Flipping homes has become quite a revenue stream for Canadians as to the masses it seems like a “quick” way to make a profit. Although many people in the market have been successful there are many challenges and obstacles when it comes to flipping a home.
Buying the Right Property
It may take months to find the right home and after you do it is important for you to get the property for the right price. We talk about the spread of your investment, how much did you purchase it for, how much are you going to spend renovating and will you still be able to sell the home in the neighbourhood it is located in for a profit without the price tag being substantially above the comparable properties.
Obviously one of the main elements of flipping a home is the renovating. How much of the home are you renovating, what is the timeline, what level of quality with you be using for tradesmen and products. As realtors we have seen it all, we have walked into homes where it is immediately apparent that a renovation was rushed or corners with cut all in the name of maximizing profit, other renovated properties may have less done but the quality is much better. Taking a little more time and spending slightly more on better quality products during the renovation process may be the better alternative than having a property sit on the market because consumers can see through the workmanship.
Securing a mortgage for the property is important as a quality/decent renovation can take several months however not long enough for some typical mortgages. If you aren’t bridging a mortgage to a new home after a current renovation, depending on your mortgage ending it early or quick may result in fees.
Skip Personal Choices
Making sure the flipped home appeals to the general buyer population is a smart choice so no buyers are deterred from seeing the property. You as the purchaser and having the final say it was is being renovated and how, you may want a certain element that isn’t prioritized by the masses. Everyone does have their own taste but sticking with a neutral colour palette and typical flow of the home is better for resale purposes.
Purchasing a property to flip and then relisting it at the right time is an essential element and could change the amount of profit you do make. Purchasing a home when the market is cooler, renovating and then setting it up to be relisted for a spring or fall market which is an optimal time to sell, could result in making more of a profit.
Costs Associated with Selling
Bringing the newly renovated property to market and selling it does incur some costs. If you’re looking to get into the flipping market you also have to consider hiring a realtor to market & sell the property, paying the co-operating agent, lawyer fees, mortgage payments until the home closes and any closing costs.
Capital gains Tax
Always always always account for the capital gains tax in your profit. Sellers typically have to pay tax on 50% of their capital gains for investment properties. The rate Sellers will pay is based on several factors such as the original price they paid, any expenses on improvements made, the selling price, etc.
For the experienced professionals and those who are willing to learn and do a good job, flipping houses may be a route to take as it could result in some extra income. The flipping experience is different for everyone, make sure you have done your research, don’t rush and purchase the first house you see unless it works for you and be smart when choosing tradesmen and products.