignment Sale Pro's and Cons
Sold Out Second Chances
Often a building will be completely sold out so an assignment sale can be an excellent opportunity to get what you might have missed out on the first time around.
However sometimes you pay more for it (market rise) or sometimes it's a steal!
Deposits & Taxes
Buying a presale that has gone on to become an assignment sale doesn't get you out of paying the original deposit to the developer, nor out of the GST payable on your assignment purchase.
We can walk you through all of the in's and out's of this dollar jungle.
Developer Approval + Cut
If you are considering selling your presale as an assignment sale, bear in mind the Developer will want their cut. Assignment fees are typically 3% of the original purchase price so this can really cut into your profits on a sale.
You will also need to obtain the Developer's permission to market your presale before listing.
Keep in mind that an assignment sale is the actual purchasing of rights to the future home that the Developer is constructing.
What if the Developer doesn't complete the construction? Yes, your deposit goes back to you but what about your lost time following this investment?