Flipping to Yourself

The Upside Down House in Niagara Falls, ON

Many of us know what “flipping” a home is. This is when you buy a home that is dated or in “rough” shape, hold onto it for a short time, fix it up and then sell it (the flip part) for a higher price. Instead of buying a home to live in as a residence, you're buying a home as a real estate investment — in effect, speculating in it, similar to what you would do with a stock. 

In our current market climate, being mid March 2023, it’s increasingly difficult to find a viable house to flip for profit. Traditional homes that are good flipping candidates are usually homes in the lower price bracket. In Niagara, these would be homes under around the $500,000 mark. As home prices in Niagara start to inch back up, homes in this price range are beginning to see multiple offers again. Homes that would be a good flip that are in a higher price range tend to sit on the market a bit longer at this time for a couple of different reasons: some homeowners in this range are still wrapping their heads around the fact their home has settled in value so some homes are overpriced. Some buyers looking in this price range are still expecting home prices to fall, which is not the case. 

During this time of transition, I’ve been suggesting to my investor clients to essentially flip to yourself instead. 

Keeping this in mind, have you ever heard of “Flipping to Yourself”? This is when you buy the dated or “in rough shape” property, but instead of fixing it and selling it right away you hold onto it for a year or more, renting it out in the meantime. We have no shortage of potential renters right now as well, making this a good option. This way, you avoid the market risks that come along with traditional flipping. You also have now achieved a greater than market return, and you can possibly leverage yourself and borrow equity out to finance further projects. You can hold on to it long term, and use the income and/or equity for your children's education or retirement.

Two big reasons why you should consider “Flipping to Yourself” rather than traditionally Flipping:

1. Flippers don’t make as much as you may think. Unless you are a pro, buying an outdated home under market value for all cash is very rare. Most homes in this price range are harder to finance due to their condition and you are often competing against many other buyers due to the low listing price. If you end up needing a bigger down payment or competing and overpaying, the profits from your flip are not nearly as high. 

2. The money you make traditionally flipping a home is a one time deal, whereas holding that property for rental income creates a permanent stream of money and can be beneficial long term.

A typical traditional flip yields approximately $25,000-$40,000 but that is not considering any cost of capital, sweat  equity, or the fact that most of the profit is typically made on the “buy.” You could be waiting months for the home to sell, and another couple months for the closing, especially in today’s market. The real estate market can be unpredictable. If the market turns even a few percent, you could easily be caught with a negative return.  But, if you rent that property out, and achieve even a moderate $800/month income, you can achieve that profit hassle-free in a few years, and still own the property.

A better and even more profitable option is to remodel only what is necessary to slightly raise the rents, then rent the property out.  By doing this, you could achieve a higher than market rate of return on the property, and get an even higher cash flow.

So, if you want to buy a fixer, fix it up, and sell it for a profit, call me and let’s talk about your options. It might be more beneficial, depending on market conditions, to “Flip to Yourself”.