Things to Consider When Purchasing a New House/Condo with the Intent to Sell it as an Investment

As many Builders know, newly built homes often will sell themselves; buyers love the quality of construction, earth-friendly materials, modern features, safety and health-related benefits & energy efficiency (and therefore, a new home’s ability to save its new owner some cash). Plus it’s a well known fact that the majority of people would rather have something new than used, it just comes with less risks of issues and someone else having lived in it.

However, purchasing a home/condo to later sell as an investment can be a risky venture. In spite of the attractive draws mentioned above, you will need to have a solid marketing plan to sell your new house. It is well worth the investment to make sure that the advertising of your home begins with quality photography and videography and remember you will be competing with the very Builder you just bought from who has a larger budget and staffing. Stage and capture the spaces in your home with high-quality equipment and an experienced photographer. This is not money wasted. A well-made, interactive virtual tour of your home placed on quality sites that attract a lot of traffic will go a long way in maximizing both interest in and, hopefully, the purchase price of your newly built property. You can pay to stage it, but remember it has to be new and modern furnishings, you don’t want anyone thinking someone has lived in the home before.

You will need to either hire a knowledgeable agent, or know the market very well yourself. Be prepared, you may need enough income to carry this unoccupied property for the time it takes to find a Buyer. To be stuck with a property on your hands that you intended to sell several months earlier will place you in a difficult situation.

Don’t assume that a bank will provide bridge financing; this is not given out very often by banks especially with the recent financial crisis and tightening of lending rules. Banks hesitate to arrange bridge financing, unless there is a committed Buyer, in which case, you will be given bridge financing at one or two percentage points above the prime rate.

Generally in most locations your “ primary residence”, the one you personally use, live in, your mail goes there, and more is not considered a taxable item as it is deemed a necessity which is important to home ownership across the country. However, if you don’t plan to make it your primary residence, than capital gains taxes and other local taxes are another consideration, especially is the newly built home. You may decide to live in the newly built home before selling it, but it is important to check your municipality’s regulations around what length of time is required for a house to qualify as ‘occupied’. The sale of an ‘occupied’ house can result in the dismissal of a capital gains tax but as noted earlier, one of the reasons people are buying new is that no one has lived in it.

Capital gain is generally the taxable amount of money that you make when you sell something for more than you put into the owning of it. Each state or province may have slightly different regulations and taxation around capital gains. You will need to do some research, and be very certain to ask your accountant to brief you on applicable requirements regarding this, most real estate agents will not be qualified enough to provide this advice. Not all of one’s capital gain is considered a taxable amount; often only 50% of the sale price is taxed. Depending on your nation and state/province of residence, different rules apply to different capital gains. You’ll be taxed according to the tax bracket that you fall into, as well as the nature of what it was that you sold/gained your capital from.  Additionally if you complete multiple transactions of the same kind in a defined period of time (varies everywhere) the government may define that you are in the business and then 100% of the income may become taxable as a business income.

If you plan to ‘flip’ a home that has not been occupied- which is to say, you have purchased a newly built home and are quickly turning around to sell it- you are considered a reseller vendor, and a different set of rules may apply to you. You will need to look into requirements that pertain to licensing in order to sell the unoccupied property in your state or province of residence. You should also consider that governments are tightening their regulations around house ‘flipping’.

If you have severed your property and built a second home on it, which you want to gift to a loved one, a family member, etc. Be sure to look into taxation around donating a house to someone. As the giver, you may not be taxed, but the recipient of your gift will need to claim the gifted home as income from real estate and, therefore, as a taxable capital gain.

If you are selling, as opposed to gifting, your new home, it will be important as the Seller, to provide documentation of any claims that have been made under warranty ( in fact in some locations you may have to offer your own warranty), as well as to clearly indicate any timelines associated with the build and applicable warranties. You will also need to provide, in writing, your consent for the warranty history to be released to a new Buyer. If there are any pending, incomplete claims, you will need to discuss this with the Buyer.

The statutory warranties set by your geographical jurisdiction will generally follow a 2-5-10 progression, meaning that after two years, certain components of the newly built home are under warranty protection. The same goes for other, specific components under warranty for five years, as well as structural components under warranty for 10 years after the home was first occupied. These warranty protections are usually transferable to any subsequent owner and the original owner builder remains under obligation to provide said warranties to the purchaser. There are more than one warranty company available to Builders to use, so be sure to research the terms of the warranty but also their reputation. Will they still be there in 10 years to honour the warranty?

Buying and then selling a new home/condo is not for the weak of heart.  Be financially prepared to take on the initiative, don’t end up trying to do it by leveraging too much of your own home and down the road end up losing your primary residence all in an effort to make money. Its not worth the risk. However, if you understand the marketplace from either a price or new community perspective, there are opportunities and great Builders out there…..opportunity exists. Now go out there and find that Buyer and good luck!



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