Author Topic: First time buyer, possibly stupid question about deposits as investments  (Read 427 times)

lekhaka

  • 5 O'Clock Shadow
  • *
  • Posts: 5
I've never bought a house before so forgive me if this is a stupid question, but recently I was told something about deposits with home builders that got me confused.

So my parents have been nagging me to buy property in Toronto, Canada. In the latest development in this nagging, I was told that if I paid a 50k deposit to the builders for a to-be-built new home, I could settle with some other buyer before the home even is built, and they pay me some compensation (presumably greater than 50k) to transfer the rights of the deposit to them instead.

Is this really a thing? First time I've heard of it.

Up until now I always considered stock indices to be a better investment than houses.

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4087
People made and lost a lot of money playing this game before the real estate crash here doing that.  If it is legal, and the contract with the builder allows assignment, I still would not do it. Way too much risk.  Once the market flattens or turns, you are left holding the bag.

dividendman

  • Pencil Stache
  • ****
  • Posts: 996
  • Age: 35
Just FYI, this wouldn't make you a first time buyer. This makes you an options trader.

lekhaka

  • 5 O'Clock Shadow
  • *
  • Posts: 5
lol good one. You're right, it's buying a call option on a house.

So now I know this is actually a thing. I guess to clarify, the argument is that the house itself is a good investment, and even if you don't wish to do the mortgage when the builder completes the house, you can just sell the deposit to another buyer.

I'm just afraid that I may end up not wanting the mortgage and unable to find a buyer. That's the risk you guys are talking about right?

dividendman

  • Pencil Stache
  • ****
  • Posts: 996
  • Age: 35
lol good one. You're right, it's buying a call option on a house.

So now I know this is actually a thing. I guess to clarify, the argument is that the house itself is a good investment, and even if you don't wish to do the mortgage when the builder completes the house, you can just sell the deposit to another buyer.

I'm just afraid that I may end up not wanting the mortgage and unable to find a buyer. That's the risk you guys are talking about right?

Yup, and just like an options trader you may end up with no way out except to lose the 50k (i.e. if the housing market goes down, why is anyone going to pay you anything to take the option to buy the house, and if you don't want/can't afford the mortgage... game over).