Investors need to be fully prepared when it comes to all the costs associated with purchasing a condo. Whether it is a pre-construction condo or re-sale, all the costs need to be fully understood, to determine if it is in fact a worthwhile investment.
One of the specific items that is often misunderstood is closing costs.
Here are 5 things that every investor needs to know about the closing costs for a pre-construction condo:
1. Every pre-construction condo will have a different closing cost
Just as with a house purchase, there is not a set amount of how much closing costs will be for a condo. There are however a few items that investors can expect to pay for when the purchase a is complete. These items include land transfer taxes, development charges, legal fees, utility hook ups, tarion warranty and other miscellaneous items. The miscellaneous charges usually end up being approximately $1,000 and include the law society fee, deposit cheque administration fees, mortgage discharge fees and status certificate fees.
2. The development charges need to be capped
The local municipality charges a developer fees for any new home or condo and these fees are usually passed down to the investor as development charges. These fees are not charged to the developer until the closing on the property, so it is not known how much the local municipality will charge until the closing is underway.
A smart investor will make sure that the development fees are capped when they sign the condo agreement. When the development fees are capped it means that the investor will not pay over that amount no matter how much the local municipality charges the developer.
If these fees are not capped in the original contract, then the investor may end up paying tens of thousands of dollars more than they planned on when they purchased.
3. Each year the development charges rise for pre-construction condos
Many local municipalities are continuing to raise the prices of development charges. Recently, the development charges have doubled in the city of Toronto and while the developers protested the change, investors were still willing to pay the higher price.
This is another important reason to make sure that the development charges are capped when the original contract is signed.
4. HST is NOT always included in the price of the pre-construction condo
Many developers will state that the HST is included in the list price of the pre-construction condo but there is a stipulation. The price will only include the HST if the investor or a member of their immediate family is moving into the condo.
If the investor is not moving into the condo, then that needs to be disclosed at the time of closing. The investor will no longer be qualified to receive any of the HST rebates that were listed in the price.
Every investor should expect to pay 7.8% of the purchase price at the closing to cover the HST. The investor can than apply for the HST rebate in order to get the money back.
5. Other miscellaneous costs at closing time
There are other items that the developer may ask an investor to pay for at the closing. They are not considered closing costs, but they still need to be budgeted.
These could include items such as a pre-payment of property taxes, or a lumped sum for betterments and improvements approved by the condo board.