As a Realtor, I’ve been involved with dozens of flipped properties, on both the purchase and sale sides. I’ve seen home runs and I’ve seen heartache. In the interest of getting more of the former into your life, I’d like to share my view of the process.
If you’re going to trust one cliché, the old standby that ‘location is everything’ is the truth, even when flipping. The success of your project depends on market trends and insight into the growth of specific neighbourhoods. Ask your Realtor for suggestions of which neighbourhoods to target and then have them complete some statistical research for you, going back at least two years, to determine where the best margins reside.
It can take time to find the right property, so keep your emotions and expectations in check and remain steadfast in your dedication to make the right purchase. Don’t rush yourself.
There will be mistakes
Over the years, I’ve learned a great deal from my clients’ mistakes – and so can you.
Mistake #1: Pretending it’s going to be easy. Flipping a home seems so easy on TV, where everyone makes a fortune. The reality is that TV is TV. It’s not real. We’re often watching fake budgets, fake sale prices and fake timelines. Be prepared to work your butt off, or you won’t be prepared to solve the problems that arise on a daily basis.
Mistake #2: Choosing product over location. Sometimes investors fall in love with a property and ignore its proximity to busy roads, train tracks, highways, hydro towers and other rightly stigmatized ear- and eyesores. Properties – even after a facelift, even if they’re priced attractively – can sit on the market for months if they're next to something no one wants in their backyard.
Mistake #3: Failing to cater to a demographic. Make improvements that your target demographic will find desirable. I’ve had clients turn a three-bedroom home into a two-bedroom home in order to make room for a master ensuite. It didn’t work out well.
Mistake #4: Ignoring your budget. It’s easy to start over-improving a home when you’re telling yourself you can justify the additional upgrades because you’ll make it all back when the home sells. Plan ahead – with realistic numbers – and stick to it. Every penny counts.
Mistake #5: Not studying the comps. Look at the sales of comparable properties when you purchase a home and when you’re ready to sell. The market can change drastically in a few months. And trust your Realtor when it comes to pricing. The most expensive house on the street is usually the hardest to sell.
Mistake #6: Bringing emotions into it. This is a business. Make all decisions with a business hat on. It can be very difficult, but you must step back, take a breath and make sure you’re making the right financial decision.
Marching off to war ...
If you’re in a competitive market, there are a few key things you can do to try to beat competing flippers in a bidding war.
First off, always be financially prepared to purchase a property. Get pre-approved and know your top spending limit. You’ll want to keep your offer as clean as possible. This generally means avoiding a home inspection, which should only be an option if you’re comfortable with the surprises that may be waiting for you within the walls. Realistically, though, most flips involve dramatic renovations, and if the property is structurally sound, there’s not much that could severely hurt your budget.
Another little secret is having at your disposal a large deposit in registered funds, such as a bank draft. Submitting this deposit with your offer shows your professionalism and will increase the attractiveness of your offer.
Finally, ensure your Realtor is presenting your offer in person if the seller is allowing in-person presentations. I’ve won numerous bidding wars by simply being the only one who showed up in person with a respectable offer.
... with a trusted general (contractor)
People flip homes to make money, which means cutting costs is a constant battle. By acting as your own general contractor, you will not only save money, but you’ll also be in full control of the renovation process.
To pull this off, start building a database of skilled trade workers and do some homework on the level of quality and service they provide. Don’t be afraid to ask for referrals to verify that their workmanship is up to your standards. Use online services with real reviews and photos of a contractor’s work.
Only hire licensed contractors who are insured and who won’t undertake any jobs until they possess all of the proper work permits. You should also keep detailed records of your communications with each contractor. I can’t tell you how many times one of my clients was burned because the service they needed was not clearly spelled out in writing.
Flipping homes can be lucrative, rewarding, emotional and stressful – all at the same time. Prepare as much as you can prior to your first purchase and allow yourself enough time and money to account for unforeseen issues. (Don’t forget about that pesky capital gains tax, either!)
Enjoy the ride. It gets smoother every time you do it.
Paul Roussel is a listing agent on the Woolcott Team. He has been a Realtor for almost a decade, servicing Burlington, Hamilton and surrounding areas. Contact him at 905-512-0248 or [email protected]
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