Thinking of Flipping? Make sure you consider all the costs.
Some things to keep in mind when flipping a house.Posted: October 08, 2010 at 9:23 AM by Real Estate Information
You may have read articles about flipping properties and thought it sounds like a good idea. But have you thought of how, exactly, you are going to make a profit off of it? Although some people who flip homes suggest it is a relatively easy and effective way to make money, the cost implications can be daunting. Before you think about flipping, consider all the potential expenses you can incur.
Any house that has been previously owned will need to be inspected. You wouldn’t want to buy a property and find its roof is leaking, discover that it is uninsurable because it has knob and tube wiring, or see that it has roaches. Good inspectors will find these things for you; they will also cost you in fees.
When you are getting your mortgage, your bank may require you to get your new home independently appraised to determine its value.
This fee can be avoided if the previous owners of your home have already done one. However, if there isn’t a recent one completed, you’ll have to get a new one done. A survey will tell you how your home is situated on your property. It will also tell you if any part of your home is on your neighbour’s property, if any part of their home is on your property, and if your home meets the current zoning regulations.
When you are claiming the title of your property, you will need to have the title searched. Searching the title is undertaken to ensure that you aren’t buying a property that has any claims on it and to make sure that the seller actually has the right to sell the home. Although you can use a paralegal (except in BC and Quebec, where a lawyer is required), a lawyer is advisable.
To ensure that you are protected from the possibility that the seller doesn’t actually own the title to your home, you’ll have to get title insurance. It sounds like an unnecessary expense, but you definitely wouldn’t want to find out you’ve paid several hundred thousand to a person who doesn’t actually own the house you are buying.
And there will be other expenses: moving costs, gas and time to look at all the houses you are interested in, costs to replace those terrible drapes, etc. Generally, these costs are an understandable and necessary part of buying a home. And these costs will be recouped by you if you live in a house for several years, and the house naturally appreciates in value. However, it is unlikely that you will recoup these costs if you try to flip the house immediately.
In other words: flipping is only for the brave. For the rest, real estate is a great long-term way to invest your money.