A mistake rich cash buyers make when buying real estate. Highest rated real estate agent Toronto
Sunday May 31st, 2020
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Is it possible to make a mistake with a real estate purchase even if a buyer has a lot cash in their bank accounts? Yes it is.
It is always wise to learn from the mistakes of others, especially if those mistakes can easily be avoided. In this video, there are two examples shared where rich cash buyers made a similar mistake when they purchased real estate here in Toronto: one client thankfully avoided any financial penalties, the second client, unfortunately, faced an expensive penalty. Did you learn anything from watching this video?
Hey guys, it's Karen from Toronto here.
Now I wanted to share a tip for all of you who are purchasing a new property. This advice is specifically for those who are making large cash transactions.
So that can mean a significant down payment amount, say any amount over $100,000. Or perhaps you are purchasing the property in cash.
So here's the tip: before you draft any offer to purchase a property, please double-check with your bank what the restrictions are if you were to transfer a large cash amount out of the account that your cash is currently sitting in, and move it over to either your chequing account or to your savings account and also double-check what the restrictions are if you were to transfer that money into a lawyer's trust accounts.
So I'll explain this by using a couple of examples. One of the clients I worked with last year purchased a condo and he planned to put down about $400,000 towards a down payment. Unfortunately, he didn't double-check his bank's policies when it came to transferring large amounts of cash in between his bank accounts.
So just before closing, his lawyer asks for the $400,000 in down payment to be delivered in the form of a bank draft.
Now this client banked with TD Bank here in Canada, and he sold some investments and shares in order to free up the $400,000 in cash.
So he had $400,000 cash sitting in his TD WebBroker account.
And for those of you who are not familiar, TD WebBroker is a self-directed investment trading platform.
Well, this client figured that he could easily transfer the cash that's sitting in his TD WebBroker account into his chequing account where he could issue the bank draft from. Well first off, TD did not allow the $400,000 of cash to be transferred from WebBroker into his chequing account. TD Bank had put a limit of $100,000 that could be transferred from WebBroker into the chequing account for a specific period of time. Now my client ended up having to rush into his TD local branch to speak to a senior manager who would allow the $400,000 cash to be transferred between his bank accounts. And thankfully he was able to speak to a manager who was able to do that for him. Because if that restriction was not lifted, we were going to have to delay the closing because this was all done a day before the closing date. And extending a closing date is very expensive because now you're paying additional legal fees. Those lawyers are going to have to work extra hours in order to help accommodate the delay in closing and also you'll have to pay for all the bridge loan financing. The lesson to take away from this is that the process was a little bit more stressful than it really needed to be.
Now, I'll share a second example with you and this one ended up being an expensive mistake. This mistake cost about $150,000.
Earlier this month a potential client reached out to me and this client owns multiple properties worldwide.
He primarily lives in the country Malaysia. And he reached out to me because he's interested in selling his condo here in Toronto.
Now a few years ago, he bought this condo directly from the developer and I did not know him at the time. Now, a simple mistake that a lot of wealthy cash buyers make, is that they assume they can transfer any amount of cash out of their bank account for a real estate transaction.
The problem is that pretty much every bank has a lot of restrictions on the amount of cash that you can transfer out of your bank account at any given time.
And on top of that, there is a period of time that's required for the clearance of funds and for the cash to be validated.
So with this particular client, even though he had the cash there were a lot of issues in transferring the money, about $2 million dollars worth, over from his Bank account in Asia here to Toronto, to the lawyer's trust account. And because he only started to transfer the funds here to Toronto just before the closing date, what ended up happening is that there was a significant delay in the closing. And he ended up having to pay around $150,000 CDN, in penalties for the delayed closing. And a lot of this had to do with all of the legal fees that were involved. Now if the client was prepared all of this could easily have been avoided.
The way to avoid this mistake is by going into your local bank before you sign a purchase agreement on a property and find out exactly what the restrictions are on transfer limits for large cash amounts out of your bank account into a lawyer's trust account and also to find out what the time period is for clearing those funds. Now, if your bank has restrictions on the amount of money that you can transfer out of your account at any given time, just inform your lawyer of this and your lawyer will be able to inform you of the installments that will have to be made at certain periods of time in order to ensure that all the funds that are required for the real estate purchase are received by the lawyer in their trust account before closing.
So the takeaway lesson here is no matter how much cash you have, before you sign a purchase agreement, double-check with your bank what the restrictions are when it comes to transferring large amounts of cash out of your bank accounts and also inquire what the clearance periods are in terms of the time that's needed to clear those funds.
So I'm curious to know if you learned anything from this video.
Let us know in the comments below.
And speaking about purchasing real estate a number of people have asked me how much money is required to purchase the average condo in Toronto. So if you're curious about the answer as well, go ahead and click that "Like" and "Subscribe" button now because in an upcoming video, I'll share how much money is required to purchase the average condo in Toronto.
In the meantime, if you have any real estate questions or needs, give us a call.