Everyone wants to make some cash, and everyone knows that flipping houses is a great way to do that. So with the combination of HGTV and local realtors telling you what great flips are out there, it can be a touch confusing and let me tell you that they are wrong.
I have flipped many houses and properties as well as worked with some great flippers and investors from the GTA all the way to Ottawa and we can all tell you that they are getting tough to find.
Lets talk about what a flip is. It is a property that you can buy and sell for a profit, independent of market conditions or timing and equity. So don't let your realtor tell you about a great flip you can buy that will profit in 5 years ...this is not a flip it is an investment
Here is a quick calculator you can set up to determine your flip potential:
Take the sum of :
- Property cost
- Rehabilitation cost
- Carrying cost
- Exit cost
Subtract from the following:
- Final Flip Price
PROFIT, PROFIT, PROFIT!
Now what do these things mean:
Final Flip Price - What you can reasonably sell the home for based on the location and the renovations you did. lets be reasonable here, we all know that predicting the future can be hard. Take a look at the sale history and determine what a newly renovated home is going to sell for as well as what type of renovations you should do.
Property costs - This is how much you are going to pay for the property, right now! Usually the negotiated price or total mortgage amount. please include any other fees like Mortgage insurance and land transfer tax.
Rehabilitation cost - What is it going to cost you to make this property awesome!!! Get some quotes, on materials and labor. If you can't do all the work your self. Also lets keep this on the high end, we really need reasonable numbers. if you can't estimate this stuff or don't know someone that can help, then maybe the flipping game isn't for you.
Carrying cost - lets be honest with ourselves we are not going to get this all done in a week (that's HGTV type of stuff) so we need to account for monthly costs, like taxes, interest on mortgage, and insurance payments. Time is money and in flipping that is 100% true. Every payment you make towards the property for the pleasure of owning it is going to eat at your bottom line. Now if you are going to live in the house you can chalk this up to cost of living and not worry about it as much.
Exit cost - Yup! You got it, what is it going to cost to get rid of this headache. Think about realtor fees and how many days on the market it is going to take to sell. Remember those carrying costs. Of course you also have to pay the lawyer and please, please, please! Double check your mortgage penalty. This can be a real kick in the potatoes.
There you have it, a really simple flipping plan to follow and when you are deciding on buying something. Doing these quick numbers can help decide the true potential of a flip. The most important part is to be reasonable give yourself some room to play. Oh, by the way the chances of finding a property for $80,000 that you can re sell for %800,000 is about 99.9999999% imposable. If you are looking for that, try your luck with the lottery.