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Discussion Starter #1
Hey guys,

My mom said she would like to start flipping houses (just like everyone else) and I really had no advice to give her. It's not a risk I'm comfortable with but I said I would help her out with whatever I could so I'm asking you guys.

Could you give me the ins and outs of flipping? the ups and downs? the what-to-do and what-not-to-dos?

What should she look for in a house? how can she tell if the market is going to allow her to make money on it?

All I see is a lot of work for very little gain but it's her idea so I'll pass along any info you can give me!

Thanks for you help
 

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It's really high risk and requires a booming real estate market. I'm not convinced that that is the case here. Does she at least have a lot of construction experience? If you need to rely on someone who does have that expertise, it's not a good sign.

You need to look at real estate, legal fees, and land transfer taxes. Any flip has to generate that much beyond the renovations and carrying costs to even break even.
 

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...you also run the risk, after ONE house, that CRA will declare you are in the business of flipping and will tax any gain as business income, not a capital gain.
 

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Why isn't your Mom in here looking for info?

You/her need to do some googling and start researching. Maybe check the library/bookstore for some resources.

These guys are somewhat legit - they are way too optimistic, but if you want to learn, then you might want to start here. They have a lot of experience with flipping and document a lot of their knowledge. They also sell a course as well.

http://www.revnyou.com/
 

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Discussion Starter #5 (Edited)
@four pillars - I might try and get her in here except she only goes on the internet with her iphone (she's not up to speed with pcs totally). With some teaching she could be in here soon enough. I'll tell her to start googling from her phone to research it and see what she can come up with. I will check that site out for sure, thanks!

@MoneyGal - that's something I never knew, thanks! I will mention that to her. I'm sure there are ways around it if it ever did get that big but I doubt it will unless she gets really good at it haha.

@andrewf - I also think it will be hard to sell the house once it's done because in the last little while houses that would have sold overnight are on MLS for months and months and some even expire and come back on. How would I point her in the right direction to get a better understanding of the current market conditions in our area?? She worked at a bank for 25 years (and retired) as a manager so she's good with numbers and she's reno'd atleast 4 houses in my lifetime but she only does the finishing touches herself. There's always contractors which I know is bad and will cut in on your profits.
 

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flipping houses (just like everyone else)
I find it interesting that you phrased it this way.

Is there really a perception that "everyone" flips houses? If so, what percentage of people do you think are actually successful at it? I've never flipped a house (nor do I have interest in it), but I suspect that you have to be pretty handy and an excellent judge of both time and resources in order to be profitable. (In that light, I suspect that it's a skill best suited to people who have substantial handyman/contracting experience.)

Philosophically, do you expect to do better flipping houses than, say, the oft-quoted 8% long-term return that you may achieve in a balanced investment portfolio? (It's an open question; I don't have an answer.)


K.
 

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If she really wants to get into real estate, maybe a hybrid of flipping/rental would make sense.

To demonstrate challenge of current market conditions, I would look at time on market statistics and what % of asking price is paid. It used to be that properties in the GTA would get a premium on asking, but that isn't happening anymore.

I think she should investigate/budget for four months (plus reno time) of carrying cost (mortgage, property tax, insurance), plus all the transaction costs. Maybe that number will make her think harder about the risks/rewards.

I say you need to have a decent understanding of construction because you don't want to get stuck paying way too much for a lemon. Not that you need to do all the work yourself, but understanding the work required and cost is important.
 

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Discussion Starter #8
@Dr_V - I think I phrased it this way because I've seen a few houses that I know are flips and they are trying to sell for prices that seem ridiculous atleast to me they do. I know what you mean when you say not everyone is doing it I know a lot of people that avoid it just around my area it seems to be happening a lot. I personally would be more comfortable with a balanced portfolio haha but it's not my choice. That is a good question I can pose to her, thanks for your input!

@andrewf - a hybrid could be a decent solution for her. Also adding up those carrying costs and reno time and legal fees could make her decide if it is a good buy or not. thanks for the tips! luckily I have a few friends that are carpenters that could tell me the structural issues of a building and give me an idea of costs. Would I be able to get those stats (% of asking price paid, time on market) from a local realtor? That seems like something to look into.
 

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I had an aunt who was flipping in Toronto in the 70s and 80s. She was a realtor but spent most of her latter years flipping. She would find an underpriced house, buy it and rent it out. In 5 or 8 years, when the market was buoyant she would sell and then repeat the process. At peak she had 4 houses on the go.

From her experience, I would suggest that being a realtor was the key. She did not rely on a middleman. When hot deals came on the market, she was there along with other realtors.
 

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Discussion Starter #11
I often wondered the same thing and even thought of doing it. I'd only have to give up 4 weekends of my life and 4000$ and then in 6 months I have to find a company to work for and bang I can get all the info on houses before the majority of people...
 

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The question was phrased more so as to what advice should you give her.

Does she have any RE experience? Construction experience? RE agent license?

How much is she thinking of starting with to invest? And what market is she looking in?

In some situations a REIT may be her best bet to make money, an inexperienced person might be inclined to lose money flipping houses.

I don't mean to sound harsh. Just trying to help her make some $$. Not lose any.
 

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Hey guys,

My mom said she would like to start flipping houses (just like everyone else) and I really had no advice to give her. It's not a risk I'm comfortable with but I said I would help her out with whatever I could so I'm asking you guys.

Could you give me the ins and outs of flipping? the ups and downs? the what-to-do and what-not-to-dos?

What should she look for in a house? how can she tell if the market is going to allow her to make money on it?

All I see is a lot of work for very little gain but it's her idea so I'll pass along any info you can give me!

Thanks for you help
Read my last post on the Glowing Canadian Economy. She's about 7 years too late for this cycle. Wait five years and catch the next one at the bottom.
 

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...you also run the risk, after ONE house, that CRA will declare you are in the business of flipping and will tax any gain as business income, not a capital gain.
Of course you can always live in the flipper until you sell, BUT I have heard that CRA can still come after you if you exceed something like 3-4 per year, regardless of principal residence exemption......

Any thoughts moneygal? You seem to come up with loads of info for us
 

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The hardest part would be finding an undervalued property. It seems a flipper would be best off looking for recently abandoned homes (if you can find any) to try to stay on the cheaper end of homes. From what I have noticed when I find an undervalued listing, is that it is not necessarily cheap, most times it is a house for 500k in a neighborhood of 600Ks. Then it needs a new kitchen+baths+etc, and to reno a high-end kitchen to go in that house you could be looking at 40-50K. So you really need to know your numbers going into it.

What could be the best idea is what kcowan said. Buy a easy fixer in a nice neighborhood, rent it out until a good market comes by, and then sell.
 

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The general idea in real estate is buy low and sell high. This does not mean individual properties. It means buy and sell the market. The market is at an all time high for this cycle. The BOC just fired the 9'Oclock gun yesterday, because they know this is way out of hand.

A sustained decline in RE prices precedes a recession by a few quarters, in this case i am guessing about three quarters. Being at the tale end of the cycle prices have a long way to correct.

That the US is going to print, seems obvious, the fallout might keep our exports and oil up for sustained while, floating RE prices, bouncing along the top, but its not a real economic driver and the piper will need to paid for that too. If you want to invest in RE, go to cash now. Wait for the fire sales because they are coming. Talk to your bank, they will have inventory.
 

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Discussion Starter #17
The question was phrased more so as to what advice should you give her.

Does she have any RE experience? Construction experience? RE agent license?

How much is she thinking of starting with to invest? And what market is she looking in?

In some situations a REIT may be her best bet to make money, an inexperienced person might be inclined to lose money flipping houses.

I don't mean to sound harsh. Just trying to help her make some $$. Not lose any.
No worries about sounding harsh! Sometimes people need to hear it. Her RE experience would be just from buying and selling her own homes plus we have a 4-unit apt building. Construction would be from renovating every home we've moved into. They were major renovations too. She has no RE agent license. I have no idea of her budget but I know she has money tucked away somewhere and market is in NB so housing prices aren't as crazy as say ON. I will tell her to look into REITs and she what she thinks.

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What could be the best idea is what kcowan said. Buy a easy fixer in a nice neighborhood, rent it out until a good market comes by, and then sell.
I think this would be a good idea as well if she was going to go ahead and buy something anyway. In our town I don't think it would be difficult to rent it out as we have a lot of people coming in for all the new work.

@james 57 - Does the bank have a list of houses at better prices? Or how does that work? A lot of this stuff is new to me.
 

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Aahhh! Would it be mean for me to confess that these kinds of threads just make me think of the (now discredited) odd lot theory?

As in, if everyone and their mom (literally!) has decided that (despite a lack of experience and lots of questions), flipping houses is how they are going to make their money, that this sends a big contrarian signal about real estate generally and house flipping specifically?

(Disclaimer: I know there is money to be made in flipping. My next-door neighbour was featured on one of those "How to Flip your House" shows and I've had many a conversation with him, over the years, about real estate investing. He just bought the triplex up the street and is renovating it...this is in addition to the multiple rental homes he owns and the ones he's already flipped.)
 

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More grist for my personal mill, courtesy of a tweet from Toronto Life magazine.

Note this story has a real estate agent (who used to flip houses; by chance I actually know this guy) and his search for an "underpriced listing" is characterized as a "miracle." :rolleyes:
 

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Discussion Starter #20
haha could never be mean! That is a neat theory though, I've never heard of it till now. I wonder if it's because I'm always the odd one? lol :D
 
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