As a full time real estate investor in Canada, we will ultimately be involved in many types of deals. There will be those that we will negotiate, tie up contractually, and have a number of potential exit strategies we can select from to enable us to make a massive income by not ever closing on the property. This process will utilize O of our own capital and consequently, we will have O liability. There will be, of course, those properties that we will close on and purchase ourselves.
Let’s talk about understanding closing costs and what that means to us. We go through the process of paying closing costs when purchasing a property. If we are joint venturing or assigning a deal, we must include all costs involved, including closing costs, to be able to educate a potential buyer/investor.
The first closing cost will be our legal fees. Your first cost will include paying the lawyer/legal fee for doing the transaction. The breakdown of costs involved with this include a title search, (usually done two or three days prior to closing to ensure that there are no liens or judgments attached to the property title) faxing and copying documents, any traveling the lawyer may need to do, registering the new mortgage and title as well as taking care of all the monetary disbursements.
Secondly, depending on the province you are in, you may have land transfer tax to pay. Furthermore, depending on the city you are living in, there may be two land transfer taxes. Land transfer tax is a tax that a purchaser pays when the title of the property is changed into their name. The amount is calculated ass a percentage of the purchase price of the property.
Thirdly, we may have lender fees or broker fees. If we get a mortgage through a private lender, that lender will be asking for fees up front before advancing the mortgage amount. This could pertain to a first or second mortgage. If you are using a mortgage broker in a private transaction, the mortgage broker will ask for a fee to put the deal together.If you are closing on a condominium, you may have to pay a condo fee or a strata fee up front as part of your monthly condo or strata fee application.
An end buyer must also consider a property inspection in their closing costs. A wise purchaser of a property should hire a licensed property inspector to point out the deficiencies in each property, and give a detailed report of any findings. A property inspector may be able to ball-park repair costs, although they will never be as accurate as a contractor. You can utilize these findings to perhaps renegotiate the property price or terms.
Title insurance is an insurance that is not necessary but recommended when purchasing a property. This insures you against any fraudulent title, any inconsistencies, liens or judgments that may be attached to the title.
If you are assigning a deal to an end buyer or other investor, it is wise to include all of these costs as part of your expense spreadsheet you present to the end buyer or other investor, allowing them to understand all of the financial aspects of the deal.
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