So you think you can flip. Years of watching Masters of Flip and Property Brothers stars Drew and Jonathan Scott on HGTV have given you the courage to give it a try. You have an eye for decor.
Buy Homes for Profit
Buying and selling houses is like playing the tables. Even if the Brampton real estate market is hotter than a jalapeno pepper, your luck could run out at any time. That could leave you holding the bag with a fixer upper in desperate need of new wiring or updated weeping tile.
Find Bargain Homes in Your Area
Do you know a bargain when you see one? Realistically, are you in love with the idea you can turn a pumpkin (beat up, outdated wooden bungalow) into a gilded coach (money in the bank)? Before you invest, ask yourself four questions:
- Who is buying houses right now?
- How much are they spending?
- How much can I spend and still make a profit?
- Why this house, in this neighbourhood?
Find a Reputable Realtor in the GTA
Any competent Ontario realtor can direct you to popular neighbourhoods in your price range or tell you where the hottest properties can be found. Caveat emptor — buyer beware. Realtors make money from commissions. Doing your own research ensures you are working with a professional who steers you straight, instead of selling you a DIY disaster. Do this to cover your bases:
- Interview realtors.
- Get recommendations from friends or relatives.
- Call sellers and buyers to check references.
- Download demographics from municipal websites.
- Scan local real estate articles to see what buyers want.
- Ask realtors for “comps”, prices similar homes in desirable neighbourhoods are selling for.
- Figure out what building permits cost and how much you have to spend to meet current building codes.
Renos You Can’t Afford to Skip
The urge to buy is like an itch. The more you worry about the competition outbidding you, the less likely you looked under the hood. Four problems you don’t want to skip fixing:
- Knob and tube or aluminum wiring – Home insurers will run the other way. No insurance, no mortgage.
- Asbestos floor tiles – A health hazard and absolute must to remove, unless you just plan to cover it up (also an option).
- Mouldy insulation under the drywall – A festering mess you and your buyer can live without.
- A crumbling foundation begging for replacement – Expect to lift the house while your contractor rebuilds it.
Get a Property Inspection in the GTA
A qualified property inspector can look past white appliances and shag carpet to see if a home has good bones. It’s not about how pretty the house will look when you’re done. It’s about the dollars and common sense of real estate investing. Expect your home inspector to:
- check floors and windows are square
- ensure shingles and eaves are in good repair
- look for foundation cracks
- test for water leaks in walls, ceilings, floors and window sills
- find cold or hot spots
- locate insect damage (wood shavings or bore holes)
- test water pressure
- inspect the age of wiring, plumbing and the hot water tank
- tell you the expected life left in the home.
How Much to Pay for a Fixer Upper in Ontario
What you pay has to be fair given your home’s state of repair. Look for properties where you can make a 30% profit. Say your realtor believes the home can sell for $350,000. You spend $75,000 to upgrade the kitchen, bathrooms, siding and shingles. Doing the math <$350,000 x 30% = $245,000 – $75,000 = $170,000> shows you the top price you can pay. You want the best value out there because if the market takes a header, your profits go with it.
Getting a HELOC
Granite countertops and high end appliances cost money. Looks like you’ll need a home equity line of credit (HELOC). You won’t be buying and holding for long once interest payments are due. Mortgage payments, property taxes, insurance, capital gains, labour — it all adds up. Before you dabble, be sure you can tough out a bull market.
Flipping Homes as a Business
Flipping houses is a business and like any business, means working 9 to 5, after hours and on weekends. You’ll have to successfully “read” the real estate market, work hard, supervise contractors and subs and know when to sell at a loss. Sweating it out by doing the work yourself could lead to failed building inspections that add months (and money) to your budget.
Price Your Home to Sell
Flip homes cost more because they are in better condition than other properties in their area. Too many renos and you may price yourself out of the market. Who wants a $500,000 home in a $350,000 hood? Know your comps. When the selling price exceeds the appraised value, buyers won’t qualify for a mortgage. It’s cash or nothing.
Rent an Income Property
Renting is alright, provided you have solid tenants. Think carefully about whether the rent and damage deposit would cover repairs. What about that Ontario Residential Tenancies Act? You have to file a notice to evict and wait for a hearing. Don’t like smoking or pets? Too bad. The act doesn’t allow evictions unless you suffer property damage and then you can go to hearing.
Decide if Home Flipping Pros Outweigh the Cons
Long timelines, low profits, competition and lack of know-how to buy and flip homes in Ontario — we wouldn’t want to discourage you. Hey, it’s a learning curve!
Legal Services for Ontario Home Sellers
When you’re ready to flip, Axess Law Ontario lawyers can close a real estate transaction for less than you think. Our flat fee lawyers video conference with you anywhere in Ontario, 7 days a week, day or evening. In person appointments can be arranged at our Toronto, Scarborough, Vaughan, Etobicoke, Ottawa, Mississauga Winston Churchill or Mississauga Heartland law offices. Dial toll free to 1-877-552-9377 or 647-479-0118 in Toronto or use our online booking form to make an appointment.
Click here to learn more about Axess Law’s real estate law services.