The answer would be yes, you can make a living off house flipping. But, you have to know the game to play it and be successful. It is not as easy as television makes it look.
Where It Is Most Popular?
House flipping has really taken off within the past few years, especially with tv shows airing the entire process and offering advice and information. For first-timers it can seem like a daunting task, and there is a lot to learn before getting into it, especially where to buy a house. In Canada, the top 5 most popular places to invest in real estate properties are:
- Durham Region
What To Look For
The only way you are going to receive top-dollar for your flipper is knowing the location very well. Location is key. Make a list of questions:
- Are city amenities close by?
- What type of people are attracted to the area? Seniors, or young families?
- If there are young families, are there schools close by, or parks?
- If transit is a popular mode of transportation, is it easily accessible?
- What are the other homes in the area selling for, and how long are they sitting on the market?
- What renovation trends are popular in the area?
- What is the crime rate like in the area?
- Is the home in poor condition?
Determining the answers to these will not only give you a better understanding of the audience and what they are looking for, but it should help you determine a budget.
The Mortgage Loan Process
Lenders will likely let you borrow up to 80% of the purchase price of the home, but it may be lower if the home is in really poor condition. When you apply for the loan, they will have an appraiser look at the property to determine how rough of a shape it is in. Your credit score>> will also be considered, so make sure it is well above 620.
What Else To Budget For
Your loan term should be kept short – anywhere from one month to a year. House flippers will not typically want to still have the home in a year. Experienced flippers can flip and sell within three to four months.
Once you have been accepted for a mortgage loan of 80% of the purchase price, you will still need to come up with the rest. For example, if the home you purchased was $300,000, the lender is letting you borrow $240,000. Therefore, you will have to fund the remaining $60,000, which would be a 20% down payment of $60,000.
Not only are you budgeting for the down payment, but these other costs need to be considered as well:
- Closing costs when buying
- Renovation costs (set a specific budget)
- Paying employees (contractors, painters, floor installers, electricians, roofers, etc.)
- REALTOR® commission
- Closing costs when selling
- Loan fee
- Holding/carrying costs
A contingency fund should be added on top of your budget as well, just incase you run into unexpected problems which are bound to arise if you are purchasing an older home. Fixing issues like plumbing, electrical or support issues can be expensive, but if you want it done correctly, you will have to pay for a professional.
Understanding what to budget for can be tricky, especially as first-time flippers. It is important to understand everything involved in closing costs, which your real estate agent can explain to you.
Hiring A REALTOR®
Your REALTOR® will be your best friend when it comes to house flipping. Not only can they help connect you with professional contractors, home inspectors, stagers and more, but they know the neighborhood. They know what popular reno trends are making homes sell, and they will know how to market your home when it comes time. They can also help you set a sale price. A REALTOR® also has accesses to listings not even on the market yet, which could be helpful if you are competing with other house flippers in the area.
Buying A Foreclosed Home>>
You see it happen on tv all the time: house flippers love buying foreclosed homes in a state of disrepair. But there are lots of risky factors to consider, especially because banks do not like homes in poor condition, in which case you may have to consider going through a private lender instead. A private lender is considered a non-traditional lender (traditional lender being a bank), and the loan could be funded through an individual or a business. You are subject to more fees when you use a private lender since you are paying a set-up fee, possibly higher interest rates because the loan term is shorter, and you would be paying the broker’s fees too.
A foreclosed home can be purchased through auction (highest bidder wins) or through a short sale through the lender in which the previous homeowner had their mortgage loan through. Remember you are purchasing the house as is, which means there could be a lot of unseen issues you cannot budget for.
Weighing The Pros & Cons
- You gain valuable experience. You will learn quickly what upgrades are necessary and what will really add value to a home.
- You gain construction experience, which can also come in handy with your own home, like plumbing or electrical repairs, dealing with water damage, how to find the best deal, etc.
- You learn about the local market with the help of your REALTOR®.
- You learn how to budget, especially with unexpected costs and how to find the best discounted deals on things like counter tops, flooring, etc.
- You can make a quick and large profit.
- You could lose money if the purchase price and cost of repairs and upgrades exceeds market value.
- You may not be able to qualify for a loan if your credit score is poor or you do not have enough for a down payment.>
- Unexpected costs could come up at any time and ruin your budget.
- Holding and carrying costs will take a large portion out of your budget. You are now the “owner” of the home, so it is your job to pay for taxes, insurance, lawn maintenance, air conditioning, etc.
There are a lot of things to consider if you want to get into the house flipping business. Things like the location, purchase price of the home, and understanding a budget should not be taken lightly. Have a clear understanding of the market beforehand since it really could make or break you.
Overtime, professional house flippers make house flipping their full-time career, but people first starting out should not just up and quit their jobs right away. It is a learning experience that will require a lot of hard work and dedication.
Let our agents help you:
Agent Name: Tracey F. | View Agent Profile>>
Serving Area: Burlington, Durham, Hamilton, Milton, Mississauga, Oakville
"Being a trusted partner in the process with my clients is an honour and privilege and I protect my clients as I would my own family."
Agent Name: Gavin C. | View Agent Profile>>
Serving Area: Oakville, Toronto, York
"I pride myself on my ability to navigate any obstacles of real estate transactions, so my clients get the best possible deals both on the buying and selling side."
Agent Name: Amit D. | View Agent Profile>>
Serving Area: Durham, Etobicoke, Mississauga, Toronto
"Amit treats each client’s case with the time, respect and attention that they deserve."