I read a great post today from fellow blogger Karen Fiddler from Viejo, California on the topic of flipping houses and whether house flippers deserve a profit. Karen works in a marketplace in the United States that is quite different from here in Ontario. Short sales is not a term used here and we rarely see foreclosures. Properties here that end up back in the hands of a lending institution due to mortgage default are deemed to be Power of Sales.
I wrote the following post on Power of Sales to explain how they work and to let people know that if you think you are going to get a "steal of a deal" purchasing a Power of Sale property you are misinformed.
Karen's post deals with the question of whether people should profit by flipping homes.
Here are my thoughts on the subject.
Flipping homes is not for the faint of heart.
You have to know your marketplace intimately.
1. Is it a buyers market? Sellers market? Balanced market?
2. Is listing inventory high or low? What is your competition? What is the average number of days on market to sell?
3. What are buyers looking for? Three or four bedrooms? Garages? Fireplaces? Fenced yards? Finished basements? You have to renovate to appeal to the masses.
4. Is the property in a desirable neighbourhood?
You have to know your renovating costs intimately.
1. Are you doing the work yourself or hiring contractors? How much time can you afford to spend doing the renovations over and above your day to day job and family life. How much time do you have to supervise contractors?
2. Do you know what buyers are looking for in today's market in flooring, fixtures, paint colours, cabinetry, etc?
3. Does the property require system updates such as furnace, air conditioning, roof, windows? Potential buyers will expect these to be updated in a renovation flip.
4. Do you know your pricing and timelines for ordering and installation?
You have to know your financing intimately.
1. Do you have the additional funds if the renovation project goes over budget? And it will.
2. Are you prepared for the surprises you might find during renovations? Old wiring, plumbing, electrical? Don't forget necessary permits or surveys.
3. How long can you comfortably carry the house while it is on the market? The longer it sits, the more any profit gets eaten up.
You have to know yourself and your family intimately.
1. Do you plan to live in the house during renovations? Not a great idea. If you are using contractors they do not like having you underfoot. If you have children there are safety issues. There is the noise factor to consider. Are you willing to be without water, lack of food preparation space, lack of privacy?
2. If you don't move into the house are you able to sleep at night carrying a second property for an unknown length of time?
3. Are your contractors and subs reliable and dependable? Make sure you have written contracts for pricing, wages, etc.
You have to know the professionals intimately.
1. Have you consulted with a REALTOR® to get an idea of what the potential return on your investment will be? Do you know what similar homes are selling for and if they are selling? Did you ask your REALTOR® when you bought the property if there is anything you need to know about the neighbourhood. Is there anything happening that may affect the price you will get on resale? Upcoming power plants? Thirty story condo to be built behind? Road widening? Go in eyes wide open. If you back on to open space call your City's planning department to check the zoning.
2. Have you consulted with an interior designer or decorator to know what is in style? You must stay away from "trendy" fixtures and fittings, colours, flooring, etc. You want the home to appeal to the broadest spectrum of buyers. You may like blue cabinets and green tiles but this isn't going to be your home. Stay neutral and get advice from those who do this for a lliving.
Flipping homes is not an easy task. It tends to require a lot of up front preparation and hard work. All of this on a budget and tight timeline.
Flipping homes can be a risky venture. There are no guarantees how much the home will sell for and how long it will take to sell.
I applaud those people who take on a project with all the hassles that ensue, to enhance and beautify a property. Updated homes will only increase the value of a neighbourhood.
Do I think home flippers deserve to make a profit? Absolutely. Like any home sale it should be a win-win situation. If someone puts a lot of love, labour, sweat and money into a house renovation project why shouldn't they make a profit?
Many buyers today do not have the time or knowledge to buy fixer uppers and have them renovated. They also do not want to be inconvenienced while the work is being done.
Buyers will tend to pay top dollar for an updated turn key home that they just have to move into and enjoy.
Indeed flipping is not for the faint of heart but for those who are willing to take the risk, it can be very satisfying and profitable.
Thinking of buying or selling Oakville Real Estate? Looking for a REALTOR® with experience and knowledge of the Oakville community and market? Check out my website for everything you need to know about Oakville Real Estate. It's open 24/7 for your convenience.
Past President Oakville, Milton & District Real Estate Board