Flip Flop
I made the mistake of watching one of the HGTV house flipping shows the other night. They're good for decorating ideas, but that's all they're good for. The rest is pretty funny.
As someone who actually renovates houses for a living, I'm going to list the things they don't even mention when selling their houses and making $150,000 on a single flip.
1. Have you ever seen any of; a set of plans, a building permit or a building inspector on any of these shows? Me neither. And I have to allow about $8000 for plans and permits, not to mention the fact that the inspector can insist you do things you hadn't priced for.
2. How about the mention of a mortgage and the carrying cost of that and the buy out cost of that? There is usually a minimum of a two month penalty for buying out a mortgage early, plus the monthly payments.
3. The show I watched had no real estate agent on the sell. They put an open house sign on the sidewalk, and walked four people around the house and boom, sold! Well, actually not - they note in passing it was an offer that could be withdrawn. On the $1,000,000 bungalow in LA that was 'sold', the real estate agents fees, in Toronto, would be about $55,000 with taxes.
4. Capital gains anyone? If it isn't your own house and is sold in less than a year, you pay capital gains tax on half the profits.
5. How about carrying costs? While you renovate you pay taxes and utilities, not to mention the interest not earned on all the money you put into the renovation.
6. Land transfer tax? In Toronto on a house that costs about $500,000 to buy, the land transfer tax is around $15,000.
7. No mention of lawyers on either the buy or the sell. Would you buy and sell a house without a lawyer looking things over? Me neither. That's about $3000 at each end.
8. This doesn't even address the fact that they do huge amounts of work at unbelievably low cost. In this show, the most striking was the back deck; what they wanted to do was going to cost them way too much - $90,000 with engineering reports and the like. So the show guy said to the deck guy, how much to put a 20' wide x 20' long bi-level deck with two railings in? The price? $5000! I want that deck guy on my jobs.
Add it all up and that $150,000 shrank to maybe $40,000 of which half could be taxable. Assuming it sold at the price they asked. Welcome to the real world of renovations :)