Investing in real estate is a business that has stood the test of time. One of the ways to invest is to flip properties, and if you’re planning to do this, you should know how profitable it is. So, is flipping houses profitable in Canada?
Yes, flipping houses is profitable in Canada. While there’s no data yet to determine its profitability in Canada, an industry report in the US claims house flippers made an average of 40.6% gross profit. Profitability depends on you doing the necessary things to make a profit and avoiding mistakes.
It’s important to know that house flipping might be a quick way to make some money off real estate, but that doesn’t mean it’s easy. This article discusses whether flipping is profitable and how to flip houses to ensure a profit.
Profitability of House Flipping in Canada
House flipping is quite common in Canada and profitable. In the neighboring US, a report claims that house flippers earned an average of 40.6% in 2019. This might look substantial, but that’s because it’s the gross profit. After deducting the cost of repairs, renovation, carrying costs, etc., the profit from flipping will reduce. In the best-case scenario, the actual profit is 12% of the overall cost.
Of course, this is still a big profit. But most TV shows about home flipping fail to mention the risks involved. Losses aren’t uncommon when flipping houses. In addition, there’ve been instances where after selling the house, the overall cost of buying and renovation exceeds the selling price.
How to Make Profit from Flipping Houses
It’s important to understand what house flipping is all about if you want to get into it. Here are certain things you should do if you want to make a profit flipping houses.
1. Choose the Right Location
Location is one of the most fundamental things about real estate. When flipping houses, it’s one of the things you should note because it’s one thing you can’t change. Therefore, location will affect purchase price and how much you resell the property.
In picking a location, you should go for a neighborhood your target buyers will want to live in. In addition, livability factors such as access to dining, shopping, healthcare services, preferred schools, commute, etc., play a major role in helping you sell for profit.
2. Consider the Buyer
Every property has a buyer it’s perfect for. Knowing your target buyer will help you renovate the house to match their taste. This means knowing the type of buyers you want to sell the house to. That way, you’ll renovate the house to match the budget and preference of the buyer.
When you’ve your target buyer in mind during renovation, you can easily tick all the necessary boxes on what the buyer wants. This’ll improve the resale value of the property and make it easy to flip.
3. Work with a Trusted Contractor
Contractors are very important to the house flipping process. If you’re not renovating the house yourself, make sure you work with a contractor who understands what you want to do. Work with an experienced contractor that you trust to do a good job.
For a first-time house flipper, you can get a good contractor through referrals from your friends and family. You can also ask realtors around you, as they’re always familiar with other people in the industry. Finally, interview every contractor, ensure they’ve insurance, and get quotes from them. That way, you know how much renovation will cost and how long the project will take before it gets started.
You can also use the Canadian Home Builders’ Association website to find a contractor. In addition, there are several resources and tools to assist you with house flipping on the website.
4. Assess the Property
The essence of flipping a property is to make profits. Therefore, the purchase and renovation mustn’t cost you more than the resale price. It helps if you take your contractor to assess the property before buying it. By doing this, you’ll know the renovation cost from the onset and can easily figure out the best price to buy the property or whether you should even buy it at all.
There’s also the 70% ARV rule, which states that you should try not to buy a property you want to flip for more than 70% of its after repair value. These include the price of the house and the cost of any renovations or repairs.
5. Timing is Essential
When flipping houses, timing is of the essence. This is because your goal is to make profits, and the faster you sell, the more likely you’re to make profits. In addition, there is usually a loan to repay and the carrying costs on the property. Therefore, you’ve to schedule the whole project.
Work with your contractor to establish a timeline for the whole project. Plan it such that it falls within the period when that particular real estate market has higher demand. That way, you can sell your property when the market is hot. When working with time, you must stick to it religiously to avoid a loss.
6. Determine the Selling Price
Once the renovation is complete, it’s time to sell. This means you’ve to determine how much you’re selling. Selecting the price is about balance. You want a price low enough to attract buyers and high enough for you to make a profit.
You should work with a real estate agent to determine the right price. That’ll be helpful if it’s your first time and you’re still trying to understand the market. Then, with experience, you can start handling this yourself. Several factors such as location, upgrades, livability factors, other properties, market trends, etc., will help you arrive at the right selling price.
Mistakes to Avoid When Flipping Houses
There are certain mistakes you must avoid when flipping houses. These are common mistakes that people make, and on several occasions, they spend more on the property than they bargained for. However, avoiding these mistakes can help you maintain your profit margin. Such mistakes include.
- Underestimating the cost of repairs
- Using low-quality materials for renovation
- Focusing solely on likely profits while ignoring the carrying and closing costs
Is Flipping Houses Worth It?
There’s money to be made from flipping houses. But this money isn’t as simple to make as TV shows portray it. Most times, it involves investing your money, time, and efforts into the business. Whether you make it a full-time thing or something you do part-time, you have to make a lot of effort to earn. But with experience and the right decisions, you can easily turn a profit.