What to consider when flipping a house

Date

Dear David,

My partner and I live in the GTA. We think flipping a house in Kitchener would be a great investment. We’ve been pre-approved for a $600,000 mortgage and hope to invest an additional $50,000 in renovations. I expect we’ll be able to re-sell the house in the high $700,000 to $800,000 range. Where do we start? – READY TO ROLL

DEAR READY: Believe it or not, I get this question every few weeks. Buyers from the GTA continue to discover that Kitchener-Waterloo is not just the home of the Blackberry — it’s also a great place to live and invest. Our well-rounded economy is fueled by manufacturing, education and insurance, not to mention we’re the Silicon Valley of the north. We’re also an outlier in terms of statistics, as our market tends to be unique. We seem to recover from market corrections faster than the rest of Ontario (if not all of Canada), which is why Kitchener-Waterloo is rarely mentioned in news reports about what the real estate market is doing. 

The buoyancy of our market is appealing to investors, but many first-timers may not fully grasp what to keep in mind when chasing a flip. A buyer will need to fund their initial investment, the renovation, and any carrying costs associated with the project. The land transfer tax alone on a $600 thousand property could be over $8 thousand. There will be legal fees to close the transaction, and expenses associated with selling the property once it’s ready for market. Because this is not your primary residence, you’ll also have to budget for capital gains, since the Canada Revenue Agency (CRA) will want a taste of any profits.

My sense it that it’s unreasonable to expect a $50 thousand renovation investment to yield a $150 or $200 thousand return. Unless you’re flipping homes on a wholesale basis by paying workers directly (rather than hiring a general contractor), your out-of-pocket costs will escalate quickly. Someone once told me that whatever your budget is, you should be prepared to double it, and the same can be said for your timeline. Waiting months for building permits can throw a wrench in your schedule, and items like custom kitchen cabinets will undoubtedly take longer than expected to arrive.

PRO TIP: Do your homework. You’ll likely need to find a general contractor who’s available and can commit full time to your project. Otherwise, you’ll be hiring everyone on your own, from carpenters and flooring specialists, to plumbers, electricians, and painters. If you have a friend or relative in the trades, you may be better off than someone who doesn’t. As an experienced Realtor, I can quickly pick out the do-it-yourself quick flips where someone has put proverbial lipstick on a pig, rather than calling in the professionals. If you’re going to do it, do it right. #Advice #AskDavid #TheNegotiator

David is a top-selling Broker in Kitchener-Waterloo Region. He works personally with you when selling or buying your home. Call or text today for your free home evaluation! 519-577-1212.

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