Recouping real estate transaction costs – The Globe and Mail

Book Excerpt

Recouping real estate transaction costs

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Flipping a house is expensive. If you’re planning on buying, plan on staying put for at least three years

This is the fifth in a series of 10 excerpts from Investing for Canadians for Dummies.

Financially speaking, we advise that you wait to buy a home until you can see yourself staying put for a minimum of three years. Ideally, we’d like you to think that you have a solid chance of staying with the home for five or more years. Why? Buying and selling a home cost big bucks, and you generally need at least five years to recoup your transaction costs. Some of the expenses you’ll face include

*Inspection fees: You shouldn’t buy a property without thoroughly checking it out, so you’ll incur inspection expenses. Good inspectors can help you identify problems with the plumbing, heating, and electrical systems. They also check out the foundation, roof, and so on and let you know whether termites are living in the house.

*Appraisal fee: Your lender may require you to get your home appraised so that it can have an independent assessment of the home’s value. An appraisal typically costs from $150 to $300 or more.

Investor Education:

*Survey fee: Unless the sellers have recently had a survey done of the property, you’ll need to have a new one prepared. Done by a registered land surveyor, a survey is simply a drawing of your property that lets you and your lender ensure that the buildings you’re buying are indeed on your property, that your neighbours’ homes aren’t on your land, and that any buildings meet zoning regulations. An up-to-date survey is generally needed before you can legally be awarded title. A survey will typically cost around $400 to $500.

*Legal fees: Although you can prepare an offer to purchase yourself and tend to the closing costs, using a lawyer to at least search the title is usually advisable. A title search is carried out to determine that the vendor actually owns the home and has the right to sell it to you, and that the property doesn’t have any claims against it. You can save some money by using a paralegal, but it’s generally best to use a lawyer. In British Columbia and Quebec, lawyers are the only folks legally allowed to complete the purchase. Using a lawyer also gives you valuable insurance. If the lawyer certifies that the seller has the right to sell you the property and that it doesn’t have any claims against it — known as free and marketable title — and this later proves to be wrong, you can pursue a claim against the lawyer.

*Title insurance: When you buy a home, you and your lender need to protect yourselves against the chance — albeit small — that the property seller doesn’t actually legally own the home that you’re buying. That’s where title insurance comes in — it protects you financially from unscrupulous sellers.

Special series of excerpts from Investing for Canadians for Dummies:

*Moving costs: You can transport all your furniture, clothing, and other personal belongings yourself, but your time is worth something, and your moving skills are likely limited. Besides, do you want to end up in a hospital emergency room after you’re pinned at the bottom of a staircase by a runaway couch?

*Real estate agents’ commissions: A commission of 5 to 7 percent of the purchase price of most homes is paid to the real estate salespeople and the companies they work for.

Remember: On top of all these transaction costs of buying and then selling a home, you’ll also face maintenance expenses — for example, fixing leaky pipes and painting. To cover all the transaction and maintenance costs of homeownership, the value of your home needs to appreciate about 15 percent over the years that you own it just for you to be as well off financially as if you had continued renting. Fifteen percent! If you need or want to move elsewhere in a few years, counting on that kind of appreciation in those few years is risky. If you happen to buy just before a sharp rise in housing prices, you may get this much appreciation in a short time. But you can’t count on this upswing — you’re more likely to lose money on such a short-term deal.

Some people invest in real estate even when they don’t expect to live in the home for long and may consider turning their home into a rental if they move within a few years.

This excerpt is taken from Investing for Canadians for Dummies, 3rd edition, by Eric Tyson and Tony Martin, copyright 2009 by John Wiley & Sons, Inc. This material is used by permission of John Wiley & Sons, Inc.

Posted via web from Toronto Real Estate News | Blog

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About Tariq Sultan
Dear Readers, I am a dedicated Toronto, Ontario based real estate professional who has been successfully meeting and exceeding the needs of his clients for past several years. I am actively involved in the insurance, financing, and mortgage industry. Real estate is not only my career – it is my passion. I strive to continuously provide my clients with exceptional service to ensure they are fully satisfied when it comes to their real estate needs. For any real estate related inquires contact me today, I will be happy to assist you. Best wishes, Tariq Sultan

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