Condo buyers should prepare for 'phantom' rent

[k.w.l.]

I suppose a deal could be worked out where an all cash buyer would pay significantly less phantom rent but then he wouldn't have the cash and earning potential of the cash. I'm sure you follow my point.

Interest on the unpaid balance is the largest component of occupancy fees, so an all cash buyer could certainly pay less if they chose to pay it all up front. They'd have to evaluate whether the savings in occupancy fees would be more than what they could otherwise earn with that cash.

After reading this, I think if I was buying a new condo I would ask the bank to include any payments incurred up to the point of registration in the mortgage.

Nice sentiment but occupancy fees aren't paid to the bank, they're paid to the developer.

Interim occupancy is not a great situation but there's no excuse for a purchaser not knowing about it going in. As others have said this is really an issue with the bureaucracy, not the builders. The builder still has plenty of incentive to finish as quickly as possible, as occupancy fees are a drop in the bucket for them compared to what they'll get at closing - even the deposits they receive as down-payments are held in trust and can't be accessed by them until closing.

 

[rbt]

I paid around $7200 in interest which I didn't need to cuz I had the full amount to pay it off. Paying the bank at 7.35% interest and the bank paying me 3% interest back doesn't really save me much. Plus there's tax on the 3% interest earned.

Dumb question, but why didn't you just cut the developer a cheque for the full amount when you made your occupancy deposit? I've never met a developer who would turn down a larger deposit cheque. Often the APS explicitly mentions you can pay more than the minimum.

You still would have paid taxes, maintenance fees and insurance, but the interest portion of the payment would have been $0.


I can think of a few reasons why I wouldn't but my lawyer also provided me with numbers that I could expect during occupancy and in closing costs during my 10 day cool-off period.

 

[AKS]

Dumb question, but why didn't you just cut the developer a cheque for the full amount when you made your occupancy deposit? I've never met a developer who would turn down a larger deposit cheque. Often the APS explicitly mentions you can pay more than the minimum.

You still would have paid taxes, maintenance fees and insurance, but the interest portion of the payment would have been $0.


I can think of a few reasons why I wouldn't but my lawyer also provided me with numbers that I could expect during occupancy and in closing costs during my 10 day cool-off period.

Who wouldn't if given the choice. But that choice is not given. Like the previous poster said. The money is placed in a "trust fund" The developer can't touch the money. They developer won't pay the interest for you. Also from the article on the first page. They guy had money, but had to pay the interest on the pre-occupancy fee too. If he had a choice he would have paid it in full.

 

[k.w.l.]

Who wouldn't if given the choice. But that choice is not given. Like the previous poster said. The money is placed in a "trust fund" The developer can't touch the money. They developer won't pay the interest for you. Also from the article on the first page. They guy had money, but had to pay the interest on the pre-occupancy fee too. If he had a choice he would have paid it in full.

Actually the developer pays you interest for the funds held in trust, albeit a small amount (you should see this in the closing documents as a credit back to you). The interest portion of occupancy fees is on the unpaid balance. For example, if you bought a $200,000 condo and paid $50,000 up front, your occupancy fees would be for interest on $150,000, plus your share of property taxes and common expenses.

 

[mdot]

Who wouldn't if given the choice. But that choice is not given. Like the previous poster said. The money is placed in a "trust fund" The developer can't touch the money. They developer won't pay the interest for you. Also from the article on the first page. They guy had money, but had to pay the interest on the pre-occupancy fee too. If he had a choice he would have paid it in full.

Under the Condo Act, every purchaser has the right to pay off the full amount of the balance outstanding on their condo just before taking interim occupancy (and thus not pay the interest portion of the interim occupancy payment). This is a provision no developer can contract out of. For most people this isn't a viable option as they don't have hundreds of thousands of dollars lying around, and a bank won't give them a mortgage until the building is registered and they have taken title to their unit.

 

[rbt]

But that choice is not given.

No, the choice is not presented on a platter by the developer but I'm pretty sure it is often (always?) possible to increase your deposit to the trust fund with cash on hand, when you ask to do so. Borrowing is difficult since you don't own an asset yet, just a contractual obligation to buy one later on.

If a written request was sent and received written denial then I'd be taking it to a good lawyer to see if something could be done to reclaim interest paid.

It isn't the developers responsibility to inform you of your options. It is a combination of your own (asking questions) and your lawyers AND real-estate agents. If they were asked and gave bad advice, it might be worth speaking with a lawyer about that too.

 

[AKS]

interesting. I asked the sales people at the office before signing if they could add that option of paying down more than the 25% at pre-occupancy and they said no.

 

[Mot]

You're paying $2000 in phantom rent on a $250,000 unit?

Ok, let's look at that:

$250,000 @ 6% = $1,250 in interest
$250,000 @1.1%= $230 in property tax
750 sq. ft. @$.50/sq. ft. = $325 in condo fees
Insurance = $100

________
$1,905/month

You're not exactly getting hosed friend! Also, who covers the utility costs?

Either way, the issue really is whether you should be forced to move in when the building isn't properly completed. The condo docs contain all this info and if your lawyer carefully explained this to you you would/should have been aware of the risk.

First thing, I am not your friend. I have much better taste in the people I call friends. Second, I explained my payment will be much less because I am making more than the minimum deposit when the building is registered as advised by everyone, except really smart guys like you.
Third, utilities aren't covered and I explained they are charging 7.35% interest on the unpaid balance not the 6%you used.

I will say this again, maybe if you read s l o w e l y you might get it. I expected to pay the occupation fee for a few months, not a year or more because I am dealing with a developer that is too stupid to file the right papers on time. As others advised perhaps forcing a 6 month max on these developers will make things better for us buyers.

You really aren't helping anyone in this subject, you've provided nothing new here., nothing we didn't already know and post about. You just seem to be getting off hitting others when they are down. Good luck with that Napolean. It comes from a place of insecurity, you might want to speak to someone about it.

If you're point is that developers should be allowed to charge phantom rent indefinitely then I cannot help you with that kind of logic, if not, then you're simply just being an ass.

P.S. Your breakdown is wrong for the occupation fee I am paying, good guess though.

 

[Mot]

interesting. I asked the sales people at the office before signing if they could add that option of paying down more than the 25% at pre-occupancy and they said no.

Any lawyer worth his salt would not allow his client to put his/her entire life savings in a trust account subject to litigation with a developer if the deal falls through for whatever reason. That's what my lawyer advised and I am glad he did.

 

[longre]

First thing, I am not your friend. I have much better taste in the people I call friends. Second, I explained my payment will be much less because I am making more than the minimum deposit when the building is registered as advised by everyone, except really smart guys like you.
Third, utilities aren't covered and I explained they are charging 7.35% interest on the unpaid balance not the 6%you used.

I will say this again, maybe if you read s l o w e l y you might get it. I expected to pay the occupation fee for a few months, not a year or more because I am dealing with a developer that is too stupid to file the right papers on time. As others advised perhaps forcing a 6 month max on these developers will make things better for us buyers.

You really aren't helping anyone in this subject, you've provided nothing new here., nothing we didn't already know and post about. You just seem to be getting off hitting others when they are down. Good luck with that Napolean. It comes from a place of insecurity, you might want to speak to someone about it.

If you're point is that developers should be allowed to charge phantom rent indefinitely then I cannot help you with that kind of logic, if not, then you're simply just being an ass.

P.S. Your breakdown is wrong for the occupation fee I am paying, good guess though.

I was only trying to point out that you aren't being hit nearly as badly as you think. You need to factor in the opportunity cost on your big deposit in order to accurately compare the costs. No harm intended. Certainly not interested in making you feel worse.

Enjoy your new home, friend, and might I suggest anger management therapy?

 

[Mot]

You just went against anyone who dared complain for some oversight and regulation so that developers cannot do this to poeple. Over $20,000 going to rent isn't being hit as badly as I think? They are taking over $20,000 from us with none of it going to principal simply because they do not know what they are doing. We expected to pay the occupation fee for a few months, not a year or more. I already said buyer beware, buy from Tridel or any other builder with a good reputation. The Verve up the street is just about to be registered from what I am hearing. We still have no idea when we will be and we were occupied before them and are 1/3 the size of that building. I will add to that, make sure your builder is using union labour.

You also included insurance in your calculation, I am paying that separately (as a renter) and it is not part of the occupation fee from the builder that I am paying.

 

[longre]

Over $20,000 going to rent isn't being hit as badly as I think? They are taking over $20,000 from us with none of it going to principal simply because they do not know what they are doing.

Forgive me, but accounting is a strong area for me.

You say they are taking $20,000 from you and I'm sure that is correct. However, if you owned the suite you would be paying a significant amount of money every month to live there- property taxes and condo upkeep fees, and you also would be giving up a significant amount of return on your capital. So if you have $200,000 sitting around at 3% in money market or 5% in a safe bond fund, you need to impute some value to it. I would concur that in these extraordinarily trying times that nothing is safe today but cash and cash equivalents.

Again, you are a little behind but not much. You just don't seem to realize that for some reason that I believe has to do with ego. I wish you great success and peace in your new home and hope that you can put this negative experience behind you quickly and start re-directly your anger towards the City of Toronto for raising your property taxes.

 

[rbt]

interesting. I asked the sales people at the office before signing if they could add that option of paying down more than the 25% at pre-occupancy and they said no.

It generally isn't wise to do but it is generally possible.

 

[BobBob]

Why is it not wise?

 

[Mot]

Forgive me, but accounting is a strong area for me.

You say they are taking $20,000 from you and I'm sure that is correct. However, if you owned the suite you would be paying a significant amount of money every month to live there- property taxes and condo upkeep fees, and you also would be giving up a significant amount of return on your capital. So if you have $200,000 sitting around at 3% in money market or 5% in a safe bond fund, you need to impute some value to it. I would concur that in these extraordinarily trying times that nothing is safe today but cash and cash equivalents.

Again, you are a little behind but not much. You just don't seem to realize that for some reason that I believe has to do with ego. I wish you great success and peace in your new home and hope that you can put this negative experience behind you quickly and start re-directly your anger towards the City of Toronto for raising your property taxes.

If you knew what you were talking about then you would know the Occupancy Fee (Phantom Rent) includes caluclations for maintenance (upkeep)fees and taxes. Once again you proved you are either deliberately giving out false information or are woefully uninformed on this subject.

You seem to be arguing against indefinite Occupancy Fees for developers who are incompetent. I see you just joined Urban Toronto in Nov 20th. I wonder what dog you have in this race. Certainly you aren't for the consumer. Perhaps you need to look into your motivation for being in this thread. Mine is to inform, educate and hopefully help people by sharing knowledge of an unfortunate situation we found ourselves in.

My advice is developers should not be allowed to treat customers this way. Force them to register building within six months of occupany. Avoid the Willowfield Winchester/Nortstar developers and stick to competent developers with good track records. You pay more up front, but you get a better unit and less headaches in the long run.