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WHY “FLIPPING” USUALLY FLOPS? - Flip That House or flip this house

WHY “FLIPPING” USUALLY FLOPS.

It happens about once a week – I’ll get a call regarding a listing – could be mine – could be someone else’s – wanting to know about the property’s “flip” potential. My usual response is “I never recommend attempting to flip a property” Notice I use the phrase “attempting to flip”. That’s because it rarely works out well, - and in some cases, can be not only more than what you expected, but financially disasterous.

Unfortunately, the gleam in one’s eye that comes from the idea of purchasing a property that is either dated or in disrepair, throwing some money at it for a quick facelift – and then selling it for possibly hundreds of thousands of dollars more, has come from the glut of shows airing on television. “Flip This House”, “Flip That House” (yes – two shows, almost identical names) both focus on the buy and flip - “Designed to Sell” and “Selling Houses” both concentrate on how to dress up a house for sale. Now, don’t get me wrong, - being a total real estate geek, I love these shows – throw in “Buy Me”, “House Hunters” and “Location, Location” along with a bowl of popcorn, and I’m good to go. However – I’m also a realtor – and so much like a hockey fan yelling at the Canucks game on the tube – I’m the armchair quarterback too, yelling at the potential buyers and sellers, rolling my eyes at the unreal expectations.

Remember, the bulk of these shows are produced in the United States, - where the market is much more vast, real estate more readily available, and often significantly cheaper. But what really irks me is at the end of these shows, when the “flipper” says he/she bought the house for “X” amount, spent “Y” on it – and will now list it at “Z” – with a potential profit of “A”. That’s just the point – what you list at and the selling price are often two completely different things, yet we rarely hear of the actual results. How long did it stay on the market? What were the carrying costs and what was the final sale price? And, if the flipper is married, how is the divorce proceeding?

So why shouldn’t you attempt to flip? Well, let’s look at the price of real estate in the lower mainland. In many municipalities, it’s virtually impossible to find a single family detached home for under 500K. Take that as our purchase price. Then ad Property Purchase Tax. (oh, yeah…I forgot about that) That immediately adds eight thousand dollars to the price. What needs to be done? New roof? New kitchen? What if all the plumbing and wiring needs to be re-done? That can cost a lot of money, but the actual value remains unseen to potential buyers. Many neophyte flippers also focus on the WRONG areas - buyers tend to focus on kitchens and bathrooms, and a poor reno job can cost you big bucks. Before you know it, budgets are blown, and you may end up with a final product that is priced right out of the neighbourhood. (Lesson: Don’t put granite countertops in a property next to a suspected crack house. There won’t be a buyer for it)

Remember too, buyers in the lower mainland are pretty savvy, mostly because they have to be. They follow the market, they know the prices in their area, and when they work with a realtor who does their homework, they know all about the previous sales in the neighbourhood, and what the asking prices are – not to mention how long properties have been on the market. They can also find out, through their realtor, when the property last exchanged hands, and at what price. Don’t be naive enough to think that anyone will pay 200k more for a house you bought 3 months ago and spent thirty five thousand on – it ain’t gonna happen. And even if it did, you now have a nice Capital Gains bill heading your way.

Simply put, if you want to buy a home – go ahead! But unless you are willing to invest all your time, resources, and you are a contractor by trade, I always discourage flipping. In most cases, you’ll be biting off WAY more than you can chew.

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