Flip this House --- on A&E

[james t kirk]

For every sucess story I am sure there are hundreds of horror stories.

With the current market it doesn't seem like the right time to get into flipping.

Agreed in spades.

You need to be able to do a lot of the work yourself and even then it backfires. In Toronto, people pay to live in a neighbourhood. They look past the kitchen, the bathroom, the track lighting and are willing to shell out big bucks for a fixer upper.

There was a house on my street that the couple who lived in had lived there for 50 years. They kept the place tidy, but it needed A LOT of work.

Literally right next door, there was a house that had been done up completely then flipped. The price differential between the two selling prices clearly did not justify a large reno, then selling.

The old couple did the best thing. They put fuck all into that place and sold for a big buck. For what it would cost to renovate, you'd never get your money back, let alone make a profit.

 

[hairyfucker]

any one that want to get into real estate investing or is even just looking to purchase a home for persinal use should read 3Tees posts a few time and let it sink in a bit. He is spot on and either is well read or very experienced. All point are accurate.

 

[21pro]

i thought it was called 'flipping' when I sold a contract to close on a property before it's closing date approached... ie, i didn't take possession of the property, whether I re-assigned the agreement to purchase contract over to a new party and made $30k... this happened in 2000.

 

[goodtime]

Speculators

Some builder contracts with clause no resell with-in X months of closing to minimize Speculators.

For bargains, there's Power of Sale & Foreclosures but ymmv. I did it once with a buddy. As been stated, by the time you factored in the fees & time commitment, we made modest gain. It's matter of timing sell @ peak.

In U.S. you can get property with bank fork out bulk of the $$$, which is why friends & few relatives did/doing it. Of course, you rarely hear about the failures.

 

[21pro]

Of course, you rarely hear about the failures.

sounds like gambling in vegas, playing the lottery, or day trading! lol..

 

[papasmerf]

If you want to start flipping I would suggest a partner who knows remodeling and construction. You will need to deal with sub-contractors and local laws.

Never buy a house without a good inspection and never figure you can ake 2:1 on your money You are looking for an fast sale and that means under valued.

 

[3Tees]

any one that want to get into real estate investing or is even just looking to purchase a home for persinal use should read 3Tees posts a few time and let it sink in a bit. He is spot on and either is well read or very experienced. All point are accurate.

Thanks - I'm well-informed and just starting-in. I've spent two months getting my legal contracts, financing and agents ready. I've now chosen areas of the province and will start marketing in mid-May. I'm nervous in this market, but the key thing is to buy low (which desperate sales allows) and then sell high, or higher, given the market may decline a bit.

i thought it was called 'flipping' when I sold a contract to close on a property before it's closing date approached... ie, i didn't take possession of the property, whether I re-assigned the agreement to purchase contract over to a new party and made $30k... this happened in 2000.

Agreed. This was the standard definition of flipping before those shows. A more common name now is assignment or wholesaling. Any house that I can't buy on my own, I'll consider assigning. Assigning though, is a risky game. The way to mitigate the risk is to have a buyer lined-up before you even enter into the original agreement of purchase and sale. That way, you're not spending sleepless nights looking for a buyer and wondering how you're going to purchase a house you can't afford. Also, $30k is an amazing assignment fee - I know it's doable, just rare. Typical residential assignment fees go for about $5,000 to $10,000 given the size of the transaction and the value the flipper brings to the table. A fully tenanted property brings more than a vacant one, for example.

 

[tboy]

Now if someone can clarify this, I'm all ears but back in the early 90's right after the last big housing boom didn't they enact a law preventing flipping houses to artificially inflate the prices? I thought they said you actually had to take possession of the home and couldn't resell the contract until you did take possession and wasn't there a time limit as to how long you had to own it before re-selling?

I know between '87 and '89 starter houses in Toronto went from $79900 to $249,900.00 in no time due to people signing contracts to purchase 3 or 4 homes. I had one co-worker who signed deals on 4 houses and ended up making $300,000.00 before this rule came into effect.

 

[KBear]

I thought they said you actually had to take possession of the home and couldn't resell the contract until you did take possession and wasn't there a time limit as to how long you had to own it before re-selling?
.

Builders often put something into the contract that prevents someone from buying their properties, and selling the contract. Don’t think there is a law to prevent that. There are down payment requirements when buying investment properties, that might have changed from the pre 90’s. Now you need at least some rope of your own to hang yourself.

Oh how off-base you are.

Oh...

I'm well-informed and just starting-in.

You have not even bought a property yet, and are speaking with authority.

I think it is the definition of market value that is causing some confusion. If a property is neglected, needs that furnace in the winter, and must be sold fast, then the market value for that property is going to be lower then the other properties on the street.

A property can be put on the market by a real estate agent in a couple of hours. Some real estate agents do have money, or have buddies that have money.

This fixing up of properties and reselling them at a profit works great in an upward moving market, not so great when the market is moving in the other direction.

There is money to be made for sure, but I have also seen grown men cry that have been financially wiped out in a downward moving market. You will always hear about the success stories, but rarely hear of the failures. Anyway 3Tees, good luck with your first purchase.

 

[3Tees]

Anyway 3Tees, good luck with your first purchase.

I appreciate the good wishes. I don't speak with authority or experience - just confidence.

My goal, and point is, I will never, ever pay "retail" for a house. Unless I can get 60% to 80% off, I won't invest in it. It's doable because I know agents (as you mentioned agents have friends with money, or friends who are willing to part with their money) to purchase a house. Also, advertising does work really, really well to get to motivated sellers.

Your earlier point is true - what is real market value? I agree with you, a house that needs a furnace in the winter is going to have a lower market value. To me, a lower market value does not mean a discount - ya pays for whats ya getz. What I was saying is that a desperate seller would be willing to part with a house with a broken furnace at an even further discount because they just have to get out of the house quickly.

I won't buy any house with a broken furnace in the dead of winter and consider that a discount. I'll buy a house ONLY from a desperate seller who will part with it for 60% to 80% of value because he has to get out - furnace repairs or not (the furnace is just an aggravating factor). The main factors are the Sheriff will be there any day, finances are on empty, bankruptcy is around the corner and the homeowner is reminded of this at 3am in the morning by nasty credit collection agencies (assuming his phones are still connected).

Anyone buying a fixer-upper or a gut-job likely pays market value for it. I won't do that. The person who does is banking that they'll repair it to community standards and sell it. That's a big, big risk. My goal is to buy a house that doesn't need nearly as much repairs, but at a discount from a motivated seller. If I can get 60% to 80% of the actual price and only put in $15,000 in fix-up costs, my profits are much more secure than the guy who does the whole reno thing.

Rule #1 in Real Estate Investing - "You make money when you buy, and realize it when you sell."

 

[Dr Macoy]

60% to 80% 0ff the average price for a house here is 550K good luck with that.

Have you ever heard the saying even a turkey can fly when the wind is strong enough. I think that is the case with most flippers in the last 5 to 7 years. even if they just held the homes I think the average increase a year here has been 13% a year.The work just increase disirability and speed of sale
Macoy out

 

[3Tees]

60% to 80% 0ff the average price for a house here is 550K good luck with that.

Have you ever heard the saying even a turkey can fly when the wind is strong enough. I think that is the case with most flippers in the last 5 to 7 years. even if they just held the homes I think the average increase a year here has been 13% a year.The work just increase disirability and speed of sale
Macoy out

He's dead Jim...

 

[KBear]

Here is one of the problems. You manage to find a home with a fair market value of $400,000, and you want to pay the owner in distress $240,000 - $320,000. Sounds really wonderful. It is winter, no furnace, and the owner has no money, sheriff is on the way, and the banks will not lend owner any money.

Now consider, that if the banks will not lend this owner any money, then there is likely no equity in the house, ie, the owner owes the bank about as much as the house is worth, maybe $390,000. If there were 20 – 40% equity in the house, the banks, or some other loan company would have no problems lending the guy some money, because it would be a secured loan.

So, you pay $300,000 for the $400,000 property, all is great, however the owner can’t discharge the mortgage on closing and deliver clear title to the property because you are not paying enough to cover the $390,000 mortgage, and the owner does not have any money to make up the difference. So this deal would be dead. The property would likely go POS, and would sell at fair market value.

Therefore, you have to find someone that is in distress, who is smart enough to own and substantially pay off the bulk of the mortgage on a $400,000, but stupid enough to sell it at major discount because they don’t know they can just go into the bank and take out a loan using the equity in the home as collateral, to buy that new furnace etc. You will not find this deal through any real estate agent.

 

[3Tees]

Assumption about the banks not lending any money is wrong in terms of no equity left in the house. Banks will not lend money when both people are out of work. As I said in the example, one person loses job and another gets injured at work, and the other debt is in credit card debt. No money coming in, no equity loan from the bank or most other lenders, regardless of how much there is in the house. Now, someone could live off of existing lines of credit, or other borrowed funds, but it is only borrowed time, and again, they will not be able to access any equity without jobs.

Many Canadian families are no longer net savers - they barely keep enough for one month's worth of rainy days.

And you're right - I won't find this through a real estate agent. I'll find it through Kijiji, through ads in the FREE circulating local newspapers, and through flyers at lower end grocery chains, pawn shops and thrift stores.

 

[JohnLarue]

One thing to carefully consider is the flexibility of your financing.
If you have to borrow the cash for the property & the reno, every day between the purchase and the sale will cost you $ on 500K @ 7% = approx $95 or 35K for a year in interest.
If you are unable to sell @ your original estimate, the reno costs go over or some other unforeseen issue (leaky roof, poor estimates, furnace goes, a lien you did not know about). You could get stuck with the property (say for 3 years) or have to sell @ a loss.
You could make $50K or your first 2 renos & then lose $200K on your third.
It is most difficult to recover from a loss as you capital dries up
Like in all things experience in an industry (real estate), would be very beneficial.
If you new to flipping, more likely you make the mistakes on your first reno

I would be very careful in this market as it could change dramatically in the 3-6 months project time line. An 800K market could become a $600K market, while you concentrating on re-doing a kitchen & bathroom.

 

[3Tees]

One thing to carefully consider is the flexibility of your financing.
If you have to borrow the cash for the property & the reno, every day between the purchase and the sale will cost you $ on 500K @ 7% = approx $95 or 35K for a year in interest.

While I'm not doing renoing and TV-show flipping like this (and I'm not getting a mortgage for $500k), the interest on an investment mortgage in Canada is tax deductible. Given that amortization schedules are weighted towards interest payments for the beginning of the mortgage, virtually every cent that goes out comes back in the form of a deduction.

 

[james t kirk]

I appreciate the good wishes. I don't speak with authority or experience - just confidence.

My goal, and point is, I will never, ever pay "retail" for a house. Unless I can get 60% to 80% off, I won't invest in it. It's doable because I know agents (as you mentioned agents have friends with money, or friends who are willing to part with their money) to purchase a house. Also, advertising does work really, really well to get to motivated sellers.

snip

Anyone buying a fixer-upper or a gut-job likely pays market value for it. I won't do that. The person who does is banking that they'll repair it to community standards and sell it. That's a big, big risk. My goal is to buy a house that doesn't need nearly as much repairs, but at a discount from a motivated seller. If I can get 60% to 80% of the actual price and only put in $15,000 in fix-up costs, my profits are much more secure than the guy who does the whole reno thing.

Rule #1 in Real Estate Investing - "You make money when you buy, and realize it when you sell."

60 to 80 percent off eh....

Not that I'm saying you're full of shit, but, well, I think you're full of shit.

There's only one little problem to that scenario. The shelp who owns the house, the guy you wanna fuck over, the guy who's up to his ears in debt, yeah, him, Well, he's up to his ears in debt with the BANK. The bank owns that house (and anyone's house who has a mortgage there Sherlock) And guess what, the bank gets their money before Shlep does. That's how it works.

Any smart real estate transaction usually involves this thing called a "title search". (At least if you have any brains.) That title search reveals these little details called liens. So, Shlep may sell you that $500,000.00 house for $100,000 (ba ha ha, your figures not mine), but the bank actually owns the house, not shlep. So, you just gave shlep $100,000.00 in cash and he's in Mexico sipping pinacalada and sampling the local talent and you don't get shit becaue the bank still owns the house.

See the numbers don't add up, because if Shlep is mortgage free, he's not going to sell you the place for anything less than full market value now is he. Even if he's in deep elsewhere, he can get a line of credit on the property for 80 percent of it's market value. Now on that 500k house, that translates into 400 k of credit at prime.

Now explain to me why the fuck anyone would sell you that 500 k house, to get a 100 k from you, when the bank will give him 400k.

Not that I don't believe you....

 

[james t kirk]

Here is one of the problems. You manage to find a home with a fair market value of $400,000, and you want to pay the owner in distress

snip

Therefore, you have to find someone that is in distress, who is smart enough to own and substantially pay off the bulk of the mortgage on a $400,000, but stupid enough to sell it at major discount because they don’t know they can just go into the bank and take out a loan using the equity in the home as collateral, to buy that new furnace etc. You will not find this deal through any real estate agent.

Beat me to it....

 

[james t kirk]

Assumption about the banks not lending any money is wrong in terms of no equity left in the house. Banks will not lend money when both people are out of work. As I said in the example, one person loses job and another gets injured at work, and the other debt is in credit card debt. No money coming in, no equity loan from the bank or most other lenders, regardless of how much there is in the house. Now, someone could live off of existing lines of credit, or other borrowed funds, but it is only borrowed time, and again, they will not be able to access any equity without jobs.

Many Canadian families are no longer net savers - they barely keep enough for one month's worth of rainy days.

And you're right - I won't find this through a real estate agent. I'll find it through Kijiji, through ads in the FREE circulating local newspapers, and through flyers at lower end grocery chains, pawn shops and thrift stores.

Now it's clear to me that you really don't know what you're talking about.

If there is equity in the house, the bank will offer a mortgage on the property. They don't give a fuck if both are unemployed. If you live in a house worth a million bucks and you owe 200 grand, and both you and your partner are unemployed, the bank will loan you more money, up to 80% of the worth of the house, but they always secure the loan against the property.

My bank (RBC) thinks my salary is the same as it was in when i bought my house in 1996. They don't care what I make. All they care about is that I'm paying my mortgage. They've never asked me to update my income information in 12years, and I've renewed my mortgage several times during that period. Why, cause I make the payments and I have equity in the proerty.

 

[JohnLarue]

While I'm not doing renoing and TV-show flipping like this (and I'm not getting a mortgage for $500k), the interest on an investment mortgage in Canada is tax deductible. Given that amortization schedules are weighted towards interest payments for the beginning of the mortgage, virtually every cent that goes out comes back in the form of a deduction.

This is a common misconception.
a deduction will only help lower your taxable income. & your deduction is only worth 25-50% of its original cost depending upon your tax rate.
If you do not sell / rent the property you will have no taxable income from the project. Therefor the deduction has zero value.

Cash Flow (not profit & loss for tax purposes) is what you need to control
You have to
1/ Lay out the cash to buy the property
2. Pay the lawyers, Realtors , inspectors etc
3. Pay for any permits
4. Buy the materials
5. Pay any contractors
Before you receive dime one from selling / renting the place.

You are putting out a lot of cash (some of which you may need to borrow) if you are unable to sell / rent the property, your cash will dry up & you may have to slash your price just to pay the bills

The timing is very important especially if you borrow. If there is a delay in the reno time or a delay selling the borrowing costs will eat into your profit. a lengthy delay (six months -year) could turn a profit to a loss.