Flip This House???
Here are some tips when considering flipping a house....................
- Unless you have a strong construction background make your offer to purchase conditional on home inspection. This does not guarantee that there won't be any unforeseen issues, as an inspector cannot see through the walls, but an extra set of trained eyes looking things over can save you from getting into something that that you don't expect. If the cost is an issue then you should probably be reconsidering the project as this is a relatively small amount when compared to electrical, plumbing, heating issues, etc.
- Create a budget and a list of what you want to do to the house. Make sure that you have the money or resources to pay for the renovations. Plan on the unexpected and budget for things that come up a long the way. Renovations seldom come in under budget.
- Get a realistic opinion on what the house will be worth when you're done. Your Realtor should be able to do this for you. Ask to see comparable sales that reflect a post-renovation value. The real estate market can change by the time that you're ready to sell but at least this will give you some kind of guideline.
- Be realistic about your skill set. If painting two rooms in your mom's basement is the extent of your past home renovation projects then taking on a complete gutting and renovation of a house is probably a bit lofty. Start small and work your way up to larger projects.
- You won't make money if you don't get in there and get your hands dirty, or at least you won't make very much. Contractors cost money and are in business to make a profit. That profit comes from you hiring them to do things. The more they do the less that you make. Keeping your skill set in mind, do what you can to eliminate paying extra money for things that you can do yourself. Hire a contractor when you need to but shop around for someone reputable and at a fair price.
- Time is money. In this case it really is true. If you take a long time to finish your flip then you are going to incur more carrying costs (interest, taxes, utilities, insurance, etc). This is not your life's work. You want to go a good job but in a timely manner. This is going to likely mean missing out on some time out with friends because you have to work on the house. Missing some golf games. Spending your weekends working on the house. If you have a job already this house is going to become like your second job. Every time you show up there to do something pretend that you're logging hours for your pay cheque which will come down the road when you sell the house. Set a goal for the time to finish and do your best to get there. Renovations seldom take less time than you think so bear that in mind.
- This will be a controversial statement with some people but..............get permits! Especially for electrical, plumbing and anything structural. Permits insure that the work is done properly (by whoever does it) and it also gives the eventual Buyer peace of mind. Many Buyers are reluctant to buy a home that they know is being flipped because they question if things were done properly or just cheaply to maximize profits. If you have permits then it can help deal with that objection and possibly get you some extra cash when you sell.
- If you're going to do this with a partner have some kind of agreement in writing. Also make sure that you are clear on the expectations that you have for each other. Maybe one person is a good organizer so he/she would be a good general contractor type person or one of you is an excellent carpenter. These roles should be spelled out in writing to avoid conflict later on. The financing arrangement should also be in writing. Are you both contributing equal amount of cash or is one the worker and the other one the banker? Better to know up front than try and resolve issues in the middle of a pile of drywall dust.
- Don't forget about costs to sell.............lawyer fees, real estate fees, financing charges and of course Revenue Canada. Yes, that last one is right...............Revenue Canada. Unless this is your principle residence then the profit from your flip is taxable. Many people opt to roll the dice and not claim this kind of income but if CRA comes calling you will pay and pay penalties as well. Check with your accountant on the tax implications before you start this process.
Hope that this information is useful and if you need help finding that house to flip or selling it when it's done please call or email me anytime.