Closing costs when buying an apartment building

When buying an apartment building as an investment property, closing costs can add up to a large sum and therefore should be calculated with caution as the investor must assess whether he or she has sufficient funds for the down payment and closing costs before closing the transaction.

It is also important to estimate how much cash needs to be set aside to cover the closing costs before closing, as one of the bank’s conditions when approving a mortgage is to make sure the buyer has enough funds for the down payment and closing costs together.

Evaluation fee: This requirement helps the bank estimate the market value of the property so that it can estimate the LTV (loan to value ratio). If the assessed value is US $ 500,000 and the LTV is 80%, then the bank is ready to provide a loan of US $ 400,000 out of the total assessed value. An appraisal fee is usually required when using an insured mortgage, but in the case of a regular mortgage, it can sometimes be waived at the discretion of the mortgage bank. The appraisal fee depends on the size of the apartment buildings and other considerations. The appraisal is directly related to the size of the building: the larger the building, the higher the appraisal fee.

Stage 1 environmental fees: An environmental review of the property and all surrounding uses or conditions to ensure that the property and its surroundings are not contaminated by any past use of chemicals, oil tanks and other hazards. Typically, this fee is only associated with insured mortgages, not regular mortgages.

Inspection fee: The inspection fee includes a thorough inspection of each block in the building to ensure that there are no structural problems with either block or the entire building. Inspection should only be done by a professional, as troubleshooting can cost you a lot of money in the future for repairs. The more units are checked, the higher the fee that the inspector will charge.

Land Transfer Tax (LTT): This fee depends on the province in which the apartment building is purchased. Specifically, if the property was purchased in Toronto, the land transfer tax must include LTT Ontario and LTT Toronto.

Legal Fees, Title Search and Payouts: Each translation must be legally reviewed by a lawyer. The lawyer is responsible for completing the transfer of the document, preparing the mortgage, and conducting various searches such as title searches.

Land Exploration Fee or Title Insurance Fee: A recent property survey is usually a requirement of the lender. If not, then title insurance may replace it.

Mortgage application and processing fees: This total fee depends on whether the mortgage is insured. If the mortgage is insured, then the investor must pay both the insurance company (CMHC or GE) and the lender himself. CMHC charges a processing fee and mortgage insurance premium based on the loan amount and the repayment period. In addition, each lender also charges an application fee. The fee for filing an application by the lender depends on the institution where the money is being lent.

Reserve fund: A reserve fund needs to be added to the closing costs to make sure there is enough money in the first couple of years (before any cash flow is accumulated) to be spent in case of need / replacement, e.g. leaked roof, stove stopped working, etc.

It is very important that you look for different professionals before deciding which one to contact. When choosing, you should consider price, reputation and efficiency.

In conclusion, the total amount spent on closing expenses can start at 2.5% of the purchase price and go up to a much higher amount depending on various factors such as the amount contributed to the reserve fund, the province you choose to buy your investment property. in, etc.

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