My husband and I want to buy an older second home, fix it up, and sell it for a profit. Should we be aware of any special considerations?
I hope you and your husband are successful. You’ll definitely want to set a realistic budget that includes the purchase of the home, applicable taxes and any extra expenses you incur, such as repairs or renovations, permit application fees, professional fees, real estate commissions and staging. November is Financial Literacy Month, but practical budgeting is good advice year-round. Preparation and planning are key, because flipping properties is not for the faint of heart.
I also recommend working closely with your real estate salesperson who can help you find suitable properties and provide a comparative market analysis of the home’s value and market trends in your area. They should be able to offer an informed opinion about whether it makes more sense to “flip” the property soon after you’ve fixed it up, or hold on to it for a while either as an investment property or principal residence.
When you buy a fixer-upper, there are no guarantees you’ll actually get a deal on the price, so it’s important to listen to your salesperson’s advice. And even if you’re buying a home as-is (i.e. the seller has chosen not to make any changes or repairs, and isn’t claiming that everything works properly), it’s still a worthwhile idea to have a home inspection performed so you know what you’re purchasing.
You didn’t say if you and your husband plan on fixing the home yourselves, or if you’re going to hire contractors to do the work. The latter option could get expensive (cost overruns can be expected), so you may wish to ask friends and family members for recommendations, interview several candidates about their qualifications and experience, and ask for written estimates of the time and money it will take to finish specific jobs. You could hire a general contractor to engage the various tradespeople you need. Consumer Protection Ontario encourages homeowners to search through the Consumer Beware List before they select a contractor, so don’t forget that step.
Nearly all renovations that involve replacing or adding major systems in the property, or moving walls, will require that you take out building permits with the municipality.
You mentioned this will be a second home, and presumably not for your personal use. Talk to a lawyer who is insured to practice real estate law. They can tell you about the taxes you will have to pay, including HST, as well as any other legal issues associated with purchasing an investment property. You may also want to consult with an accountant to plan for capital gains tax since you will not benefit from the capital gains exemption that applies to your principal residence.
If you have a question for Joe about the home buying or selling process, please email firstname.lastname@example.org.
Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.