Feel like King of the house flipping world after watching a marathon session of some HGTV renovation show? Well settle down there Sally. What you see on those shows isn’t likely going to be your experience. I’ve seen too many wannabe flippers lose their shirts in the Toronto Real Estate market.

Here are the top 4 reasons rookie flippers lose their shirts:

1. Poor Planning: A large contingency budget line item needs to be made with any home  renovation.  The larger the project, the more things can go wrong. Setting aside as much  as 20% as a contingency fund is important to ensure the job is done right. When working out the numbers prior to buying the asset this contingency needs to be factored in. If it results in an unacceptable return. Then pass. This fund is even more important when considering an older home. Poor financial planning is one thing but another big mistake by rookies is time management. If you think it’s going to take 3 months you’d better be sure you’ve added some time for surprises, late trades, no shows, etc…

2. Over Estimating Future Value: You may think you know neighbourhood values but if you’re not living and breathing real estate every day (like we do) it’s virtually impossible to determine a reasonable, post renovation sale price. You may think you’re home could be worth a million but what are renovated homes in the neighbourhood selling for? Do you really want to have the biggest, nicest house on the block? Let me answer that for you: NO! Consult a pro and don’t fall for the Agent that tells you the number you want to hear without showing you real proof of recent comparable sales.

3. The Home Depot effect: This falls in line with the first point. If you had actually priced out the renovation correctly there’s no way in hell paying retail for everything would have made sense. Most successful flippers and even some rookies are able to make money by taking advantage of relationships they have with tradespeople, contractors, and other skilled workers. These rookies walk into a retail outfit, drop their credit card with no real plan and expect to be cashing in, in a few months. If you’ve worked a random day job for the past decade then cashed in your life savings to become a flipper get ready to get hosed by most contractors that quote the jobs for you. Not saying they’re dishonest, but they’re not about to cut a deal for a guy that’s never given them any work before. They’re definitely not concerned with your ROI, that’s for sure.

4. Initial Overpayment: Without having the inside scoop on a property most investors (including rental properties and flippers) are paying more and more for these assets. The main reason is that investors are now competing with traditional buyers aka end users for the same properties. Many years ago, the average buyer wasn’t willing to take on a massive renovation to create their dream home so it was easier for an investor to stick to their numbers and not compete. Now, traditional buyers are willing to sink all they’ve got into a home to build their dream home. ROI is not a concern for them so adding an extra $40K to the offer price is worth knowing they can plant their family in the neighbourhood they love. Very important to stick to your plan (if you have one that is) and not throw cash at a property just to satisfy your need to be like those guys on TV. There are some good deals happening on the new release of TCHC properties right now. Contact us to stay in the investor loop.

Have you checked out The Worlds Greatest Investment Property Guide?

Have a flip story to share? We’d love to hear it, just comment below.

 

Share: