It's not what you think. The ideal scenario is painted as you purchasing a home, spend the next 3 months “Flipping” it, then re-sell it to earn a minimum of $100,000.00 – Wrong!! You have to do the Math. 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||Land Transfer Tax – if Toronto – Municipal Tax
Land Transfer Tax – Provincial Tax
|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|
|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|
|Renovations||What is the Value of Renovations|
|Plus||Very Minor Renovations||$8000 -$20,000|
|Plus||Medium Renovations||$20,000- $50,000|
|Plus||Larger Renovation||$50,000 - $75,000|
|Plus||Extensive Renovation is over $75,000 plus|
|Total Cost Breakdown||3 Month Purchase-Reno-Resold-Closing||6 Month Purchase-Reno-Resold-Closing|
|$25,000 Renovation||Sale Price of $570,000 breaks even||Sale Price of $580,000 breaks even|
|$50,000 Renovation||Sale Price of $595,000 breaks even||Sale Price of $605,000 breaks even|
|$80,000 Renovation||Sale Price of $620,000 breaks you out even||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