Lessons

Days ago we relayed the sad tale of a condo deal gone sideways.

She bought a pre-con five years ago that was supposed to be built in two. By the time the developer was ready to close, bad things had happened. The condo market tanked. Prices dropped. Rents fell. The shiny new unit was worth less than it had been back in 2020 when she bought it from plans. Mortgage rates went up. The bank would no longer give a mortgage for the balance. And she married in the meantime, got a pooch, then moved into a townhouse.

Her blog dog, NHL-exec, older (wiser) brother reached out for advice.

There’s no good outcome, we told him. Any resolution will cost her a bundle. If she refuses to close the builder will sue, ultimately sell the unit for less and collect the difference from her, plus damages and costs. She could get a subprime lender to finance the closing, but the mortgage rate could be 10%. Or more. The unit would be in negative cash flow, especially given the softening in rents. She could be completely irresponsible and reckless, declaring bankruptcy (which might necessitate a new husband). Or she could moan and beg.

What happened?

“Hey Garth – thanks for featuring my question and the great advice!” her brother, Mr. Puck, writes. “Everything was spot-on.

As a follow-up, after talking to the builder (the “cry a lot, drop to her knees and beg” option you mentioned), they ‘graciously’ offered to let sis off the hook for the low price of keeping her entire downpayment (15% or $120k) plus keeping the interest accrued over the 5 year build ($15k?). How magnanimous. Thanks again Garth!

Well, that cost her $120,000 plus the use of that money for five years, which is probably the best possible outcome in this circumstance. The builder could have been far more prickly, forcing her into a costly legal action that could take a year or two, which she had zero chance of winning and with potential ripples into her financial, matrimonial and professional life.

This way, she walks. Contract cancelled. Deal done. (Let’s hope she remembers to get a legally-binding mutual release.)

So what have we learned?

First, don’t buy a pre-con. There are thousands and thousands of resale units available with a price history, established condo or strata fees, an existing condo board with financial statements, and units you can visit, walk through, inspect and examine. So, Rule One here is never buying something you can’t have a pee in.

Second, real estate is about real estate. Like, dirt. Yes, condos can be a wonderful alternative for many folks, especially urbanites who hate bugs, nature, snow and anything involving a screwdriver. But it’s land that really matters. Wherever possible, get some.

Third, buying a pre-con is actually playing the futures market. Recency bias makes people think that what has existed recently will determine what happens in the years to come. Bad idea. You have no idea what the economy will be like when a building is actually finished, where monetary policy will sit, what the rental vacancy rate or rents will be, how property values will change or if some weird guy will be elected American president and wants to eat Canada. Don’t guess or gamble. Too much risk.

Fourth, never buy anything you can’t pay for. The bank isn’t going to extend a financing commitment that lasts three or five years. If conditions change, as they did here, you need a Plan B. That means having the means to fulfill a legal contract.

Finally, if you ignore everything else and actually buy pre-construction, do it with a lawyer. Builder contracts are famously one-sided, allowing design and material changes and endless closing delays. Paying for a legal beagle to amend the deal, giving you safeguards, is totally worth the cost. If the builder balks, then walk. In today’s market of scant sales and financial stress, he will soon bend.

This is not 2020. Thank Dog.

About the picture: “Love your blog and have learned so much from it over the years,” writes Jenn. “I truly feel that my ability to retire well is going to be highly influenced by what I have learned from you all these years. Index investing has done very well for us.  Here’s Shelby, she was some sort of hound/collie mix that lived to play frisbee and then sleep in our bed. Very sadly we recently lost her to cancer at 7 but she played frisbee all the way to her last day and held her frisbee happily at the end. We are gutted to lose her but comforted that she had a great life.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/07/07/lessons-16/