How the ravenous appetite for homes in Toronto is making life hard for renovators
As Toronto’s real estate market continues its wild run, it’s not just potential homeowners who are having trouble finding affordable properties. For infill developers and resellers – otherwise known as flippers – bidding wars and wild-eyed buyers are making it hard to turn a profit rehabilitating broken homes.
It used to be that for houses in such terrible shape, most buyers would say ‘no way.’ Now first-time buyers, and even move-up buyers, are realizing they have to consider these places. They’re becoming the competition as opposed to the buyers after renovation. Buyers who plan to live in a house are willing to risk more than renovators because they are not operating on a tight time frame and/or budget. They can stick with a property until its value has risen high enough for them to recoup what they spent. They also have greater equity upon purchase as they do not have to factor in the resale transaction cost in the near future.
Also contributing to shrinking profit margins are eager first-time flippers who drive home prices up in bidding wars without having done the rigorous calculations more experienced builders know are necessary. They get a quick baptism in terms of how much things will cost but fail to recognize that permit costs are up, material costs are up and a lot of people run out of cash, then be forced to sell a partly renovated house after they’ve lost their shirt.
Key points of focus when buying and selling renovated home include concentrating on areas that cuts down on transportation costs. Another factor includes the ability of the renovators to develop expertise in home types and potential buyers habits and needs. By choosing properties in the cheapest areas of the city in terms of the ratio of the size of the house to land size is another key factor.
An ongoing relationship with suppliers and tradespeople is another advantage that long-time renovators have over newbies. It is absolutely essential to have a team of experts. If you’re hiring all new trades, it will take double the time and a lot more money than an ongoing relationship. Loyalty among crew members is crucial to the success of all parties involved and that can only be attained via repetition and trust. With good professional contractors still at a premium in the city, renovators cannot risk having their workers move on to other companies.
With the increase in selling agents setting offer nights to provoke bidding wars means and frequently competing against weary buyers who aren't as calculating, creating value can be a challenge. If someone wants to spend emotional money a renovator cannot (or must not) compete in that arena as they risk their profitability. Instead, being resourceful about sourcing new projects, canvass streets and chat with potential sellers, often snagging houses before their owners can think about listing them on MLS creates many opportunity for both renovators and potential sellers.
An alternative one has to consider is the idea of renting out a renovated home for a year or more, earning back his building costs while waiting for rising prices to flesh out more profits. That also has issues, though, banks are very nervous about income properties.
TV might be the problem as many American flipping shows have fooled Canadian buyers into thinking there is fast money to be made. The conditions and rules within the markets are so different that many rules do not transcend city limits let alone international boundaries.
People think they’re going to get a deal with a bank sale or an estate sales but that's just not going to happen. Banks don’t ever lose money.
So how does one earn profit in such an environment? Quite simple... Hire a professional.
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