What expenses will I, as a buyer, incur while purchasing a multifamily property? Reports required? Financing Fees? Lawyer fees?
So….. You’re planning on buying a Commercial Multifamily Building!!
Here is the information you NEED to know. flemingrealty.ca
• Commercial Financing is required for any multifamily of 5 residential units or more
• Commercial Financing amounts is determined based on the Net Operating Income (NOI), as determined by the Lender.
• You can NOT be “preapproved” for commercial financing because the Lender does NOT know the NOI because he does not know the specific building. Your net worth is important… but the Lender is lending based on the building that they are taking for security. Quite frankly you are secondary to the building “business”… the NOI.
• Conditional Commercial Purchase Contract - This is when the Buyer and the Seller have agreed to the important terms of the purchase contract
o Purchase Price
o Deposits that Buyer is to pay
o Conditions
Due Diligence Information to be provided
Due Diligence Period
Finance Condition
Other agreed to terms
o Completion Day (Closing Date)
• The Due Diligence period is the period wherein the Seller provides the agreed upon information, the Buyer has viewed the building and the Buyer feels that they want to proceed on with purchase of the property or they are no longer interested. If they are no longer interested the deposit is refunded to the Buyer.
• If the Buyer wishes to proceed with the purchase and requires Commercial Financing the Lender requires YOU to provide certain reports in order to proceed. All costs below are approximate.
o An Appraisal $3,000
o Level One Environmental Report $3,000
o Structural Report $1,000 - $1,500
o Mechanical Inspection (boiler) $500
REPORTS TOTAL (Approx) $8,000
• When you go for the financing…. After you have your reports or while you are gathering your reports there are cost incurred relating to obtaining financing, as well as your lawyers fee for looking after your interests in the transaction. Again, cost are approximate.
o Lender Fee .25 -.5 of1% of the loan amount
o Mortgage Broker Fee at least 1% of loan amount
o LENDER’s Lawyer Fee $3,500– $5,000
o YOUR Lawyer’s fees $2,500 -$5000 depending on the file
You, as a Buyer need to have these expenses built into your budgeting.
For EXAMPLE. …. $1,000,000.00 Loan
• Lender Fee .5 of 1% $ 5,000
• Mortgage Broker Fee 1% $10,000
• Lender’s Lawyer Fee $ 4,250
• Your Lawyer’s Fee $ 3,750
TOTAL $23,000
flemingrealty.ca