It’s about the opportunity, not the market: getting started in house flipping
I often hear people asking about how much the market should play into decisions to invest and/or flip properties. The reality is that there is opportunity in EVERY market.
Success in home transformations/flipping exists in your ability to assess the opportunity: 1) spot a deal, 2) create a vision, and 3) know your numbers. These factors are real predictors of success. Does the market factor in? Sure, so does whether or not you choose subway tile or Thasos marble for your backsplash but you’re not going to let that stop you, are you?
If you look at home flipping as a basic money out/money in equation; buying a house, renovating it and selling it, then you are missing the most critical part of the equation. It’s about each individual house. One house can be a deal based on buyer demographics, location, amenities, interior relative to buyer demand, and the exact same house in a different location might be a dud. In one location a house might call for a herringbone tile entryway and in another market it might call for LVP (luxury vinyl plank) flooring - mix these up and you’ll have a house that sits not sells. Geography, the local market, scope/scale of the home, buyer preferences, transit, design trends, renovation costs and business model, all play a part.
“Don’t buy a house at a discount if you can’t remedy the discount”
You need to know your stuff.
start by asking these questions to spot a deal:
Is the area of the home well-established, up and coming, or undesirable? The area you’re purchasing in has a HUGE impact on your profit. A fixer-upper in a premium neighbourhood is a win, but a fixer upper when it’s already the nicest house on the street - no! Don’t compare houses as if they’re all apples to apples, run comparatives to look at the price points of houses (unrenovated and renovated) in the area so that you truly understand the value of what you’re buying.
Is there a particular stigma or issue driving buyers away that will resolve once you purchase the home? If someone recently died in the home, and it’s driving away buyers, once you renovate it and re-list, it will no longer be a relevant stigma (assuming they died in a peaceful way). Other issues could include viability for builders, end-user deterrents (pests, smells, as-is condition).
Who is your competition? You’re always going to pay more if you’re competing with end-user buyers because there is an element of emotion. Aim to purchase properties where you’re competing against investors and builders, because then it comes down to dollars and cents. If you can outperform on a project plan, timelines, deal turn around, then you stand a good chance.
Are you waiting for DOM to stick a bit? Don’t waste time running project plans and budgets on properties that just hit the market. Go check the house out, but wait until it has been sitting for a few weeks, to invest yourself in the process. Then you know there are adequate deterrents for other buyers, and the price point is too high for the current market. This is your opportunity to score a deal.
Are there any inherent barriers to selling? These are aspects of the home that can’t be remedied. If you buy the house for a steal because there’s an awkward back room with no access to the backyard, and you can’t remedy this, then you will be selling at a discount for the same reason. There are certain aspects of houses that pertain to flow, structure, and aesthetic that are unchangeable without prohibitive costs - you need to know what you can afford to fix and what you can’t. Don’t buy a house at a discount if you can’t remedy the discount.
ask these questions to create a vision:
What do buyers in the area want? There’s a huge difference between a suburb that values a large family TV room and an urban sprawl that values second-floor laundry. Do you know the area you’re buying in? Like do you really know it? Do you know what is important to buyers who live there?
What design trends are aligned to the area? You go into one area of the city and you’ll find black stone fireplaces, you go to another area east of the city and you’ll find wood cladded fireplaces. While homeowners have individual preferences; design trends are absolutely geographically rooted. Take the time to evaluate comps around you. What materials are being used? Is the tile ornate and traditional or large format modern? Do powder rooms look like you’re in a scandinavian spa or a downtown nightclub? Do kitchens have pot fillers and custom roll-away dog dishes or are they no frills?
Is there an opportunity to reconfigure and add liveable spaces, bathrooms, and bedrooms? Adding new spaces (think converting a 3-season sunroom to 4 season) , bedrooms (think adding one in the basement) and bathrooms (think main-floor powder or reconfiguring an oversized main bath to include a smaller main bath + ensuite) are one of the best ways to increase your bottom line. Ask yourself, are there any wasted spaces in the house (like an oversized second floor hallway) that could be converted and add new functionality (like turning that oversized hallway into second-floor laundry).
ask these questions to know your numbers
Do you have trusted sub-trades lined up? Hiring people who you can trust is integral to your success. Hire a bad sub-trade and you could end up paying for the work twice. If you don’t already have a network of sub-trades, then build relationships through trusted referrals OR speak to former clients, and go see their work in person.
What does the home call for based on the locale? I’m talking quality of finishes here because your budget can swing by $100K based on the materials you choose. Don’t put imported oak hardwood flooring in an area where every other house has laminate. Know your market.
Do you have ballpark quotes or historical data that you can use to create a preliminary budget? If you are buying a flip project based on the notion that you *think you’ll spend *about $300K, you are asking for trouble. Your preliminary budget should be itemized down to the dollar and include all materials, labour, sub-trades, contingencies, and demo/disposal.
Are you factoring ALL of the costs into your budget? Your profit is not your sale price minus your purchase price minus your renovation costs. Your budget needs to factor in: legal costs for closing during the purchase and sale of the property, land transfer taxes when you purchase, carrying costs during the renovation (including property taxes, utilities, and loan interest), and income tax. If you aren’t factoring these costs in then you’re not calculating your true net profit, and you might not be lining up a profitable project.
Are your timelines accurate? And do they account for lags and contingencies? You should not be making an offer on a property without calculating an approximation of the project length, plus any contingency timelines. For example, if the house gets done in 8 months you can sell it for fall, but if it runs over by 6 weeks, you may want to hold it until spring. Factor this in and then include the contingency carrying costs in your budget.
Buying, renovating and selling homes, involves a learning curve, but if you’re telling yourself things like “the market isn’t great right now” or “people don’t really flip in my area”, you might just be making excuses.
Working a trusted realtor who has specialized knowledge in investing and home transformations goes a long way in ensuring that you’re spotting a deal, investing the right amount, renovating the right things, and selling the home for top dollar.
Real estate can a very fun and profitable ride, so buckle up, and let’s go!
My name’s Jenn Wilson. I’m a licensed realtor and home transformation expert and I share my knowledge, hustle, and how-to with clients to help them make strategic decisions in real estate.