Purchasing a preconstruction condo can be a great investment, but many buyers are unaware that sales are often done well before a project has its Grand Opening and advertises directly to the public. New Condo projects launch in stages, first to a select group of insiders and then more and more buyers get access throughout its lifecycle. At each stage of the launch, the most desirable units become less available and prices go up. The key to getting a strong return is to purchase at the most opportune time, and in this article we examine the various stages of a typical condo launch.
Friends and Family
The initial stage of a condo launch is a private event by the developer. This is an invite only event which is typically only attended to by insiders, such as the friends and family of the developer. Prices are the absolute lowest at this stage and all the units are available. This is always the absolute best stage to purchase the condo, but it is extremely difficult to get access at this stage.
Next is the Platinum launch, where the developer reaches out to a select group of high performing agents who have sold units at the developer’s previous condos. Most units are still available and prices are still typically well below market value. Often, there are a number of incentives that are designed to target the real estate investor, such as rental guarantees, reduced deposit, or reduced assignment fees. This is the most common entry point for seasoned investors.
The developer next makes the project available to the agent community at large. Fewer units are available, prices have gone up from the platinum launch and the incentives are weaker. Purchasers still must work with an agent, but it does not have to be an agent with a pre-existing relationship with the developer.
The developer then connects with any prospective purchasers who have registered on their website. Again, fewer units are available, prices have increased and the incentives are weaker. At this point, the purchaser does not have to be working with an agent, and thus the developer makes a better profit as they save on closing costs. This can occasionally lead to discounts for the purchaser, but it is not common.
General Public Launch
This is when the project starts to be advertised by the developer to the general public and people can walk in to the sales center to purchase a unit. Usually, prices have continued to go up from the Platinum stage and fewer units are available. However, developers need to reach a presold threshold in order to qualify for preconstruction financing for the bank. If a developer needs to sell an additional 5 or 10% of the building in order to reach that threshold there can be very attractive incentives which can make this a very good time to purchase a unit.
Once the threshold has been reached and construction begins, prices go up dramatically. This is when investors stop taking interest in the project and most sales are done by those looking to live in the unit once construction is complete. This is most often, a very bad time to purchase a unit as all the best suites have already been purchased and prices are significantly higher than they were at the platinum level. This is also when the builder makes the majority of their profit.
When a building is complete and purchasers can move in relatively quickly, the prices most closely reflect their true market value. Investors have lost interest in the project and remaining inventory is sold to those who like the project as a potential home.
The key to getting the highest return is to purchase early or during the small window where a developer is looking to qualify for construction financing. Working with a realtor who can negotiate early access to a development is important to getting the best deal on the best suites.