The following is a guest post by Sherard R. McQueen, Broker of Record and co-founder of M5V Realty Inc Brokerage. Sherard is a experienced agent in the Toronto market and has transacted $200 million in real estate and personally purchased 35 residential and many commercial investment properties.
It has been said ad nauseum that location is everything in real estate, but don’t overlook timing. The assignment is based on timing and time value of money and can help an investor realize a profit more quickly.
The premise of the assignment is this: the original purchaser of a property (the assignor) can transfer the right to buy the property they have with a vendor (the builder) to another purchaser (the assignee) at a higher price than was initially paid. The difference between the price paid initially and the assignment price (effectively the sale price) is profit realized by the assignor.
That is the what — the why is because if conducted properly it can be a mutually beneficial proposition for both the assignor and assignee.
The assignee can walk through and experience the space before they purchase, as opposed to purchasing off plan (from the layout). Additionally, the assignee has an opportunity to purchase a never lived-in suite and pay slightly below market value.
From the other end of the spectrum the assignor can transfer the rights to the property and crystallize their gains which will avoid paying closing cost, HST and obtaining a mortgage while also not having to rent the suite during occupancy (when the suite is habitable but before registration).
Timing is paramount as its most effective for the suite to be assigned once it is built, so a potential assignee can experience the space but before registration, when the assignor has to close the suite and incur additional cost.
As an aside — two important caveats of note: the suite can not be publicly advertised so not to interfere with the vendors marketing efforts and the assignor must obtain vendor consent, typically granted upon time of acquisition.) As an incentive to the assignee the suite is typically offered for a sale price slightly below current market value. Although, this assignment price is less than the potential sale price after closing, and thus when the suite can be listed on MLS (The Multiple Listing Service also known as Realtor.ca), the net profit is very similar before and after closing due to the reduced closing and carry cost.
There are many moving parts to an effective assignment but if an assignor can time the orchestration of these events real estate becomes art and potential profit becomes net gain.