If you buy a fixer-upper to reno and sell, will you make a profit?
I’m interested in buying a fixer-upper property to renovate and flip. Do you have any tips for me?
Buying a home to refurbish and sell for a profit can be appealing, but it is also a significant undertaking and risky in a hot seller’s market. Before you dive in, here are a few things to be aware of to ensure you’re making the right choice:
Conduct a thorough financial analysis to weigh the pros and cons. The money you may potentially save buying a fixer-upper can easily get spent on repairs and renovations, depending on just how much fixing up you do and the price you might get when you sell it.
Assess whether you’re comfortable carrying these costs for an uncertain period of time.
If you choose to hire contractors to do the work, do your research first. Ask friends and family members for recommendations, look up reviews online, interview several candidates about their qualifications and experiences, and ask for written estimates of the time and money it will take to complete the work.
Also, Consumer Protection Ontario encourages homeowners to search through the Consumer Beware List before selecting a contractor.
Set a realistic budget that you’re comfortable with. Account for the price of the home, applicable taxes (HST and income tax on profit), cost of repairs and renovations, permit application fees, professional fees, real estate commissions and staging.
Think about the cost of potential renovation delays and, depending on how old the property is, consider having additional funds put away for unforeseen expenses.
Leverage your real estate agent’s expertise and services. Your representative can help you find suitable properties and provide a comparative market analysis of the home’s value and market trends in your area. They should be able to offer an informed opinion about market conditions and whether it makes more sense to sell the home soon after you’ve fixed it up, or hold on to it for a while.
Consider a home inspection. Depending on the extent of the renovations, you may want to hire a home inspector to assess the property’s essential system — roofing, doors and windows, foundation, plumbing, electrical, heating and air conditioning — and provide you with an assessment of the home’s overall condition without poking holes in the structure. This will help you understand what you’re getting yourself into.
If the renovations are extensive, the home might require registration with Tarion under the New Home Warranty Program.
Consult with a lawyer who is insured to practise real estate law. Check if any major renovations you’d like to do are in line with the local zoning bylaws and what renovations may require building permits from the municipality.
If this is not your first home, your legal counsel can provide information about your legal rights and obligations associated with purchasing an investment property, and applicable sales tax.
Last, but not least: You may want to consult with an accountant. They can help you with the financial analysis and any applicable income tax and capital gains tax considerations.
All the best!