Closing Costs for Buying or Selling a Multi-Residential Property

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I f you have not

purchased a multi-
residential property
Government Registration Fees
Survey (no survey - often covered by title insurance)
4
Incorporation (of Numbered Ontario company)
$0
$0
$1,065
5
before, especially in Phase I Environmental Assessment $1,840
Mortgage Application $0
Toronto and especially 6
Lender's Inspection Fee $250
if the number of units is 6
Lender's legal fees $4,100
greater than six, you Existing Mortgage Assumption Fee $0
may be surprised by the Mortgage Commission
7
$6,760
number of different Building Inspection $750
costs involved when Legal (your lawyer’s fee for the work, not including
purchasing or selling a fees on the Statement of Adjustments, below) $2,800
8
multi-residential Title Insurance $980
Statement of Adjustments and Legal
property.
Disbursements (includes blue values below) $2,059
In southern Ontario, traditional lenders generally • City Tax Certificate 60.00
• Zoning reports 122.00
consider a four-plex or smaller to be a “residential”
• Engineering reports 0.00
transaction, whereas six or more units in a property is • Sheriff's certificates (depends on # of names) 56.00
considered to be a “commercial” transaction, the • Registry office searches (depending on the
latter often bearing more expenses. complexity of the purchase and # of documents) 300.00
• Utility searches (depends on # of open accounts) 75.00
Here is a list of some of the types of closing costs you • Register deed 72.00
• Register Mortgage 72.00
could expect to pay. The prices are approximate and • Copies/fax/postage/courier 0.00
will vary wherever you are. This list is for a purchase • Elevators 42.00
of an 11-unit apartment building in a city outside • Corporate searches 0.00
• Fire 63.00
Toronto (hence no Toronto Land Transfer Tax, see
• PPSA (Personal Property) 30.00
further below). • Electrical safety 53.00
As a new account holder, you may also be required to Mortgage Interest Adjustment (if any) $0
make a deposit with a utility company, which can be Mortgage Insurance (if any) $0
Other 1 $0
notable (eg. electricity $3,000)
Other 2 $0
HST on Purchase Price $0
1 Co-op Brokerage Commission received $0
Ontario Commercial Land Transfer Tax $11,775
1 Listing Brokerage Commission Paid $0
Toronto Commercial Land Transfer Tax $10,953
2 HST on Commission $0
CMHC Insurance Premium $32,110
CMHC Premium PST (8%)
2
$2,568 $80,000
1st mortgage prepayment penalty $0 Note 1: TIP – Land Transfer Tax
2
CMHC credit $0 Land transfer tax is a significant expense and is
2
CMHC Application Fee $1,650
3 triggered whenever there is a change in title
Insurance consultant $340
ownership at the Land Registry Office. An additional

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© Christopher Seepe 2011 (416) 525-1558 www.multiresidentialexpert.com Page 1 of 5
 Closing Costs for Buying or Selling a Multi-Residential Property
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land transfer tax is triggered if the real estate CMHC will allow a lender to advance up to 80% of the
transaction occurred in Toronto. value of the property (“loan-to-value or LTV), and
If you incorporate a company and have charges an additional premium as the
the property be that company’s only LTV ratio increases. However, CMHC
asset, when you decide to sell the does not use the appraised value of the
property, you can sell the company with property as determined by
all its assets (and liabilities), not the independent appraisers or market
property itself. Since title ownership is comparables. They send their own
still held by the company, there is no appraiser and the consequent
land transfer tax. This is a significant appraised property value is almost
advantage to the buyer, which the always much lower than the purchase
seller can leverage as well in its price. This forces the buyer to either:
negotiations. (a) Put in a higher deposit than was
originally planned;
Note 2: CMHC Insurance – do it but be (b) Pay the additional CMHC premium
aware of the ‘money-grab’ for an 80% LTV that is actually perhaps
Canada Housing and Mortgage (CMHC), 70% of the market LTV.
a quasi-government agency, offers
mortgage insurance to traditional On a more positive note, the CMHC
lending institutions. CMHC will cover premium (and certain other expenses)
the loss if a mortgagor defaults on a can be rolled into your property’s
mortgage. mortgage amount but does not count
as part of the LTV ratio calculation. PST
Lenders consider multi-unit financing to be much less (Provincial Sales Tax) is due upon closing and cannot
risky when it’s insured so they offer lower interest be rolled into the mortgage.
rates of as much as 200 basis points (2%) or more. The
amount of interest payments saved over the term of I have read that the vast majority of multi-residential
the loan can often more than make up for CMHC’s mortgages (excluding corporations) are CMHC-
heavy insurance premium. insured. Therefore, it is possible that you may come
across a multi-residential property for sale that is
By example, on a $500,000 mortgage, a 2% lower 5- already CMHC-insured. CMHC’s insurance premium is
year rate would save about $34,000, after accounting a one-time fee for the life of the mortgage.
for CMHC’s $11,250 premium and $750 application
fee (currently $150 per unit). Moreover, the property You may want to explore whether you wish to take
enjoys a 16% better cash flow because of the lower over the existing mortgage, with a new CMHC
mortgage payment. insurance premium but possibly without having to go
through another appraisal. Consequently, there may
This is one of those cases where “pay to save” and be a potential CMHC credit.
“penny-wise, dollar-foolish” are appropriate.

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 Closing Costs for Buying or Selling a Multi-Residential Property
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Note 3 – Building Insurance • This is where a real estate accountant and a real
A lender will sometimes require you to have an estate lawyer can help you immeasurably
independent insurance consultant review your
Another thing: while you can save money by
building insurance, which you must have in place
incorporating a company online by yourself, there are
before closing, to determine whether you have
a slew of minutes and other documents that need to
enough and appropriate be prepared as part of closing the sale of a property.
insurance for your property. Unless you are intimately familiar with the process,
For more details on building let your real estate lawyer do it. They will likely have
insurance, see my separate a junior person on staff that do this kind of work all
article titled, “How Much day long and will charge a reasonable fee for the
Building Insurance Should I service.
Have?”You may be
Note 5 - Phase I Environmental Assessment
surprised by the answer. I believe all commercial
Note 4 – Incorporation loans by traditional
I received differing expert lenders in Ontario
opinions on whether or not to incorporate. This is (including CMHC)
something you have to investigate for your particular require you to obtain a
situation. In the end I decided to do it for the Phase I Environmental
following reasons: Assessment. Depending
• Separate legal entity that distances you from on the outcome, a Phase
personal liability in the event of a claim against II or (heaven forbid) a
you by a tenant or supplier Phase III mimght be
• Keeps your property and personal finances required. This is a
separate lengthy topic so you
• Land transfer tax benefit (see Note 1) should do some Internet
• Can set up estate trust for your family research on this item.
• Can change owners of company a lot easier My advice:
than owners on title • If selling, know what you’re getting into before
• Pay yourself a ‘reasonable’ salary, on which the you list the property. You could be setting
company uses its pre-tax profits to pay certain yourself up for a bucket of grief.
payroll- and benefits-related expenses and • If buying, make your purchase conditional, at
salary deductions (to be written off) your sole discretion, upon your acceptance of a
• Certain of your ‘reasonable’ expenses can be Phase I report. If there’s anything that crops up
written off in the company to reduce your that you don’t like, you have a quick and
overall taxable income – travel, vehicle inexpensive way out of the purchase
operation/maintenance, etc.
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 Closing Costs for Buying or Selling a Multi-Residential Property
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• Shop around. I received quotes ranging from Like realtors®, there are literally thousands of
$1,500 (plus hidden costs) to $3,480 – for more mortgage brokers, but, also like realtors, the really
or less the same service. The lender may have good ones are few and far between. See the “About
an approved supplier list or require that your Us” page of the www.multiresidentialexpert.com
chosen vendor pass the lender’s qualification website for statistical evidence of this.
process. Even with a good one, be aware that, while they may
• As earlier mentioned, make sure you know all have a fiduciary obligation to you, the truth is they
the costs. It is sometimes hard to estimate will probably work with you once (or perhaps a few
exactly what the costs will be but pin down your times) but they work with lenders’ representatives
supplier as much as possible. every day. Mortgage brokers do not ‘shop’ your
Note 6 - Lender's Fees opportunity around. They usually have preferred
If you don’t know it by suppliers and will present you to that small group
now, you’re in for a rude (perhaps 3 lenders). Find out who their suppliers are
awakening. Financial and continue to do your own homework. I found one
lender’s don’t pay for top-notch mortgage broker that I came to respect
anything and charge you highly but I continued to do my own research and
for everything. Look for actually found a lender that was 150 basis points
all the fees and don’t be below the best offer my broker had. Of course, he
afraid to negotiate now also had a new preferred supplier.
charges that are Note 8 – Title Insurance – you gotta have it
downright unreasonable Title insurance has a great
or not even warranted. many benefits and you
However, you will almost should definitely investigate
assuredly have to pay the it. In fact, I think just about
lender’s legal fees, using all real estate lawyers will
their lawyer (sometimes tell you to get it. The price
they’ll let you use your own). And their fees will be varies according to the size
substantially higher than yours and you don’t get and type of property. From
much of an option to negotiate them. First Canadian Title’s
website, title insurance
Note 7 - Mortgage Commission
benefits include:
Mortgage commission can be all over the map but
• Protects against not being able to sell your
self-respecting, proven mortgage brokers are worth
property in the future or obtain financing
their weight in gold. I find that 1% of the loan amount
against your home as a result of defects that
(excluding rolled-in fees like CMHC premiums) seems
would have been disclosed on an up to date
to be reasonable.

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 Closing Costs for Buying or Selling a Multi-Residential Property
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survey, Real Property Report or Location municipal zoning requirements

Certificate • Protection in the case of someone claiming an
• Protection against fraudulently registered interest in your land; for example, an easement
mortgages against your title for a driveway or a builder’s lien
• Legal fees associated with resolving insured title • Problem solving/facilitates closings –frequently
issues will be covered provide coverage for known defects such as
• Coverage for renovations completed without a encroachments, delays in registration and
building permit that result in a loss zoning violations.
• Protection should a property not meet

I am a commercial realtor (broker), based in Toronto,

Canada focused on multi-residential (rental
apartment) buildings.

As an owner/operator I am also intimately aware of

the issues, challenges, personal financial and estate
planning considerations, rewards, and sense of
accomplishment that come from managing the
human relationships, business challenges and
operational issues of owning a rental property.

I can help you do the same.

Christopher Seepe

Cell: 416.525.1558
Email: cseepe@thebehargroup.com
http://www.thebehargroup.com
Websites:
www.multiresidentialexpert.com
http://twitter.com/#!/cseepe
Twitter:
(Multi-residential investing)

The Behar Group Realty Inc., Brokerage

1170 Sheppard Ave. W. Unit 24
Toronto, Ontario M3K 2A3

®Registered trademark of the Canadian Real Estate Association (CREA)

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© Christopher Seepe 2011 (416) 525-1558 www.multiresidentialexpert.com Page 5 of 5