Vancouver

Condo Investing: Flippers, Don't Get Beached in Housing Tidal Wave

Condo speculation sounds like easy money in this housing boom, but taxes, commissions and carrying costs quickly whittle away the profits, warns Frank O'Brien

By
REW.ca
March 24, 2016






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I can understand why many of you are considering taking on the role of “flipper” in the heated Vancouver condominium market.

On the West Side of Vancouver, for example, the benchmark price of a condominium apartment increased by more than $43,000 in the past three months, to $624,800. In the past six months, its value has increased by 15.7 per cent, or approximately $93,000.

And, across Greater Vancouver, the typical condominium price is now 25.5 per cent higher than it was a year ago. This equates to more than $100,000 in paper profit if a flipper sold at the current benchmark price of $454,600.

The value of a townhome increased by about $94,000 in the same period.

In other words, a typical strata home made a lot more money in the past year than the median pre-tax household income of $76,000.

A Word of Caution

I would be the last to dissuade those of you with deep enough pockets and big enough, well, nerve, to get in on the action.

For everyone else, though, I inject a note of caution.

If you are buying condos to flip, you will need raw courage, cash, and a mortgage broker on speed dial. In many cases you will be subject to competing bids on the same property. You will be expected to come in with no subjects on the property, such as subject to an inspection or subject to financing.

This is an unprecedented housing market. OK, a crazy market where the normal rules are turned upside down.

You have to have a savvy mortgage broker behind you when you hit this market because multiple bids can blow your price point away within hours. The mortgage broker must be familiar with flipping properties and, like you, have unshakeable confidence that prices will keep increasing.

Financing is much harder today than during the last boom in 2006-07. Also, pre-approved mortgages are nearly worthless today when it comes time to really close on a property, especially in multiple-bid competitions: you must have already convinced the lender that you have the credit score and income ratios in line to cover the debt.

But just because the market is crazy, you shouldn’t be.

Many condo flippers who bought in the spring of 2007 were trying to unload their overpriced property into a sellers’ market a year later. It can happen again, as any Calgary condo investor can attest.

It's Not All Gravy

Also, factor in your costs: if you buy a condo for $500,000 and flip it for $600,000 in 12 months, you would have to first put down a minimum of $100,000 in cash and pay $8,000 in BC’s property purchase tax (the recent tax exemption does not apply to investors buying resale homes). When you sell, you will pay about $24,000 in real estate commissions and you could face a $15,000 income tax bill on the lift in value, depending on your tax bracket. You would also be handling financing costs of around $2,000 a month while you are holding the property. Add it up and your $100,000 “profit” is whittled down to approximately $30,000.

You can make money in this housing boom, but you must also be prepared to lose.


Frank O'Brien is the editor of Western Canada's biggest commercial real estate newspaper, Western Investor, as well as a contributing editor at West Coast Condominium, real estate contributor to Business in Vancouver and a regular media commentator on real estate investment.
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