When you see how much a neighbour or a family member made on their nicely fixed up home, you can’t help but think house flipping might be a great idea. Real estate prices keep rising in Canada, and people seem to be willing to pay a lot for homes with shiny new hardwood floors and state-of-the-art stainless appliances.
From an outside perspective, flipping a house looks like a fun and creative undertaking – and seems much more lucrative than an hourly wage! But, flips can go wrong, and there’s money to be lost. Wondering how to flip a house? If you’re thinking of taking on a fixer-upper, here are a few common pitfalls to avoid.
Do The Math
Flippers follow something called the 70 per cent rule to determine how much they should pay for a property.
It’s tempting, despite rules, to exaggerate the math, underestimate the cost of repairs and overestimate just how much people will pay for a home. That’s how flippers get into trouble. The truth is, no one will pay a million dollars for a home in a downtrodden neighbourhood. Repairs and renovations always run more than you think off the top. Rely on a good team, including an accountant, to ensure your math is solid.
Put Yourself To Work
The biggest cost in getting a house ready for resale is labour. If you are paying professionals to do everything from wiring to drywall to painting, you likely won’t make much money. The more work you can do with your own two hands, or via friends and family, the more money will end up in your pocket at the end.
Know Your Clients
If the potential customers buying in your area have families and young kids, don’t install fancy stairwells that aren’t safe for young ones. If your clients are seniors in a retirement community, don’t go ultra modern with your style. Instead, think ahead and make family homes complete with bathrooms with double sinks and homes for older clients loaded with safety bars.
Fancy amenities don’t always lead to higher home prices. Swimming pools, Jacuzzi tubs and high-end landscaping look great, but home buyers don’t always want to pay extra for these things. They may not want the extra care such amenities require, or they might want to do some of the work and customization — outdoor in particular — themselves. What really pays: great, large kitchens, functional bathrooms and serviceable flooring.
Time It Right
When you flip, you need to move quickly and efficiently. Time, literally, is money, particularly if you have a mortgage or loan for the property. Plotting out how long renovations will take and making sure you’re going to market at a good time (summer, for instance, and the dead of winter tend to be quieter markets and are not as lucrative as the hot spring season) is important for your bottom line.