A lot of people come to us and say they want to flip a house. There are two ways to do this.
- You can buy a new build and sell after or just before completion.
- Purchase a home that needs major repair.
Buying a new build for flipping
Over the years we have seen a lot of people buy several new builds with as little as 5 to 10% down of their own money and sell them after.
One way to do this is to sell it on assignment. Basically, this means you are going to sell it before closing to another buyer at a set price. Before you do this, you need to make sure that the builder will allow this. Not all builders allow an assignment sale or there could be a fee.
Assignment sales can be difficult to sell as the buyer may have to come up with a larger downpayment for the purchase. The risk here is selling the property for less than its worth or you may have to try to close on the property yourself.
Another option for the new build is to close on it and sell after. But, if you sell it right away you would be subject to capital gains and the HST. To avoid the HST tax most buyers will wait one year and rent it out. For most new builds this could be costly as the rent rarely covers the cost to carry the house.
New builds can also be tricky because most new builds are min 2 years to closing.
You are losing out on potential rental income and its hard to predict the market when the closing is that far out. The housing market could shift, the builder could pull the plug or go bankrupt, rates may increase and you no longer qualify for the purchase.
Unless you are purchasing a new build as a principal residence you are better to purchase a one- or two-year old home.
Buying a home that is a complete gut job
This is for the experienced investor and someone who knows what they are doing. Make sure you calculate all your expenses and add on for extras.
The real risk here is a shift in the markets and trying to find a good property to flip that you can make money on. Much easier said than done.