Flipping Homes on the Real Estate Market

You have to do the Math * The Ideal situation

Purchase a Home * 3 months “Flipping Real Estate”

Make a minimum of $100,000.00  – Wrong!!

Sounds good but in reality – does it work? 

 

Purchase Price  Original Value before doing anything    500,000
Plus Commissions when you Sell      25,000
Plus 13% HST HST on Commissions when you Sell        3,250
Plus Legal Fees       1,800
Plus Land Transfer Tax – if Toronto – Municipal Tax
Land Transfer Tax – Provincial Tax
      5,725
      6,475
Total Cost Without renovations $545,475

 

Total Cost Without renovations (if bought other than Toronto $539,750)

This is an estimated the minimum commissions just to view the overall Total Cost before renovations, carrying costs and costs relating to the final sale price afterwards.

  • If the property purchase is in Toronto has a Municipal and a Provincial Land Transfer Tax
  • If the property purchase is anywhere in Ontario except Toronto, there is only a Provincial Land Transfer Tax
  • The above Example — Purchase (other than Toronto)  cost is: $6,475.00

These estimates below are based on a 3 and 6 month period to purchase, renovate, resell and close your real estate transaction. The real estate market general states 2 months to list and 2 months to close.   A 6 month period of time is realistic.  Keep in mind the time of year, (ie winter months, utility costs are more expensive)

  

3 Months Carrying Costs Mortgages, Taxes, Utilities and Insurance  
Plus 3 months Mortgage @ 2,500 per month $7,500
Plus 3 months Taxes         @ 500 per month $1,500
Plus 3 months Utilities & Insurance   approx. $   900
Total Cost $9,900

 

6 months Carrying  Costs Mortgages, Taxes, Utilities and Insurance  
Plus 6 months Mortgage @ 2,500 per month $15,000
Plus 6 months Taxes         @ 500 per month $  3,000
Plus 6 months Utilities & Insurance   approx. $  1,800
Total Cost $19,800

 

Renovations  What is the Value of Renovations  
Plus Very Minor Renovations $8 -$20,000
Plus Medium Renovations $20-$50,000
Plus Larger Renovation $50- $75,000
Plus Extensive Renovation is over $75,000 plus  

 

Total Cost Breakdown  What is the Sale Price after Renovations  
 3 Month Purchase-Reno-Resold-Closing
$25,000 Renovation Sale Price of $570,000 breaks even
$50,000 Renovation Sale Price of $595,000 breaks even
$80,000 Renovation Sale Price of $620,000 breaks you out even

 

Total Cost Breakdown  What is the Sale Price after Renovations  
 6 Month Purchase-Reno-Resold-Closing
$25,000 Renovation Sale Price of $580,000 breaks even
$50,000 Renovation Sale Price of $605,000 breaks even
$80,000 Renovation Sale Price of $630,000 breaks you out even

 

These scenarios show a $500,000 purchase must sell for a minimum $570,000 to break out even.  There are many factors to determine how much you can make if you decided to buy real estate to flip.   Note:  “Capital Gains and Exemptions”.  Flip Homes are subject to Capital Gains, you may say good bye to a percentage of your profits.

Provincial of Ontario –  Capital Gains Information

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns248-260/254/menu-eng.html