How Deposit Structures Work

As housing prices continue to increase for detached homes, more purchasers are choosing to purchase pre-construction homes and condos.  How much you need to put down (otherwise known as the deposit structure terms) makes buying pre-construction homes a unique transaction.  This article will clarify what deposit structure terms mean and how you can use this payment structure to your advantage when purchasing a home.

When buying a home, the pre-construction deposit structure provides a way for more and more people to afford real estate.  When you understand how deposit structures work, you will have the confidence to make better investment decisions. 

What is a Deposit Structure?

Deposit structures are a schedule of when you need to make payments for your real estate purchase. 

When you buy a pre-construction home or condo, you can expect to give the builder roughly 20% of the purchase price.  This deposit is not required to be paid all at once.  Instead, the builder provides a schedule for the deposit payments to be paid in installments.  These installment payments are spread out over months or years.  This schedule of payments is a great advantage for buyers who can purchase now and then make bite-sized payments over a period of time.

The terms of the deposit structure will outline the dates that payments are needed and the required amount. 

What Does a Deposit Structure Look Like?

Deposit structures usually have a similar make-up, but the details can vary from one agreement to another.  The following is an example of what a typical 20% deposit structure for a pre-construction purchase could look like.

  1. $5,000 with the offer
  2. Balance of 5% due in 30 days
  3. Next 5% within 180 days
  4. Next 5% within 360 days
  5. Final 5% at Occupancy

In the example above, the purchaser will need to pay $5000 to the builder upon signing the purchase agreement.  Next, the purchaser pays a 5% deposit within 30 days (minus the initial $5000 paid).  In 180 days, the purchaser will pay the next installment of 5%.  The next 5% deposit payment will be made 360 days after signing your agreement.  That makes a total of 15% of the purchase price. 

The next and final payment of the deposit structure is not required until after the completion of construction, which will be years after the initial installment.  At this time, the purchaser will require payment of the final 5% deposit installment at Occupancy.  After Occupancy, the purchaser will be responsible for the outstanding balance owed on your home via a mortgage.

Is My Deposit Protected?

Yes, your deposits are protected by law.  All deposits are held in a lawyer’s trust account.  The developer is not able to spend this money or take it and walk away.  In the rare event that the builder cannot construct the building, your deposit will be returned to you with interest, if any has accrued.

Deposit Structures are not complicated once you understand their scope.  The first thing to look at is the total amount needed in deposits to purchase the home (% of purchase price).  The second thing we need to know, is how much time we can stretch out the payments.

Patiently waiting for your home to be ready is one of the best money-makers in the real estate industry.  With deposit structures, you are only paying a fraction of the home’s worth but are rewarded with the appreciation of the entire investment.  The time to start your journey is now.  

It is important that you continue to learn about the pre-construction process and how to be a good investor.  To help you make the best decisions in this unique real estate market, it is important to consult with an experienced pre-construction professional who can guide you through the entire process.                       

ATeam Condos is here to help you if you have any questions about deposit structures and pre-construction investing. Whether you are looking for a Toronto preconstruction condo or a preconstruction home in the GTA, give us a call or text us at: (416) 826-4821 or email us at [email protected] to start a conversation.

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