Investing in the VIP Stage of a Pre-Construction Condo

Alyssa Furtado
by Alyssa Furtado May 29, 2013 / No Comments

This is a guest post by TheRedPin.com.

When a builder announces a new project, it is sold in stages. The first stage is also known as the VIP stage. The VIP stage of a real estate property is considered the best time to make an investment, both on the financial front and for long-term potential. However, it’s not a simple decision, and there are a few things to consider before you jump into a VIP condo investment.

The Pros

VIP real estate investments are great for investors as they provide a wide range of benefits. The important ones are outlined below.

Excellent Prices & Options

The one major incentive for any investor to consider when looking at a real estate property during a VIP stage is the price of the property. Those who buy during the VIP stage usually get the best prices, significantly lower than the prices made available to the general public when the project launches publicly. In addition, the group of individuals purchasing during a VIP is usually small, providing access to a larger variety of floor plans and options. By the time a project gets to a public launch, most of the better floor plans (units) are accounted for (up to 60%).

It’s important to also note that prices during the VIP stage let you manage future expectations from the project. You are paying a significantly lower amount than what you would have paid after the project launched, providing a wider range for value growth. In addition, your mortgage is lower, and if you decide to flip the property you have more profit potential.

Customization & Interior Design Planning

The one beauty of purchasing during the VIP stage is the customization possibilities. For most new projects, irrelevant of the phase, customization is an option. Also, buying early means you have enough time to plan and create a suitable interior design, something you can implement as soon as the project opens and then rent/flip it right away.

High Floor, Low Floor Dilemma

A major factor investors need to keep in mind is where the suite is located within the building. By purchasing a lower floor, you are likely to hear street noise and have less significant views. If you were to invest in a higher floor, you are likely going to pay a premium on the suite for both its views and location. Both options put investors in a bit of a tough spot to either get their money back or rent it out to potential tenants. Suites that are removed from high traffic or noisy areas within the building are also more valuable, away from garbage disposals, common rooms and elevators.

The VIP stage of a project gives you the early access needed to ensure you have access to the majority of suites – and location of suites – to make sure you are making a sound investment decision.

The Cons

VIP investments sure bring some great positives, but there is a flip side to everything.

Financial Commitment & Wait

If you are a relatively new investor, you should know that any money you put forward will be tied to the property until opening. Most builders require a full 20% down payment, sometimes more, when making a VIP purchase; this can be a huge financial commitment.

If you do manage to find the 20%, then you will not see a return on investment until the property is open. Herein lies the second issue – wait time. VIP opportunities usually occur months, sometimes years, before a property is scheduled to be opened; this means you may have to wait before you see your investment generate any value.

Delays & Cancellations

With new projects, there may be delays and cancellations. When purchasing VIP, as mentioned above, there is a hefty wait time between investment and opportunity to gather returns. Delays add to the wait time, while cancellations don’t give you any return whatsoever, wasting precious time for no reason.

However, as an investor, delays may prove to be a good thing. If the property is in an area of appreciation or growing demand, investors maybe able to appreciate the value of their unit further than expected. Of course, this is totally theoretical and something you can only determine on the day you get the keys.

Blind Purchase

The phrase may be stretching its definition, but you are essentially buying a property blind when purchasing during a VIP stage. At this point, the only reference of space and concept an investor has are floor plans and digital renderings on paper and in digital form.

In addition, even though a space will have dimensions and square footage outlined, visualizing the space is difficult without actually seeing it. The classic mistake most buyers – especially investors – make is not looking at the numbers. Sometimes, dens turn out to make better nooks or hallways, instead of an extra room.

Conclusion

Every good story has a flip side. VIP purchasing has its benefits and is a great way to enter the real estate market – purchasing units at great prices with long-term financial gains. However, it’s important that buyers and real estate professionals balance expectations with reality to ensure they are making sound, informed decisions.

TheRedPin.com is a real estate brokerage that does things differently, serving the GTA. The brokerage is dedicated to give clients a top quality, customer-service oriented real estate experience with their non-commissioned agents, TheRedPin Rebate, award-winning website (featuring 60% more listings than the MLS®), and in-house support teams.