To rent or buy?

[Raymond10008]

Hello,

I am looking for some advice. I am looking to get into real estate investing. I have a partner and we are thinking of starting off flipping houses.

With that said, currently I am renting a condo. I am unsure of what my next steps should be. Should I continue to rent my condo while we flip houses as it may allow me to be approved for a high mortgage? or should I get a townhouse/condo for the time being? or should I buy a house and rent out the basement? I wouldn't want to live in the house we are flipping as that would require frequent moves.

The obvious thing to me is to buy a house and rent out half but I also don't want that to hinder our ability to buy a house to flip either. Perhaps, this is a question I should direct to my mortgage broker but I would like to hear some experienced investor's feedback. FYI, I am in Saskatoon.

 

[Thomas Beyer]

You should own a house you live in as the gain is tax free, money is cheap, you need only 5% down and money is the easiest to get. You should buy the biggest house you can afford, and that depends of course on your income. The best platform for flipping houses is the midnight TV channel.

You should work on your income making skills. That takes education, dedication and commitment. Flipping house is one way to make money but certainly there are 23,000 other ways such as being an accountant, an engineer, a painter, a burger flipper, a landscaper etc. More in my book. A good investment @ $20 on amazon as that is one of the lessons. There are 5 ways to make money.

You have to add value. So that means you need to buy ugly assets and improve them then sell them for a profit. That is very doable, but takes skills, time and cash. Do not buy or flip condos.

 

[DEWDROPS]

You should buy the biggest house you can afford, and that depends of course on your income.

Do you mean house with the most sqft or biggest land area (with big backyard)? Sorry rookie question.

 

[Thomas Beyer]

I meant the most expensive

 

[Raymond10008]

What would be the source of capital for proceeding flips aside from my income assuming the house that I buy is not a flip but a permanent residence?

I guess what I am asking is shouldn't I get a small condo/townhouse for myself so I still have capital to get a potential flip house?

And also, would you be able to elaborate as to why you say buy the most expensive house you can afford?

 

[Thomas Beyer]

... are there alternatives aside from an investor?

I guess what I am asking is shouldn't I get a small condo/townhouse for myself so I still have capital to get a potential flip house?

Yes, that is an option. You have to prioritize what is more important to you: living in a nice house you own and get a tax free capital gain, or a more modest house with extra $s to flip houses.

Flipping houses is a time and capital intensive business where you buy usually well below market because you can close fast, in cash, then add value through renovation, staging or smart upgrades in short order and then re-sell fast, covering all cost such as land transfer taxes, realtor fees, legal fees, reno expenses, insurance, utilities, property taxes while holding ..

And also, would you be able to elaborate as to why you say buy the most expensive house you can afford?

Under the assumption that all houses in a city go up the same over say a decade or two, say 50% in 2 decades, you will make more money on a $800,000 house than one that is worth only $500,000. On average the $800,000 is also a nicer house and you will have not only a better investment but also a better environment for yourself, spouse or kids (if any).

 

[landlord1]

Don't really agree with buying the most expensive house one can afford. Buy a house you are going to live in first with maybe a basement or a side duplex. Have a tenant help you pay down your mortgage. Live and enjoy as stress free of a life as possible

 

[Bill Mitsui]

Use the cheap mortgage, buy the most expensive house that you can afford and qualify. Buy the cheapest and ugliest house on the expensive street. Do the renovation using 10-100 rule, for every $10 you plan to spend on renovation you should increase $100 value. Buy property with land value, that is "no condo". Using new government down payment loan if you can. Flipping house only after you own your own house.

 

[Dustin Racine]

Hey Raymond,
Personally, I'm not sold on the flipping houses phenomenon. I think it's a lot more practical in the US where it's easier to qualify for loans and material and labor is a lot less. Not convinced it is practical is Canada. Sure, you may be able to find the odd diamond in the ruff and flip it, but it would need to be a smoking deal in my opinion and the money you make would be on the original deal, not on the equality built up by renovating. Chances are the money u make would qualify as income so u would be taxed on whatever you make, plus u need to account for holding costs, realtor fees, closing fees, etc. Even capital gains is better then personal income because with capital gains only 50% of the profit is taxed.

What do you do for work? How are you going to still pay your bills? Are you solely relying on flipping homes?

If you had some extra money lying around and could try flipping, great, but if not, I would be hesitant to put all your eggs in one basket. What if you get a major surprise like a collapsed sewer line or a major foundation repair,your profits can get eaten up pretty quick.

If on the other hand you buy a home where u can put 5% down, live upstairs, develop a legal basement suite down and have a renter help supplement your mortgage, you can now put some money away. Have the home reappraised by the bank, giving access to more $. Plus, in a few years if u sell, the money is all yours tax free.

You may want to speak to a lawyer, accountant and mortgage broker and they can guide you accordingly.

Thomas, what's the name of your book? Going to order it from Amazon.

 

[KeithnCalgary]

Hi Raymond:
There are many ways to set up your flipping business. If you have limited capital to get started then putting that capital into a down payment on your own home may not be the way you want to go. You also have to consider whether you want to live in a home while it is being renovated. If maximizing the leverage on the capital you have is important then that needs to be considered and discussed.

I would be happy to have a phone conversation with you in more detail about this. I understand the flip business very well as a worked with one of the primary flip lenders in Alberta prior to becoming a licensed mortgage professional. Please give me a call 403-614-8843 and we we can discuss in more detail.

Keith Uthe
Mortgage Alliance - Enrich Mortgage Group
[email protected]