We have done three pre-sales over the 14 years of real estate investing. One was in 2004, a rising market, we sold it after 1.5 years before the completion with 100% gain on the cash invested. One was in 2007 at the peak market time, we sold it after completion with very small gain. The third one was in 2010, we closed it in 2013 and still hold today.
My experience is nothing wrong with pre-sales, as long as you are prepared to close it and hold for at least 5 years to flow through the down time of the market. In the third pre-sale case, we were contemplating whether to sell or not in 2013. However, the market was flat at the time, if we sell, we might just breakeven. Mind you, for any pre-sales in BC, we need to pay 12% GST, which we have to pay by cash, the bank will not mortgage on that amount. Therefore, on top of the 20% downpayment we have to pay during the first year of the contract, at closing we have to invest another 60K to cover the GST and other fees. From 2013 to 2018, our cash flow is just breakeven, but capital gain goes a lot, we are glad that we hold it. Now, we plan to hold for at least another 5-10 years as long as the cash flow sustain itself.
Pre-sale investment as a concept is not bad, just be cautious of individual subject property and our own individual capability of managing the process.