How Pre-Construction Works
Timeline
| Phase |
Timing |
| Sales launch |
3-5 years before completion |
| Deposit payments |
Over 1-3 years |
| Construction |
2-4 years |
| Interim occupancy |
Move in before registration |
| Final closing |
Registration with title |
Typical Deposit Structure
| Payment |
Timing |
Amount |
| Initial deposit |
Signing |
$5,000-$10,000 |
| 30 days |
30 days after signing |
5% |
| 90 days |
90 days after signing |
5% |
| 180 days |
180 days after signing |
5% |
| At occupancy |
Move-in |
5% |
| Total deposit |
Before mortgage |
15-20% |
Remaining 80-85% is mortgaged at final closing.
Pros of Pre-Construction
| Advantage |
Explanation |
| Lower initial investment |
Only 15-20% during building |
| Potential appreciation |
Value may increase during construction |
| Time to save |
3-5 years to prepare |
| New building |
Modern amenities, lower maintenance |
| Customization |
Choose finishes (some developers) |
| First pick |
Best units at launch |
| Assignment potential |
May sell assignment before closing |
Appreciation Example
| Factor |
Amount |
| Purchase price (2024) |
$600,000 |
| Deposit (20%) |
$120,000 |
| Appreciation (3%/year × 4 years) |
12%+ |
| Value at closing (2028) |
$672,000+ |
| Equity gain |
$72,000+ |
You gained $72,000 with only $120,000 invested (60% return on deposit).
Cons and Risks
| Risk |
Explanation |
| Delays |
Often 1-2+ years late |
| Cancellation |
Project may not proceed |
| Final product differs |
May not match showroom |
| Closing costs increase |
Taxes, fees may rise |
| Market downturn |
Value could drop |
| Rate changes |
Higher rates at closing |
| No rental income |
No cash flow during wait |
| Occupancy fees |
Pay before owning |
Delay Impact
| Scenario |
Impact |
| 2-year delay |
Living situation affected |
| Rate increases |
Higher mortgage payments |
| Continued renting |
2+ years extra rent paid |
| Life changes |
May no longer need unit |
Cancellation Risk
| Outcome |
What Happens |
| Deposit returned |
Held in trust, returned in full |
| Lost appreciation |
Market may have risen |
| Cost to buy elsewhere |
Prices typically higher |
| Opportunity cost |
Lost years of equity building |
Costs at Closing
Closing Cost Surprises
| Cost |
Amount |
| Development charges |
$5,000-$20,000 |
| Levies |
$1,000-$5,000 |
| Tarion enrollment |
~$1,000-$2,000 |
| Utility meter installation |
$500-$2,000 |
| Appliance packages |
$0-$5,000 |
| Additional closing costs |
$7,000-$35,000 |
These are ON TOP of regular closing costs (land transfer tax, legal, etc.).
Hidden Development Charges
| Charge |
Range |
| Toronto development charge |
$20,000-$40,000+ |
| Education levy |
$2,000-$5,000 |
| Parkland levy |
$3,000-$10,000 |
| Other municipal |
Varies |
Read your Agreement of Purchase and Sale carefully.
Interim Occupancy Period
What It Is
| Feature |
Details |
| When |
Move in before registration |
| Duration |
3-18+ months |
| You pay |
Occupancy fee (not mortgage) |
| You don’t own |
Title not registered yet |
Occupancy Fee Components
| Component |
Monthly |
| Interest on balance |
$1,500-$3,000 |
| Property tax estimate |
$200-$500 |
| Maintenance fee |
$300-$800 |
| Monthly occupancy fee |
$2,000-$4,300 |
You’re paying rent essentially, building no equity.
Assignment Sales
What Is an Assignment?
| Term |
Meaning |
| Assignment |
Selling your contract before closing |
| Assignor |
Original buyer (you) |
| Assignee |
New buyer |
| Profit |
Difference between your price and sale price |
Assignment Example
| Factor |
Amount |
| Original purchase |
$600,000 |
| Market value at assignment |
$700,000 |
| Your deposits paid |
$120,000 |
| Assignee pays you |
$220,000 ($120K + $100K profit) |
| Your profit |
$100,000 |
Assignment Considerations
| Factor |
Details |
| Developer approval |
Usually required |
| Assignment fee |
$3,000-$10,000+ |
| Taxes |
Profit is taxable (possibly as income) |
| Marketing |
Need to find buyer |
| Timeline |
Before registration only |
| Restrictions |
Some developers prohibit |
Pre-Construction vs Resale
| Factor |
Pre-Construction |
Resale |
| Price |
Often higher (new) |
Reflects current market |
| Timeline |
3-5 years to close |
30-60 days |
| Deposit |
15-20% over time |
Need full down payment |
| Certainty |
Unknown final product |
See what you’re buying |
| Customize |
Limited choices |
Already finished |
| Rental income |
None during wait |
Immediate |
| Appreciation risk |
Both up and down |
Less speculative |
When Pre-Construction Makes Sense
| Situation |
Why |
| First-time buyer |
Time to save larger down payment |
| Investor |
Leverage appreciation with small deposit |
| Specific building |
Want new amenities/location |
| Long-term view |
Can handle delays |
| Assignment strategy |
Plan to sell before closing |
When Resale Makes Sense
| Situation |
Why |
| Need to move soon |
Immediate possession |
| Risk-averse |
Know what you’re getting |
| Rental income wanted |
Start cash flow immediately |
| Rising rates |
Lock in mortgage now |
| Uncertain market |
Less speculative |
Due Diligence Checklist
Research the Developer
| Check |
Why |
| Track record |
Complete projects on time? |
| Quality reputation |
Builder reviews |
| Financial stability |
Can finish the project? |
| Previous projects |
Visit if possible |
| Tarion record |
Any claims against them? |
Review the Agreement
| Review |
Critical Items |
| Price |
Fixed or can increase? |
| Closing date |
Firm or can extend? |
| Deposits |
Schedule, refundable? |
| Specifications |
What’s included/excluded? |
| Assignment clause |
Allowed? Fees? |
| Cancellation terms |
When/how can developer cancel? |
| Development charges |
Capped or unlimited? |
| Occupancy fees |
How calculated? |
Hire a Real Estate Lawyer
| Lawyer Should |
Before You Sign |
| Review full APS |
Explain risks |
| Explain capped costs |
Uncapped costs are dangerous |
| Check developer liabilities |
What can change? |
| Verify trust deposit |
Money protected |
Tarion Warranty (Ontario)
Coverage
| Protection |
Details |
| Deposit protection |
Up to $20,000 freehold, $20,000 condo |
| Delayed closing |
Compensation if late |
| 1-year warranty |
Defects in work/materials |
| 2-year warranty |
Water penetration, electrical, etc. |
| 7-year warranty |
Major structural defects |
Limitations
| Limit |
Amount |
| Deposit insurance max |
$20,000 |
| Additional protection |
Some extended warranties available |
| Not covered |
Market value changes |
Questions to Ask
| Question |
Why It Matters |
| What’s the expected closing date? |
Plan your timeline |
| What causes closing delays? |
Understand risks |
| Are development charges capped? |
Avoid surprise costs |
| What’s the occupancy fee? |
Know your costs |
| Can I assign? |
Exit strategy |
| What finishes are included? |
Know what you’re paying for |
| What’s the maintenance fee estimate? |
Monthly costs |
| What’s the developer’s track record? |
Reliability |