Everything to do with flipping houses for profit in Canada has exploded thanks to the countless television shows from Flip with House to Flip or Flop to Master of Flip just to name a few. Flipping Houses for profit in Canada has become a sexy term which everyone wants to know more about. The reality TV shows are great at portraying the good, but they often do not show the risks or mistakes to avoid when flipping houses for profit.
The shows usually have inflated profit projections and most of the time, do not take into account a lot of other expenses associated with owning real estate while doing your renovations. Of course there is a lot of artificial drama to make it interesting and keep you entertained.
I have done many successful flips since 2007 when I bought my first property and I am going to share some of the mistakes to avoid when flipping properties in Canada. My first property purchase was in Brampton where I bought a power of sale or foreclosure property. The property was structurally sound and only required cosmetic upgrades such as new kitchen, flooring, painting and landscape work.
I spent over 2 months fixing the property and putting in atleast 2-3 hours a day after my day job. There were a ton of mistakes I made when flipping properties in Canada, most of them on my first purchase.
Here are some mistakes to avoid when flipping and tips for profit in Canada coming from my experience:
- Do your research / due diligence – you will need know your risks, assess your financial situation and allow for contingencies. You must do a thorough walkthrough of the property and make sure you do not over improve for the neighborhood. The mistake I made on a flip was changing the entire main floor tiles to expensive one costing me approx. $4500 (existing ones were good enough) and never getting that money back as my potential buyer would not pay me more for that property.
- Build your team of contacts – you must work with a great Realtor, mortgage broker, contractors, designers etc. I bought my first property using the same Realtor that my father had used 10+ years ago for buying our personal home. This was a huge mistake as the Realtor was not an investor and had never flipped any properties himself.
- Finding a great undervalued property – whether through a knowledgeable Realtor or your own marketing efforts. It is all in the purchase – if you overpay for the property, you are guaranteed to lose money on the deal.
- Your numbers must work – if you underestimate the renovation costs or the do not take into account selling fees and so forth, your profit will be washed up very quickly. Allow for approximately 20% buffer with your renovations, carrying costs etc.
- Watch your location and market – the mistake I made a few times was buy a property in a bad location just because it was cheap and the numbers worked. Although I still profited, it took much longer to sell the property in turn costing me thousands in profit. During my first flip in 2007, the market was cooling down and I had overpriced my property for the area so it took approx. 45 days to sell the property at a reduced price.
- Managing Contractors, Renovations and Budget. You must treat this like a business and pay close attention to your contractors, your scope of work, time frame, and most importantly your money.
So until next time, happy Canadian Real Estate Investing.
Jose Jafferji, REIA