Closing costs are a one time fee and refer to the various expenses and fees required to finalize a real estate transaction. These costs are transferred to the lawyer at final closing when ownership of the property officially transfers to the buyer. These costs must be paid in cash and cannot be rolled into the mortgage so don’t forge to budget them!

20% Down-Payment

Before I get into the closing costs, you must know that to qualify for a mortgage on a rental property anywhere in Canada, you need to have a minimum 20% down-payment at closing. Any deposits you have provided to the builder count towards this total and you need to come up with the difference to 20% at final closing. This money is also required in cash and needs to be added onto your closing costs! Here are same deposits required but the total amount owed depends on your purchase price and the deposit structure of your purchase:

Closing Costs

Costs vary significantly by city and province and even by project. Below are are estimated closings costs on a $500,000 purchase, comparing Toronto to Calgary:

The above list is not exhaustive and there can be many more or different charges but should give you an idea of what ballpark to expect for closing a pre-construction property:

Prepaid Property Taxes: Property taxes are usually paid on an annual basis but closings rarely fall on the first day of the year/month, so the developer will collect property taxes on behalf of the city, until the regular property tax payment schedule can take affect. This can vary from just a few days worth, up to nearly a whole year!
Prepaid Condo Fees: Same goes with Condo Fees except the amount collected is usually not more than one month because you start to provide your condo fees directly to the condo board.
Occupancy Fees: Some regions like Ontario have interim occupancy where you are able to move into the unit but you don’t have legal ownership of it yet (essentially you are renting the unit from the builder during this time) and the fees include interest on the unpaid balance of the purchase price, and monthly property tax/condo fees. Usually this amount is pro-rated for only the month of closing and then your regular occupancy fees apply. Property some areas like Alberta go straight to closing so there is no interim occupancy or the associated fees.
HOA Fee: Homeowner’s Association fees are dues homeowners within a planned community or condo pay to cover the fees of the common areas. HOA fees are quite rare in Canada but you are seeing them more often as part of new townhome developments.
Legal Fees: When closing on a real estate transaction you need to use a lawyer to protect your interests and ensure that documentations is prepared and files accurately for all parties so the bulk of this fee goes towards paying them. There are also miscellaneous fees required like government & property registration fees, transaction levies, deposit compliance, etc. that can apply.
Warranty Enrolment Fee: Each province has different rules and warranties that are offered for the purchase of pre-construction properties. In Ontario, the buyer typically pays the enrolment fee into the warranty program. In Calgary, the builder typically covers this expense.
Development Charges: These are fees collected to help pay the cost of infrastructure required to provide municipal services to the new property (roads, sewer infrastructure, community support like fire, policy, community centres, etc.). Your purchase price already includes these development charges that were applicable at the time of purchase, but there may be an increase in these fees from the time you buy the property to the time you take ownership of it. Since developers simply don’t know, they will usually give you a cap on this increase which you must pay at closing. In Alberta, there are no development charges whatsoever.
Mortgage Appraisal Fee: An appraisal may be required by a third-party to confirm the resale value of the property for the lender. The lender may cover the expense of this but it can cost you $400 - $600 if required.
Land Transfer Taxes: This is calculated as a percentage of the purchase price of the property and varies in each province. Some cities, like Toronto, also have a municipal LTT, effectively doubling the taxes paid
HST/GST Rebate: HST/GST are applicable on the purchase of a pre-construction property and the majority of the taxes are built into the contract/purchase price already. However in Ontario, there is an HST Rebate component that must be paid in cash at closing (typically this is ~$24,000 for most purchases in the province). If you rent out the property for a 1 year lease, you can usually file a rebate application to get this back so that this expense becomes a cash flow issue and not a true cost of purchasing the property. In Alberta, there is a small GST rebate of up to $6,300 but this is usually included in the purchase price so no further cash is required at closing.

Closing costs can be an expensive part of purchasing a property and ultimately need to be added to your purchase price to determine your true cost and can significantly affect your investment returns. Investing in a low-cost area immediately sets you up to earn a higher return as these extra costs do not need to be overcome before generating a return.