To Flip or Not To FlipDecember 15, 2015 • By David Tsegai
Watching people buy some property and deciding to flip it to make a few extra thousand dollars seems to be pretty easy, when you’re watching it on TV. Some shows seem to give you the impression that all you need is a coat of paint on some walls, a shrub or two in front, and a few nails hammered into some rickety stairs are all you need to unload a home for profit right after you’ve bought it. But in reality, the truth about flipping a home isn’t all that easy.
Many experts in property investment like to tell homeowners who want to make a profit out of their purchase to exercise caution before deciding to sell the investment.
Merely sprucing up the place isn’t going to be enough. If you live in an area where vacancy rates are less than the benchmark five percent, you’re better off renting out the place for a while as you wait for market values to increase over time, especially if you bought property at a time when the economy has been shaky. You benefit from additional monthly income over time to help pay off the mortgage, buy some more time to renovate if required and make an even more substantial gain in the future when the right market conditions surface to justify selling.
There’s always a chance that if you try to flip a home almost immediately, you won’t exactly have buyers lining up outside your door and may wind up hanging onto the home longer than you planned. That’s especially the case if the house was priced so cheaply because people simply don’t want to live there, which will certainly play havoc with any appreciating market value.
People who flip houses for a living often map out a more realistic timeline for buying, owning and selling their property. They evaluate real estate market conditions before taking the plunge on buying. But that’s after they’ve taken into account not only the purchase price, but also financing, maintenance, renovations and taxation.
If you make $20,000 on a quick flip and subtract $10,000 in renovations and what you may owe the bank during that time, you’ve got $10,000 left, until it gets eaten up by taxes. Those who hold onto the property much longer benefit from paying capital gains taxes which offers a lower rate than what you’d receive after a quick flip.
However, if you’ve considered these factors, here’s another tip: buy in areas that are developing. A neighborhood with a lot of infill projects under way and a new complex or strip malls for everything from restaurants to retailers under construction is certainly a hot location to find a home, which will likely increase in value over time. As well, make sure all renovations are up to code, consider all the building permits you need and keep in mind any other improvements from front-lawn landscaping to an exterior paint job to boost curb appeal.
Also seek the expertise of a Calgary realtor such as David Tsegai who knows where and when to buy, as well as other handy resources to make your purchase less stressful. Call him at 403-383-0416.