SELLING DURING PRE-CONSTRUCTION INTERIM OCCUPANCY
With pre-construction condo purchases, investors may have an option to sell via assignment of thier builder agreement to a potential Buyer. However there are a number of issues to condider beforehand.
When buying pre-construction condo savy Buyers will ensure thier agreement includes an assignment clause. This clause allows you to sell your property prior to or during the occupancy phase without actually having to close with the Builder or register the property. In some cases a Builder will charge a nominal fee upon assignemnt of your agreement to another Buyer.
While this assignment clause might seem like a solid back up yupe plan, as an investor, there are a number of reasons why you should try to avoid enacting this clause and choose instead to rent for at least one year post-occupancy.
Decreased Profit due to Unfinished Building
When a property first finishes and is taking occupancy, it is likely that the building will still be a “work in progress”. Amenities typically will not function properly. Common spaces may be unfinished. All elevators may not be functioning and the hallways can be taped for painting. It is not the best time for a buyer to see the full potential of the building, which can means that they may put in lower bids and you will not be abe to maximize your profits at sale.
Increased Competition due to Inventory Surge
After construction, it can happen that multiple different investors may want to cash out & sell during the occupancy period. This may create a number suites for sale in a single building. This can mean Buyers have multiple choices to select from in the building. This inventory surge may serve to temporarily lower potential bids.
Higher Taxes due to HST
If you decide to sell your suite without renting for one year, you may forfeit your HST rebate along with having to pay HST on your deposit that you have already paid to the builder. Also you will have to pay taxes from the net profit from your sale should it be sold.
While that assignment clause might seem like a good idea at the time of occupancy, in the long run it may be best to hold onto your property for at least one year before negotiating a sale. At this point the building will be in fine form with a well developed reputation. Also, there should be less inventory for buyers to choose from and you will have cashed in on some well deserved tax cuts and rebates.