Just Like Blockbuster The Quick House Flip Is Dead

Just Add A Coat Of Paint and Flip For Buckets of Cash

Remember the days of door to door milk delivery, going out to rent DVD’s, paying our bills by mail and finding that little fixer upper where putting in a couple of bucks reaped a big windfall. Well, those days are long gone and they are not coming back.

When I am working an open house or answering calls at the office you would be amazed that there are still Luddites out there asking me to keep an eye out for a quick house flip. Just like magic beans, the tooth fairy and an honest politician those days of a quick house flip in Toronto don’t exist. Yes, I would have said that maybe up to 5 or 6 years ago it was possible, but now that we are into the 2nd decade of the millennium no one is giving away property.

However, knowing that as one opportunity closes another potential market emerges. What my clients have found is purchasing a market value property that has location but requires updating. I had a client purchase a Toronto east end semi for $350,000 and she then put in additional $25,000 in updating the property in the kitchens, flooring, bathrooms and general decorating . The intention was always to rent the property out, as my client knew that no one out there was going to pay her $420,000 following 2 months of renovating. The real strength of this strategy is yet to come:

EXPENSES

Mortgage of $300,000 amortized over 25 years at an interest rate of 4% works out to be monthly payment of $1582

City taxes are running $3,700 per year so it breaks down to a monthly fee of $308

House maintenance and repairs are $4,000 yearly so monthly represents $333

For a total monthly expenditure of $2,223

REVENUE

The two rental units bring in a total monthly of $2,500

Leaving a monthly profit of $277 or yearly $3,324. You are most likely dismissing this as a lot of work for $3,300 but as I previously said the real strength is yet come.

The plan has always been to rent the property for 5 years and at the end of that 5 years sell. Now, with the outstanding balance of the mortgage being $261,000 and being conservative lets say the property only appreciates in value by 4% per year we are looking at market value of $425,000.

Get the calculator out and you have most likely figured out the return is now $164,000. Yeah, you will pay real estate fees to your Realtor and lawyer of say $25,000 you still pocket $140,000. No, I didn’t forget , there was that $50,000 downpayment and $25,000 in the initial renovations, but the $25,000 will be dealt as an expense and we all know that interest on $50,000 over 5 years isn’t going to be much.

Yes, capital gains will be applied as it’s not your primary residence, but most likely you would be nailed anyway if you did the flip. The point is this property carries itself and real estate does provide solid opportunities for investors savvy enough to explore evolving market conditions.