The Beginner's Guide to Flipping a Home
We’ve all seen TV shows that romanticize the purchasing of a run-down home to put in some hard work and a few dollars to make it shine, but tragically we aren’t all financed by a syndicated television, and it’s certainly not as tidy a process as the editing team would have you believe! However, flipping homes in the right market at the right time can be hugely rewarding and a great source of income. As long as you come into it with realistic expectations and a careful, educated plan, you too can turn a diamond in the rough into a beautiful home!
What is Flipping a House?
In a bit more detail, house flipping is purchasing a house with the intent of improving it to sell at a profit. Savvy buyers keep a sharp eye out and purchase homes below current market value, and typically aim to make a profit in one of two ways (or both). Properties can be the typically stated fixer-uppers, which investors will put money into renovating, or a straight investment as is. An average home sold out of financial distress can also prove a source of income if you intend to hold onto it as market prices rise and bring on a tenant in the meantime.
Both are valid strategies that may appeal to different people, and they can be combined, as you can create a more appealing rental unit and sell it in the future. However, this comes along with tenant management and legal challenges. A simple upgrade and sell works as a swifter return on investment.
There are also different types of property renovation flips depending on the property you picked up is relative to how valuable the land is. You may just want to refinish some aspects of a home that’s structurally sound. You may choose to gut the interior completely, create more rooms or an open concept space to be more in line with modern sensibilities. Or, if the home is older but the location is amazing, you may consider demolishing the whole thing and starting from scratch.
Keep all of these things in mind as you start your journey, with careful consideration to your budget and labour allowances.
Starting the Process
The first step of flipping a house is always to plan, plan, and then plan some more. Start by outlining your expectations in a basic way to get yourself on track and out of the realm of just thought. We may be biased, but we strongly suggest speaking in depth with a Realtor that has experience in the neighbourhood you’re looking to work in. Before you put any money down, you’ll need to do thorough research on the neighbourhood, the type of people who live there, market trends, and seasonal pricing. A Realtor who works in the area is likely to be familiar with these things and give you an insider perspective that will help you set your financial expectations.
Since you’re likely to be doing a lot of work to the house itself, location is incredibly important. Keep the style of the neighbourhood in mind when making design choices. The resources available in the neighbourhood, access to schools, shopping, highways and transit will also dictate the possible buyers for your property.
Once you’ve decided on a neighbourhood and property, you’ll need a real estate agent to help out with the purchase. Be sure to include a home inspection in your list of purchasing conditions when you place an offer. Having a professional make sure that nothing is a surprise issue when you start your work is important for your budget. If you’ve already been speaking with a contractor, you may want to take a walk through with them as well. When they see the property they’ll be working with, they’ll be able to fine tune their estimate for you and let you know what is realistic.
Speaking of contractors, you’ll need to make the decision in the early stages on whether you will be renovating the home yourself, or with specialists. In most cases, sticking with contractors is the smartest choice, but if you have the time and experience, go for it! When looking for a contractor, one of the best ways to find a good one is the old-fashioned word of mouth. Ask your friends and your real estate agent if they have anyone they’ve had a good experience working with. Be sure to check online reviews before making a choice.
Timing is also an important aspect of your flip. Take into account the mortgage payments you’ll have to make, how long the renovation will take, and the time of the year you plan on selling. If you finish your projects and are ready to sell in the middle of winter, you may not be able to get as high a price as if you’d waited till summer, and now you’ve made additional mortgage payments in the meantime.
If your goal is pure profit, make sure to plan accordingly and keep your expectations for your new property realistic. You may be tempted to rip apart the kitchen and bathrooms for the highest end reconfigurations as they are the most often cited as important to raising the value of a home. However, keep your budget in mind when deciding if you want to demolish what exists or just refurbish it. The cost for fancy countertops and other new accoutrements may not be worth it in the long run depending on how much value you’ve calculated it will add when compared to simply refinishing the existing items and upgrading the appliances.
One of the most important upgrades you can make is to curb appeal. A little landscaping can go a long way in making your property look desirable. Refreshing surfaces with a new coat of paint and upgrading basic appliances are the cheapest way to make the biggest impact.
Selling Your Flipped Home
The selling of your property will likely be best in the hands of the Realtor you’ve been working with. As previously stated, watching the market trends to know what part of the year to sell will have a big impact on your price. Speak with your Realtor about holding offers versus accepting offers at any time and choose what typically gets the most offers in the area. Staging is a great option for improving the price further, especially if you’re holding an open house. Virtual tours are more accessible than ever and combined with professional photography and appropriate advertising, it’s easy to get the word out about a property if it is attractive enough.
While this blog aims to be a helpful resource for beginning the process, speaking with a professional is incredibly important. Here at Envision Realty, we can certainly help you get started in planning and purchasing your property to flip. We specialize in real estate and real estate investments in Toronto, from downtown to the East end. We are located in Leslieville and our Broker of Record, Salar Taba, is an expert in buying and selling. He’s even flipped a property himself!
Feel free to send us a message for a free consultation on your next project!