What is property flipping and how to make money-flipping properties?
Property flipping is nothing but when a real estate investor would buy a fixer upper property and sells it for profit in short span of time. In order for a fixer upper property to be considered a flip, it must be bought with the intention of quickly reselling. The time between the purchase and the sale often ranges from a month to six months to categorize a transaction in the flipping segment.
Flipping a Property in 5 Easy Steps
Step 1: Financing the property and your renovations
A typical bank or a mortgage broker would offer you following products.
Traditional or conventional mortgages are those that meet the requirement of having a 20 per cent down payment, with the remaining 80 per cent being provided by the lender. These have a low loan-to-value ratio, which means that the amount of the loan is low, relative to the value of the property. Before mortgage insurance was introduced in the 1950s, almost all mortgages were conventional mortgages, with borrowers paying at least 50 per cent of the cost of the Property upfront.
High-ratio mortgages are those in which the borrower has a down payment of less than 20 per cent, requiring the lender to provide a higher ratio of the loan. If you’re a borrower with a high-ratio mortgage then you are required by law to get mortgage default insurance, which is commonly known as mortgage insurance. The premiums for mortgage insurance are often rolled into the mortgage loan payments. High-ratio mortgages were generally thought of as being undesirable, but in an environment with historically low interest rates, high-ratio mortgages are the norm rather than the exception. Even people who might be able to afford the 20 per cent down payment required for a traditional mortgage sometimes choose to get mortgage insurance instead of fronting a 20 per cent down payment, keeping the extra cash liquid for closing costs or emergency funds.
Fixed rate mortgages feature an interest rate that doesn’t change, or is “fixed”, for a set period of time, often between 1 and 5 years. It’s easier to manage a budget with a fixed rate mortgage, since your payments won’t change during that fixed term. The interest rates for fixed mortgages tend to be slightly higher than other types of mortgages where the rate changes; what you gain in stability, you pay for with a higher mortgage interest rate. Fixed rate mortgages are most beneficial when interest rates are low and expected to rise over the length of the term – although predicting rate increases and decreases are far from an exact science. Five-year fixed rate mortgages are one of the most popular mortgage products in Canada.
An adjustable rate mortgage (ARM) is reviewed at intervals and then adjusted based on the current prime rate, the rate at which a commercial bank’s optimal customers can borrow money. This rate adjustment affects both the monthly payment as well as the interest rate of the loan. If you have an adjustable rate mortgage and the interest rate drops, then you benefit from the lower mortgage rate instead of being locked into the higher mortgage rate as you would be with a fixed mortgage. The risk, of course, is that if interest rates rise, then you are on the hook for those increase in payments as well. Adjustments can happen without much notice, and as often as eight times per year. Adjustable rate mortgages are beneficial if you can withstand fluctuation in monthly payments but want to take advantage of lower rates.
A variable rate mortgage (VRM) is another type of mortgage where the interest rate of the loan fluctuates based on the current prime rate. With a VRM, though, your monthly payment remains the same because the fluctuating amount is the amount of the payment that’s applied to the mortgage principal. A VRM allows you to keep some stability in terms of consistent monthly payments, but also reap the benefits if interest rates fall. Rates are typically lower with a VRM than they would be with a fixed rate mortgage.
A convertible mortgage is one that can move from a variable to a fixed rate, or a shorter to a longer term, at any time without a penalty. If you take advantage of this option, then your interest rate will also change to the current rate offered by the lender for the new term. This would be a good option to consider if you want to stick with a variable rate for the moment, but expect rates to rise.
A hybrid mortgage, also known as a 50/50 mortgage, is a combination of fixed and variable rate mortgages, allowing you to get the best of both worlds. With a hybrid mortgage, part of the loan is financed at a fixed rate and the other part of the loan is financed at a variable rate. The terms for both parts may be different, which may be tricky to manage when it comes time to renew your term, and it also may be difficult to transfer a hybrid mortgage to another lender. Still, you benefit from stability as well as potentially falling rates.
Closed mortgages have restrictions when it comes to being paid off or renegotiated before the specified loan term is complete. Some closed mortgages cannot be paid off before the term ends without paying a large penalty, and other closed mortgages have a prepayment limit, with the borrower incurring severe penalties if any payment over that limit is made.
Open mortgages are flexible in that you can make lump sum prepayments or accelerated payments without penalty in order to pay the loan before the end of the amortization period. Although open mortgages have greater flexibility, they tend to have slightly higher interest rates than that of a closed mortgage but are a perfect fit for property flipping.
Reverse mortgages, or Property equity conversion mortgages, are mortgages that allow you to transform the equity in their Property to cash while still living in the property. This has been touted as a good option for Property owners who are nearing retirement and who have considerable equity in their Property’s if they aren’t planning on moving and need to supplement their retirement income.
A portable mortgage is exactly what it sounds like: it can move when you do. With a portable mortgage, you can take your current mortgage and apply it to another property if you move. You usually won’t have to pay penalties for breaking your mortgage contract, and you get to keep the interest rate of your current loan without going through the approval process again. This is beneficial if your current mortgage has a lower interest than anything you could get with your new Property purchase.
An assumable mortgage is one that can be assumed by someone else. If you’re looking to assume someone’s mortgage, then you’d usually have to be approved by the current lender, and the terms of that mortgage have to remain the same once transferred.
Tip – Look for a mortgage broker who can, not only offer you a mortgage product to buy the fixer upper property for flipping but should offer you a top up loan/line of credit which you can use to fund your renovation. Should you need help with this call me @ (647) 274 7572 and my mortgage broker can offer you a product that perfectly suits your need including products like ZERO DOWN PAYMENT.
Step 2: Target your Market for Property Flipping
You may think that house you found online seems like a steal at $500,000 and has lots of potential for flipping. (Just think of what you could do with that kitchen, washroom etc.!) However, if the nicest and biggest house in the neighborhood SOLD for $515,000 three months ago, any renovations or as a matter of fact just even buying and selling cost (commissions, lawyer fee, closing costs etc.) would probably outprice the neighborhood. In addition, you would be stuck with a house you could not sell for a profit.
Having a good understanding of the market is a most important factor in the success of your flipping business. But if you have access to information as to where the buyers are looking for their next home that would be worth a million dollar as you will know exactly which street, city, municipality to target for your next flip and this is where my PROPRIETARY TOOL can help you find those GOLD Nuggets.
It pays to work with a real estate agent who knows the market like the back of their hand. Then when you are ready to sell, your agent can use their knowledge to price the house competitively so that you get top dollar. Being in real estate for over 11 years having done tons of successful flips for my clients I can assist you with your flip at Zero additional cost so call me @ (647) 274 7572 and I will show you with examples, how you can profit from fixer upper property flipping.
Step 3: Make a Budget for Flipping Business
Do not wait until after you purchase an investment property to make a budget. Know your price range for purchasing a fixer upper property, making any repairs, completing renovation projects, and selling it before you finalize the deal.
Make sure to identify any cosmetic projects as well as any expensive overhauls like plumbing or electrical problems. If you do not have a background in construction, my team of contractor’s can tell you what needs fixing and how much it will cost. Surprise repairs can make or break a flip, so be sure to do your homework here.
When your offer is conditional, use your inspection period to get a property inspection and any other specific inspections you may need. It is always better to spot problems on the front end than be surprised down the road. My team of licensed and certified home inspectors can offer you this service at a discounted price if you wish to avail. Should you need help with the budget tracker call me @ (647) 274 7572 and I will share with you my excel file which I have perfected by using it in past all the flips that we have done.
Step 4: Invest in Smart Renovations
Dreams of gleaming hardwood floors, on-trend light fixtures and fabulous kitchens with professional-grade stoves can quickly cause your renovations to get out of hand. That is why it is important to know your budget upfront and then make sure your updates stay on track and actually boost the value of the property. We help you plan your budget not only based on latest trends but also the comparable properties SOLD on the same street or neighborhood.
Do not forget that big renovations—like kitchens and bathrooms—can easily make or break your flip. Take the kitchen, for example. According to the 2018 Cost vs. Value report, the average amount spent on a major kitchen remodel is $62,158. The average recouped is only $40,560 that is not the kind of ROI you want to see when you are flipping a house.
If you’re renovating a house that you hope to sell for $600,000, don’t put $60,000 into custom cabinet installations, high-end finishes and that dream kitchen island! Instead, consider a smarter renovation that focuses on refinishing the existing cabinets, adding granite counters and replacing appliances. You’ll spend less, with a lot higher likelihood of recouping your costs in flipping your fixer upper property.
While you might invest in a couple big updates on a flip, don’t under estimate the power of small tweaks. Things like a fresh coat of paint, updated hardware and new landscaping can make a huge impact! Should you wish to receive a FREE report on renovation cost Vs ROI call me @ (647) 274 7572
Step 5: Get Guidance from a Local Real Estate Expert
Can you make money from property flipping? When it’s done the right way, you definitely can! Keep in mind property flipping is not about searching a fixer upper property on MLS or Realtor.ca with keywords like flipping, fixer-upper, power of sale etc. it is lot more than that and this is where a Realtor who is experienced in flipping properties can help you find the right candidate for flipping.
Whether you’re buying a house to live in for years or with the intention of flipping it in six months, a quality real estate agent can provide the market knowledge and practical guidance you need to make a smart investment and save thousands of dollars.
Ready to Partner With a Pro?
Once again, I offer everything that you need for property flipping like Hot Exclusive Deals (Power of Sale, Foreclosure, Fixer Upper, Distressed, Coming Soon Properties) Zero Down Payment Mortgage, Mobile Lawyers, Pre-Negotiated Contractors, Cleaning Personals, Virtual/Regular Staging and Exclusive Home SOLD Guarantee !!!