Do the ads below get your attention?This email from a realtor in the Chinese community pitches for investorcondo projects across cities in Canada. Some projects promises an annual rate of return as high as 16%, and a principal return of 48%, at a time when equity and bond investors are struggling in a market still licking wounds after the 2008 meltdown.
This type of marketing schemes heats up during holiday seasons. Email promotions have flooded the inbox of potential investors, promoting the pre-construction condo units.
Buying a pre-construction condo and then flipping it a few years later when it is finished seems to be easy money for investors. But this type of promotion might have stressed too much on the high rate of return while ignoring the investment risks.
There are many things that may go wrong with investing in a pre-construction sale in Toronto. There were horror stories reported by the mainstream media where investors took significant loss on the investments, due to various unexpected adversaries -- from financing troubles to ownership delays to troubles with the CRA.
Until a few years ago, pre-construction condos offered buyers a true deal compared to resale properties. But times have changed. As interest is poised to go up in 2015, it is likely that the condo market may turn flat or even down. As a result, you might end up losing the shirt on your back.
As the Toronto rental market faces challenges, you may end up holding an empty unit while digging deeper into your own pockets to cover the carrying costs.
If you are a leveraged investor, the return on investment skyrockets, but the risks are inherently amplified.
None of the ads that have made their ways into my mailbox have indicated that the returns are not guaranteed. Nor did they disclose the commissions and fees collected by realtors, which seems to be running afoul with securities regulations.
The sender of the emails has not responded to repeated email questions from Chinese News on the matter.
For an existing home, a buying and selling agent would split a maximum 5% commission, each getting less than 2.5% of the home price. But for condo pre-construction sale, a selling agent may rake in a total of 6% commission, three times of what they would earn over a regular real estate agent.
Needless to say, there is a strong incentive for pre-construction condo sales. But victims falling to the prey of fraudulent investment schemes are not rare cases in the Chinese community. The risky factors involved in pre-construct condos may keep investors on their toes.
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