Flipping real estate? Here's how to do it right

Investors often turn to real estate, looking to flip as a way to earn big money fast. Real-estate experts agree, however, that people need to do their research so their flips don’t flop.

To start, potential investors need to be clear on exactly what kind of flip they’re prepared to pursue.  There’s the “quick flip”; buying a place, fixing it up, and selling it within a year; and buying a property, renting it out for a longer period, then getting rid of it.

“All three are totally different animals,” says Vancouver-based Ozzie Jurock, president of the Jurock Real Estate Insider. “People want simple answers. It’s not so straightforward as hoping some other greater fool will pay more the next day than what you paid today.”

The basics
 “The number one requirement to flip has nothing to do with the market but has to do with you: it’s guts,” says Jurock, who’s currently keen on Phoenix and Las Vegas for real-estate investing. “You have to step up to the plate. In our club every month we have people talk about how they saw a deal. They’ll say ‘I saw it, I knew it was great, I did my research, but I didn’t move and someone else got it.’ They’re human beings; they act on emotions. It’s not all clear numbers.”

There are many success stories, though. He points to a senior couple he’s worked with who wanted to flip as a means to increase their annual income. They decided on flipping four properties a year, one every three months. Their first year they made $32,000; the second, $68,000.

“And this year they’re well on their way to doing it again,” Jurock notes.

“To them it’s ideal because they’re clear [about their goals]. Often what we don’t have in real-estate investment is clarity. When people aren’t clear, they’re running around all over the place, ‘Joe says I should do this. Have you heard about this?’ As a flipper, know thyself. Have guts to act.

“What is the reason why this or that property is going to be worth more after you buy it?” Jurock adds. “Is it because you’re going to add value to it by painting? Or is there something happening in that town--a new sawmill opening up or a new power station--some kind of economic reason?”

Making money by flipping also involves “elbow grease”, Jurock says, who points to Edmonton, Calgary, and Surrey as other strong markets for investors. “Say you buy a place that’s a bit rundown. You paint it, clean it, cut the grass, put on new front door, put big brass numbers out front; only spend money on the main floor. Don’t spend a lot of money on stupid stuff. Don’t ever put a bidet in a washroom.”

He says the “classic” flip everybody wants is a foreclosure. He suggests people go to the courthouse and see how the process works. Money can be made on these properties, but again, people need guts. “Understand yourself,” he says.

Finally, remember there’s risk involved.
“You might go somewhere and buy the wrong thing,” Jurock says. “Or you might buy the right condo at the wrong time. Markets are cyclical.”

Moving forward
Say you’re determined to flip in the sense of buying a property, fixing it up, and selling it within a year. Don R. Campbell, president of the Real Estate Investment Network and author of several books on real-estate investing, suggests a few factors to keep in mind.

“Pick an area with strong population growth, not just speculative value increases,” says Campbell, who has offices in Abbotsford and Calgary.  “Have a plan B in case the property doesn’t sell as quickly as you would like. And only renovate it to the level of the neighbourhood or the target buyer or renter, not to the level you may want to live in.

“The definition we place on the hottest regions for property investing include areas where, if an investor buys, the expected rents will cover the carrying and operating costs of the property in case the buyer doesn’t find a buyer right away,” Campbell adds. “There are many markets where a buyer can speculate and hope for the best, but we call the speculation, not investing. Our job as analysts is to help people reduce their potential risks, while identifying markets that have the most solid economic and population growth foundations.

According to Campbell, the best longer-term flipping opportunities across the country can be found in:

• Halifax. “Job and population growth are about to hit a new high, and prices are very reasonable.”

• Barrie. “It’s experiencing population growth, and, with the expansion of the Go Train, it’s becoming a strong regional hub. It also has good post-secondary institutions.”

• Hamilton. “The city is going through economic and demographic change. New types of jobs are moving in and replacing the older industries. McMaster Innovation Park is changing the focus of the city to high tech, and there’s a revitalization program downtown.”

• Waterloo region. “Despite the current RIM situation, many companies are growing, moving to the region, bringing in young and vibrant professionals, on top of the many post-secondary institutions providing stability.”

• Winnipeg. “Most opportunity in this growing city will be in the purchase of older properties and renovating them for the new market of new migrants. It also has low unemployment; even during the recession provides it a stable yet slow growth market.”

• Edmonton. “Here’s large population growth, low unemployment, a real-estate market that hasn’t moved upward yet since recession but rents have. These are all putting upward pressure on demand in 2013 with the requisite upward pressure on prices.”

• Calgary. “There’s opportunity in the higher end, but not luxury market for the purchase of older properties and properties near the new transit-lines stations. Also experiencing resurgence in population and rents, yet the market has had very little movement since recession.”

• Surrey. “A growing and affordable city south of Vancouver yet serviced with direct rail transit to population and job centres in Vancouver. A world-class mayor and council are proving leadership and growth, building pride in the city while attracting people at all levels of the economic spectrum.”