Thinking of making a quick buck on the hot real estate market? The practice of \u201cflipping\u201d a home \u2013 purchasing a property, sprucing it up, and selling at a profit \u2013 has long been a popular tactic. After all, everyone loves a good makeover, as TV shows Flip or Flop, Love It or List It, and Flip this House can attest.<\/p>\n
However, renovating a property for profit in real life is more complicated than cable programming lets on \u2013 it takes considerable market savvy, financing knowledge and stellar project management to make those profit dreams a reality. To shed light on best flipping practices, Limor Markman, a seasoned flipper and founder of financial literacy resource Limor.Money, shares her secrets for a successful fixer-upper.<\/p>\n
1 \u2013 Know Your Market<\/strong><\/p>\n The golden investment rule of buying low and selling high certainly applies to house flips. Markman says that while you should steer clear of scalding markets and overvalued properties, you still want to ensure the area is valuable enough that you\u2019re likely to sell quickly. Reviewing comparable sales and listings in your desired area is a great way to gauge whether a property has potential for return.<\/p>\n \u201cPersonally, I like to do a flip in an area where \u2018days on market\u2019 is less than a month \u2013 like around 20 days. That can be a good indicator that the market is moving, because you can do the best renovation, but if nobody buys it, you\u2019re screwed,\u201d she says.<\/p>\n She adds that while no one \u201chas a crystal ball\u201d, picking a property in a location with strong market appreciation is the way to go. As well, because flips are generally done within a short time frame, investors can actually leverage a market\u2019s upswing.<\/p>\n \u201cIf you\u2019re in a market that\u2019s not appreciating, is flat or depreciating, regardless of how you intend to make the money, you\u2019re not in a situation that\u2019s going to set you up for success,\u201d she says.<\/p>\n On the hunt for your own investment property? Check out the latest Toronto condos and Toronto townhouses for sale.<\/p>\n 2 \u2013 Go for Mass Appeal<\/strong><\/p>\n When picking a potential flip home, it pays to be a people pleaser \u2013 you want it to appeal to as many buyers as possible. For this reason, Markman cautions against choosing overly unique or specialty homes that may only be a draw for a limited number of people.<\/p>\n \u201cI want to buy a property in a location that\u2019s very valuable, so in a major city, and you really want to pick a property that would be most desired by the most people,\u201d she says. \u201cI wouldn\u2019t do anything where it\u2019s a little obscure, like if there\u2019s five bedrooms, or properties that have a guest house off the back. It could be really attractive, but you\u2019re actually limiting yourself to the pool of people looking to buy it.\u201d<\/p>\n 3 \u2013 Score a Deal<\/strong><\/p>\n It\u2019s important to keep your revenue top of mind, and that means avoiding homes priced at a premium. For Markman, there\u2019s one element that makes a property a particularly attractive prospect \u2013 a motivated seller.<\/p>\n \u201cYou want someone who is eager to get rid of their property; they\u2019re downsizing, or they\u2019re moving, or they have a sense of urgency, because they\u2019re more likely to give you a better deal,\u201d she says. \u201cThe most important part, I would say, is that with the property that you\u2019re purchasing up front, you\u2019re at least getting a little bit of a discount below market value. If you build in a bit of a buffer on the budget, it\u2019s not a guarantee, but there\u2019s a greater likelihood that you\u2019ll end up more profitable.\u201d<\/p>\n 4 \u2013 Factor in Holding and Finance Costs<\/strong><\/p>\n Markman says a common rookie mistake is overlooking the cost of actually owning the property while you\u2019re fixing it up, such as mortgage, hydro and property taxes. Insurance can be another surprise cost, as coverage can be more expensive for vacant properties, and many insurers require additional alarms systems and monitoring.<\/p>\n \u201cEvery single month that I\u2019m doing a renovation, I\u2019m not generating any income \u2013 I\u2019m not getting rent, and I\u2019m not living there, so I\u2019m not getting the benefit for the cost for my personal life,\u201d she says, adding that it\u2019s important to factor these costs into the final listing price.<\/p>\n 5 \u2013 Be Picky with Your Improvements<\/strong><\/p>\n Common renovation advice says to focus on improving kitchens and bathrooms, believed to offer the highest return. That\u2019s not necessarily the case in a flip, warms Markman, who suggests spending instead on cosmetic improvements such as paint, flooring and curb appeal.<\/p>\n \u201c(Kitchens and bathrooms) can be highly coveted by potential buyers, but they can also be really expensive\u2026 approach with caution. If you\u2019re going to spend $30,000 on a new kitchen, you have to make sure that the end price is going to be equal or greater value to that,\u201d she says.<\/p>\n \u201cThere\u2019s nothing like a clean coat of paint, even on the ceiling, through the whole house, and also making it relatively neutral, so any potential buyer can be excited about moving in. The second one is flooring. We find a lot of houses with inconsistent flooring \u2013 it\u2019ll be outdated, or different in every room. Having the same, consistent flooring can make things look a little bigger, and makes a much smoother transition between the rooms,\u201d she adds.<\/p>\n 6 \u2013 Insist on an Inspection<\/strong><\/p>\n Above all, Markman says, don\u2019t waste money beyond surface value.<\/p>\n \u201cWhen I do a renovation, I never touch a property that has a lot of structural issues, or issues where I need to spend money that a potential buyer wouldn\u2019t see,\u201d says Markman. \u201cIf the plumbing needs to be done, or the wiring behind the walls, I will not go anywhere near that property, because I\u2019m going to be pouring in money that\u2019s not going to be visible to the potential buyer.\u201d<\/p>\n That means it\u2019s vital to bring in a home inspector to glean a clear picture of the extent of required work \u2013 otherwise, you\u2019re taking a blind approach to your investment. \u201cI never, ever, in any circumstances, skip an inspection,\u201d she says. \u201cIt\u2019s one thing if someone buys a house to live in because they love it so much that they\u2019re willing to cover it, but for a renovation or flip, that doesn\u2019t work \u2013 if I have no idea what I\u2019m getting, I have no idea whether I\u2019ll break even, and I could lose money as a result of that.\u201d<\/p>\n 7 \u2013 Work with a Dedicated Team<\/strong><\/p>\n Forget strapping on your own tool belt \u2013 a profitable flip is best left to the pros. That means hiring a team of trustworthy contractors who are able to work full time on your project.<\/p>\n Markman says the type of professional she\u2019ll hire depends on the project, but always includes a painter and general contractor. And, because time is literally money, she manages the flow of work with an iron fist.<\/p>\n \u201cWith renovations, I need to get it done as quickly as possible. I need to ensure they are available, that we have good rapport,\u201d she says. \u201cWhat I like to do when doing a renovation, is have a very detailed schedule where everybody knows exactly there they fit into the chronological order of things, and then I book them for that day.\u201d She advises against working with buddies or personal connections in the industry if there\u2019s any doubt they can follow said detailed timeline.<\/p>\n 8 \u2013 Build that Buzz<\/strong><\/p>\n The best time to start spreading the word about your new and improved property is actually while renos are still under way, says Markman \u2013 it\u2019s important to create as much exposure as possible. While her considerable expertise allows her to market her properties as a private seller, she recommends greener investors connect with a realtor for more support.<\/p>\n \u201cWhen you\u2019re working with a realtor, some of them offer a higher level of support from a marketing perspective, so especially if you\u2019ve done the renovation, working with a realtor who has some digital expertise is great,\u201d she says. \u201cI know realtors who do pretty fancy landing pages, websites, virtual tours, and you really want to showcase as much of the property as possible.\u201d<\/p>\n For those going at it alone, she suggests going beyond MLS and leveraging social media \u2013 Facebook in particular is effective because it allows you to target your listing to specific locations and demographics. She also hits traditional outlets, such as Craigslist and Kijiji.<\/p>\n