Introducing Faris Pre-Con Part 3: Risks, Exits, and Returns

It can be challenging to navigate where to invest your money, especially in the current market. 

Most people don’t know that 90% of millionaires used Real Estate to get there. And we’re ready to help you get there too. 

We continue our discussion Mike Balchin and Paul Simonetta to discuss your burning questions about Faris Pre-Construction and how we will get our clients the highest returns on their investments.

This is part 3 of our exciting 3-part series introducing this new opportunity for investors, presented by Faris Team. In this series, we answer all your burning questions about working with us on this exciting deal. If you missed part 1, click here for an introduction to Fairs Pre-Con and how it can help you as an investor. If you happen to have missed part 2, click here for more details on the investor’s journey.

We conclude this interview with our team of experts by outlining some of the risks involved with Pre-Construction projects and how Faris Pre-Con mitigates those risks. We also look at any additional costs involved with investing in Pre-Construction projects and wrap up outlining some of the incredible benefits to working with us on this investment and how you can achieve the highest possible returns on your investment.

What Are Some Potential Risks, and What are Some Things That Faris Pre-Con Does to Mitigate Those Risks?

One risk is that the developers pull out of that project. This could be for various reasons, but the most common is the rising costs of building materials. If the developer undersold the project, they might back out to avoid losing money on their investment with the costs to build. 

Fortunately, the funds are protected in a trust account. The purpose of the deposit is to alert the banks that the developers and builders are able to finance the project in order for them to receive financing for the build. 

When we look at developers for our investors, we extensively check their records and past history with developments to ensure that they do not have a history of backing out of projects. We ensure that we are working with some of the Premiere builders in the GTA, so there is no track record of pulling out of projects. 

If a project does become cancelled, the deposits are then returned to the investors with no interest paid. So while they do not get a return on their investment, in this case, they would still get their investment back. Investors are well-protected through this investment. 

What Are Some Ways Investors Can Exit?

Assignment Sale:

The client can sell their units to another end user prior to closing. We partner up with a developer and choose a project we believe in, but we also negotiate an assign clause upfront with a developer to give the investor the opportunity to assign. Especially in a project that is 3-5 years out, we know that life happens, so we always negotiate to provide an exit for our clients. We want to ensure our clients have the most flexibility before closing. 

Close and Put it on the Market (Sale or Rental)

The projects we look at are also in good rental markets. When you close on the unit, typically, there are costs associated with it. Ideally, you will want to rent it out for a year because of the tax implications. 

What are Some Typical Returns on Investment?

While we cannot guarantee the future, in the past, we have seen clients purchase at the platinum level, and the developer will increase prices anywhere from 5-15%, depending on the market conditions. As a result, the appreciation values have typically seen 100% appreciation on their investment. 

Are There Any Additional Costs Involved?

Closing Adjustments:

Like any Real Estate purchase, there are closing adjustments, but there are also a few additional fees for pre-construction costs, including: 

• Land transfer tax and lawyer fees

• Utility hookups

• Development charges

• And other fees. 

Those fees may change over the years, but Faris Pre-Con negotiates a cap on those fees. The general cap on those fees that we try to negotiate is between $8,000-$10,000 per unit. Therefore, it would be wise to set aside funds for those fees. Different townships and different-sized units will determine those fees and that is something that we will discuss with the investor before each unit is purchased.

Supply and Demand

Many developers are currently holding back due to building costs and market conditions, but the demand for housing continues to rise.

In order to meet the current demand, 150,000 units should be built every year, but that isn’t happening due to inflation and material costs. Currently, there are only 75,000 units being built due to many developers holding back, and those numbers will likely continue to go down. Huge supply issues are being predicted by economists with immigration on the rise and the market currently unable to fulfill today’s demand, let alone future demand.

Moreover, there is also a labour shortage, and it will take a long time to correct what is happening. There may be micro events on the market, but the reality is that there is a major supply and demand issue in Southern Ontario. 400,000 plus people are moving to Canada every year, with the majority moving to the GTA. 

This is creating a perfect storm for those looking to get into investing in long-term Real Estate. It will, unfortunately, become a lot harder for people to get into Real Estate in the future. This means most people will turn to renting. We are always looking for the best value in emerging markets in Southern Ontario. 

Summary:

Overall, we are so excited to launch Faris Pre-Construction as a means for our clients, our investors, to build legacy wealth.

If you have any questions about Faris Pre-Con or are ready to book an appointment with one of our agents, click here!