Purchasing Pre-construction Condos - Do you Really Save Money?

You don’t need to look much further than your nearest city of 150,000 residents or more to see that there is a condo craze in full swing. To use a well-known adage, there is no more land being created, and that means that any new development is going to attract a considerable amount of interest. It seems that in larger cities particularly, huge lines can be found at the offices of condominium developing companies as soon as a sale is announced, whether construction is under way or not.

The mix of people to be found at these pre-construction sales runs the gamut from profit seeking speculators to those genuinely interested in purchasing a new home. The big selling point is that by buying right away, money will be saved on the purchase overall. For speculators, that means more profit while homeowners look for a much better price.

The big question is, does buying a pre-construction condo really save money in the end? Well, in a word, the answer is yes.

Some people look at pre-construction condo buying as a risk; after all, they think, what if the condo does not end up being built? What if the promised amenities are no longer included?

The fact of the matter is that in this case, the term “buying” really is a bit misleading. You are not in fact buying when you express interest with a developer in a condo; you are receiving a place in line that guarantees you a home once the project is developed. The price you pay is in fact a deposit, one that can and will be refunded if you choose not to sign in the end.

Of course, there are some factors that may mean you pay more money for the condo in the long run than you intended, although most of the time the cost won’t add up to the same amount those who purchase later will pay. For example, the deposit is typically around 10% of the asking price of the condo, and that can mean you start paying interest earlier than you had planned. In order to determine if this means you lost money on the deal you will have to see what the price goes up to after the reservations are in place, and calculate your monthly interest payments to the date when you would move in had you waited.

Another way in which purchasing a pre-construction condo may cost you money is if the condos do not sell well. In this case a developer may drop prices below what they projected; you might actually lose two ways here, one by not getting that lower price and another because your condo suddenly depreciate. Of course, this is a very rare occurrence, particularly in areas where condos are in very high demand.