Investing in a pre-construction condo unit is one of the biggest financial commitments you will ever make in your life, no matter if you’re planning to move into it or keep it strictly as an investment property. With this in mind, we wanted to share with you 5 important things you should know about closing costs before finalizing your investment in a pre-construction condo unit.
What is Pre-Construction Condo Closing Costs?
There are certain extra fees that you have to meet when you invest in pre-construction condos. These extra fees are called “closing fees,” which are essentially additional fees that come on top of your regular taxes, down payment, and mortgage.
There is no exact science as to how a person can accurately determine pre-construction condo closing costs, as these costs are influenced by a myriad of factors, including area, size of the unit, number of bedrooms, and more.
Therefore, it’s important to consider these costs if you ever want to invest in a unit such as the ones in Square One District Condos. To avoid plans falling through, make sure you have a certain extra amount on-hand to fall back on for closing costs.
5 Important Things to Know About Closing Costs
- Closing Costs Vary
One of the many reasons why first-time buyers get shell-shocked by pre-construction condo costs is because there’s no set amount for closing costs. The price you pay will rely heavily on different factors, including the builder you’re working with, the area your condo is located, the number of rooms it has, the size, etc.
That being said, if you’re planning to invest in pre-construction condos, expect an out-of-pocket cost of at least $15,000 – $20,000 for a studio unit, and $20,000 – $40,000 for a unit with more than one room.
- Legal Fees
When investing in real estates, such as pre-construction condos, it’s important to have an experienced lawyer around for assistance. A lawyer can help you navigate complicated legal jargon and intricate paperwork that would be a hassle to work through alone.
Unfortunately, legal assistance does not come for free, thus, you’ll have to factor in lawyer fees into your closing costs. NOTE: Pre-construction condo closing costs will be different, depending on your lawyer and situation.
- Land Transfer Taxes
One of the biggest closing expenses for most buyers is the Land Transfer Tax (LTT).
LTTs are applied to both resale and newly built homes, including pre-construction condos. Taxes may vary, depending on which area you’re planning to buy land in. However, the two most common types of taxes that owners need to meet are the municipal tax and provincial land transfer tax.
The value of these taxes is dependent on a certain percentage of the total cost of your prospective pre-construction condo unit.
- Development Levies
Upon the start of a certain area’s development, developers are required to pay the municipality a certain amount of money to make up for new park spaces, community resources, public art/education projects, and more. These costs are later on worked into a buyer’s closing cost.
This is another area where having a good lawyer could save you money. Ask your lawyer (or real estate) to negotiate that these development levies be capped. You don’t want to get stuck paying too many weighty costs over time.
- Miscellaneous Expenses
Miscellaneous fees include things such as Utility hookup fees, Tarion Warranty Enrollment Fee, Deposit Administration/Letter Charges, Discharge of Construction Mortgage, Site review by Tarion, Electronic Registration Fee, HST on Appliances, and even insurance.
These costs can add up to approximately $3,000 – $5,000 for a typical pre-construction unit. This is why it’s also another important thing to think about when you’re considering investing in condominiums. For a list of effective ways to lower your condo insurance fees, you may refer to this post.
As you’ve probably realized by now, there are many things to consider before investing in real estate like pre-construction condos. From reservation funds and miscellaneous costs, to park levies and development charges — a lot can go into your closing costs and you might end up paying more than what you have ready if you don’t plan your moves right.
Therefore, before throwing yourself into the throng, you need to make smart choices. Do your research or ask for help from experienced professionals, so you won’t have to deal with costly mistakes along the way.