Professional flippers will buy, fix and flip a property in 6 weeks – sometimes less. The fewer mortgage payments they have to make, the better. Thanks to the likes of HGTV, home renovation shows have the general population thinking that you can flip a home and make a profit at any time. Unfortunately, that’s just not true. There’s so much more to it than just buying a house, fixing it and flipping it.
So what do you need to know about investment properties? And when is the right time to flip? To answer those questions, I interviewed two local real estate professionals, Anita Van Rootselaar and Kristin Ghent, otherwise known as Kristin and Anita of Re/max Real Estate Centre Inc. in Guelph, Ontario.
Investment Properties: Rentals are the way to go
“Every year there’s a new crop of people, thanks to HGTV, who think that homeownership is not a problem, that you can buy anything and fix it up, and you’re going to make a whack of money,” says Anita Van Rootselaar. “Well, there are some fallacies in there – that’s the thing.”
“I think it depends on what type of investment property you’re interested in buying,” says Kristin Ghent. “And then the time of year and price.”
For example, if you’re purchasing a property to rent to students, you’ll want to buy somewhere around mid-January to the end of February with a possession date of somewhere around the end of April. Depending on how much work you have to do, you could either fill it by summer or for when school starts in September.
“Those investors typically aren’t afraid to pay more for the property because they know their numbers,” says Ghent. “They know their cash flow. They know what they need to get each month in order for it to make sense. If the mathematical equation doesn’t work well for them, then they move on to the next place.”
If you’re interested in buying for yourself or your family, then time of year doesn’t matter. You’re definitely going to get your best value for money in the fall, though.
“More houses sit on the market for longer,” says Ghent. “There are more houses, and fewer buyers, so you can negotiate your mortgage, negotiate your price and get them for less money.”
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Are you Ready to be a Landlord?
Van Rootselaar talks about personal timing, comparing the readiness of someone who’s in their 20s with someone who’s in their 40s. Not everyone is ready to be a landlord, she says. As a solution, though, she does suggest going with a property management company. That way you can still own an investment property, but take more of a hands-off approach.
“Do I think investment properties are worth it?” asks Anita. “Absolutely. Every single time, so long as the numbers work and the demand is there.”
“What we’re finding with our clients more than usual now, is that almost everyone who’s starting out would love the opportunity to have a rental right in the house that they’re buying,” says Ghent. “It allows you to purchase something and carry it for less money.”
The Truth About Flipping Properties
While purchasing an investment property that you plan on keeping long term requires some industry knowledge and know-how, it’s not as complicated as flipping for profit can be. When I asked Ghent and Van Rootselaar about flipping, they were much more cautious in their answers.
“Flipping is tricky now, more than it was say five years ago, because values are so high and the buyers are now educated,” says Ghent. “I think for flips, in a lot of cases, unless you get an absolute steal, you’ve got to hold it for a while, otherwise you won’t get your full profit margin out of it.”
“And with a flip you have to know your numbers,” Van Rootselaar interjects. “You have to know your numbers and you have to have a system. There are certain areas that are better for flips. There are certain times of year that are better for flips.”
When I asked if either of them had bought a property to flip, they both said no. “There’s too much risk,” says Van Rootselaar. “Because you aren’t guaranteed the sale purchase at the end.”
“It’s really hard,” agrees Ghent. “Costs are so high right now. My husband owns a construction company, and we don’t even do it. It has to be the right neighbourhood, and those right properties don’t come around very often. And when they do, they sell almost immediately.”
“A lot of your investment should be on the buy,” says Van Rootselaar. “Make some on the sell, for sure, but really, make your money on the buy. It guarantees you that difference in market changes.”
The Perfect Scenario when Flipping for Profit
“Buy low, sell high,” says Ghent. “And the ideal time is when there’s much less demand – a buyer’s market.”
“I think right now because of what the market is doing, the smartest way to invest – if your intention is to fix it up and sell it – is to buy it, make it nice, do what you want to do, hold it for a couple years, watch the market, and then sell it when the market is hot – like right now.”
So if shows like Income Property, Home to Flip and Flip this House have you dreaming of making a quick buck, take pause and heed the ladies’ advice: Buy when the market is slow, wait – and sell when the market is hot. Know your numbers and your budget. And above all else, make sure you can afford to take the risk.