Closing costs when buying a multi-family apartment building

When purchasing a multi-family building as an investment property, closing costs can add up to a large amount and therefore need to be carefully calculated as the investor must estimate whether they have sufficient funds for the down payment and closing costs. before. to close the deal.

It’s also important to estimate how much cash you need to set aside for closing costs before closing, since 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.

Appraisal Fee: This requirement is helping the bank to assess the market value of the property, so that it can estimate the LTV (loan-to-value). If the appraised value is $500,000 and the LTV is 80%, then the bank is willing to lend $400,000 of the full appraised value. The appraisal fee is usually required with insured mortgages, but for conventional mortgages, it can sometimes be waived at the discretion of the bank issuing the mortgage. The appraisal fee depends on the size of the multi-family buildings and other considerations. The assessment is directly correlated to the size of the building: the larger the building, the higher the assessment rate.

Phase 1 Environmental Fee: Environmental analysis of the property and all surrounding uses or conditions to ensure that the property and its surroundings are not contaminated by past use of chemicals, oil tanks, and other hazards. Usually this fee is associated only with insured mortgages only and not with conventional ones.

Inspection fee: The inspection fee includes a careful inspection of each unit in the building to ensure that there are no structural issues with any of the units and the building as a whole. Inspection should only be done by a professional, as problems he missed can cost you a lot of money later to fix. The more units inspected, the higher the fee the inspector charges.

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

Legal Fees and Title Search and Disbursements: Each transfer must be legally reviewed by an attorney. An attorney is in charge of completing the deed transfer, preparing the mortgage, and conducting various searches, such as title searches.

Survey Fee or Title Insurance Fee: A recent survey of the property is usually a requirement from the lender. If it’s not available, then title insurance can replace it.

Mortgage Application and Processing Fees: This general fee depends on whether or not the mortgage is insured. If the mortgage is insured, the investor must pay both the insurance company (CMHC or GE) and the lender itself. CMHC charges a processing fee and a mortgage insurance premium based on the amount borrowed and the repayment period. On top of that, each lender also charges application fees. The lender’s application fee depends on the institution from which the money is being withheld.

Reserve fund: A reserve fund should be added to closing costs to make sure that in the first two years (before any cash flow has built up) there is enough money to spend in the event “item tickets” need to be repaired. big”. replaced, like leaky roof, furnace stopped working, etc.

It is very important that you look for different professionals before deciding which one to go with. Your considerations when choosing should include price, reputation, and efficiency.

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

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