Real estate agent Clark Cai says it’s a tough market to flip houses as mortgage, construction and labour costs are all up while the housing market has declined significantly.NICK IWANYSHYN /THE GLOBE AND MAIL
Real estate flippers have made out like bandits in Canada’s red hot real estate market over the past two years. But with today’s slower sales and house prices dropping rapidly, it’s time for a reckoning.
Clark Cai counts many such real estate flippers – investors who buy real estate to resell for a quick profit – among his clients. He’s a sales representative at Chestnut Park Real Estate Ltd. Brokerage in Toronto, as well as co-founder of Winchester Design and Build Ltd., a company specializing in real estate and land development.
Along with his realtor partner Will Zang, they coach flippers, who typically sell the properties after undertaking major renovations, on the interior design process, including advising exactly what changes will make a house more attractive in a certain market. As realtors, they can also help clients find the right kinds of houses and neighbourhoods that are good prospects for flipping.
“Investors don’t know the market as well as we do, because we work with the resale side,” Mr. Cai says. “So, we bridge that gap between the designers, architects, engineers and the market. I can tell them that in this neighbourhood, it’s good to add another bedroom on the second floor, or that according to the last 10 sales, projects with a waterfall staircase worked out really well. That translates into getting the maximum resale value.”
When Toronto house prices continued to soar last year, Mr. Cai began advising his investor clients not to buy anything with the intention of flipping and just watch to see what’s marketable. Currently, given the sinking home prices – down 19 per cent in Toronto compared to February 2022, according to the Toronto Housing Market Report – combined with high construction costs and the competition for increasingly expensive tradespeople, Mr. Cai says he personally wouldn’t bank on doing a resale flip for the next year or two.
“The math doesn’t make sense right now for flipping,” Mr. Cai says. “We’re finishing up everything on the properties we bought a year or more ago. Some investors may decide to rent their property out short term or just hold it. We’re still deciding about one that’s just completed, whether to bring it out in September [to sell] or wait until next spring.”
Mr. Cai says he expects to see some deals emerge in the next six to 12 months because some homeowners won’t be able to refinance and will be forced to sell. However, anyone wanting to buy right now should look for something that produces an income like a rental property.
“Rents are high right now and the demand to rent is high,” Mr. Cai says.
“If market comes back in the next two years, you can always start renovating and flip it then. The housing supply in Toronto and the GTA is extremely low so I can’t really see how this how the price drop is going to be endless.”
Matt Francis, a realtor and managing partner of StreetCity Realty Inc. Brokerage in Stratford, Ont., believes there are still opportunities out there for investors, regardless of whether it’s a severe seller’s market, as was the case for the last two years, or if it’s turning into a buyer’s market. But the declining market has created problems for investors without deep pockets.
“Just as some people bought not knowing that they were going to finish their flip in a really, really profitable seller’s market, others bought at high prices at the tail end of this surge and the market flattened on them,” Mr. Francis says. “If they entered that flip with the mentality of putting all their eggs in one basket and having to sell it for a high price, then they’re in trouble. But, if they have enough money in the bank that they can say, ‘that’s fine, I’ll just rent this house,’ they’ll be okay. The rental market is huge.”
However, “some of them might need the equity to do the next property, which might put them on hold for a while, depending on their specific financial situation,” Mr. Francis says. “But if they can put a renter in there for a couple of years until the market starts picking up again, they can sell then and get their profit.”
While Mr. Francis says he’s not overly harsh on renovation for profit, he is harsh on flippers who hide or ignore the important repairs.
“Buyers are always going to be attracted to those freshly renovated properties with ‘of the moment’ style, like white kitchens and grey flooring,” Mr. Francis says. “But buyer beware on those renovated-for-sale, flipped houses to make sure that the ugly money – for furnaces, waterproofing, insulation, and roofs – has been spent. You’ll have to pay that ugly money eventually, or it’s going to drag down your sale price when you do sell – and that applies to flippers, too.
“I am much more of a proponent of wealth creation for my clients over making a quick buck. Purchase, renovate, refinance, rent and retain. We need people to renovate old houses. That makes our housing stock better and is good for our economy.”
From a flipping standpoint, contractors and tradespeople definitely have an advantage over the investor flipper who has to hire people to do the renovations.
“The successful flippers are the contractors or tradesmen who have stuck it out through this turbulent market and who do this as a secondary means of income,” Mr. Francis says. “The guy who has to hire the contractor can’t flip as fast as the contractor or tradesmen who can do the work themselves and have better access to materials. Because they know they’re going to do another flip, they can buy wholesale and store materials until they’re ready to do their next house.”
Aside from shortages and the rising cost of construction materials, labour costs are up due to high demand, which makes renovations more expensive. That also means contractors and tradespeople can “be more selective,” he says.
“If I have my pick of five jobs, I’m going to accept the person who’s willing to accept my quote. That in no way suggests that contractors and tradespeople are profiteering on the lack of availability. It’s fair business.”
So, is it financially smart to buy a house that’s already renovated if you want to flip it?
“No, because you’re banking on market rise there,” Mr. Francis says. “I’d rather be cautious and wrong, than overestimate [the market] and hurt your financial bottom line.”
Human Resources Officers must be very busy these days what with the general turnover of employees in our retail and business sectors. It is hard enough to find skilled people let alone potential employees willing to be trained. Then after the training, a few weeks go by then they come to you and ask for a raise. You refuse as there simply is no excess money in the budget and away they fly to wherever they come from, trained but not willing to put in the time to achieve that wanted raise.
I have had potentials come in and we give them a test to see if they do indeed know how to weld, polish or work with wood. 2-10 we hire, and one of those is gone in a week or two. Ask that they want overtime, and their laughter leaving the building is loud and unsettling. Housing starts are doing well but way behind because those trades needed to finish a project simply don’t come to the site, with delay after delay. Some people’s attitudes are just too funny. A recent graduate from a Ivy League university came in for an interview. The position was mid-management potential, but when we told them a three month period was needed and then they would make the big bucks they disappeared as fast as they arrived.
Government agencies are really no help, sending us people unsuited or unwilling to carry out the jobs we offer. Handing money over to staffing firms whose referrals are weak and ineffectual. Perhaps with the Fall and Winter upon us, these folks will have to find work and stop playing on the golf course or cottaging away. Tried to hire new arrivals in Canada but it is truly difficult to find someone who has a real identity card and is approved to live and work here. Who do we hire? Several years ago my father’s firm was rocking and rolling with all sorts of work. It was a summer day when the immigration officers arrived and 30+ employees hit the bricks almost immediately. The investigation that followed had threats of fines thrown at us by the officials. Good thing we kept excellent records, photos and digital copies. We had to prove the illegal documents given to us were as good as the real McCoy.
Restauranteurs, builders, manufacturers, finishers, trades-based firms, and warehousing are all suspect in hiring illegals, yet that becomes secondary as Toronto increases its minimum wage again bringing our payroll up another $120,000. Survival in Canada’s financial and business sectors is questionable for many. Good luck Chuck!. at least your carbon tax refund check should be arriving soon.
NORMAN WELLS, N.W.T. – Imperial Oil says it will temporarily reduce its fuel prices in a Northwest Territories community that has seen costs skyrocket due to low water on the Mackenzie River forcing the cancellation of the summer barge resupply season.
Imperial says in a Facebook post it will cut the air transportation portion that’s included in its wholesale price in Norman Wells for diesel fuel, or heating oil, from $3.38 per litre to $1.69 per litre, starting Tuesday.
The air transportation increase, it further states, will be implemented over a longer period.
It says Imperial is closely monitoring how much fuel needs to be airlifted to the Norman Wells area to prevent runouts until the winter road season begins and supplies can be replenished.
Gasoline and heating fuel prices approached $5 a litre at the start of this month.
Norman Wells’ town council declared a local emergency on humanitarian grounds last week as some of its 700 residents said they were facing monthly fuel bills coming to more than $5,000.
“The wholesale price increase that Imperial has applied is strictly to cover the air transportation costs. There is no Imperial profit margin included on the wholesale price. Imperial does not set prices at the retail level,” Imperial’s statement on Monday said.
The statement further said Imperial is working closely with the Northwest Territories government on ways to help residents in the near term.
“Imperial Oil’s decision to lower the price of home heating fuel offers immediate relief to residents facing financial pressures. This step reflects a swift response by Imperial Oil to discussions with the GNWT and will help ease short-term financial burdens on residents,” Caroline Wawzonek, Deputy Premier and Minister of Finance and Infrastructure, said in a news release Monday.
Wawzonek also noted the Territories government has supported the community with implementation of a fund supporting businesses and communities impacted by barge cancellations. She said there have also been increases to the Senior Home Heating Subsidy in Norman Wells, and continued support for heating costs for eligible Income Assistance recipients.
Additionally, she said the government has donated $150,000 to the Norman Wells food bank.
In its declaration of a state of emergency, the town said the mayor and council recognized the recent hike in fuel prices has strained household budgets, raised transportation costs, and affected local businesses.
It added that for the next three months, water and sewer service fees will be waived for all residents and businesses.
This report by The Canadian Press was first published Oct. 21, 2024.
TORONTO – A new report says many Canadian business leaders are worried about economic uncertainties related to the looming U.S. election.
The survey by KPMG in Canada of 735 small- and medium-sized businesses says 87 per cent fear the Canadian economy could become “collateral damage” from American protectionist policies that lead to less favourable trade deals and increased tariffs
It says that due to those concerns, 85 per cent of business leaders in Canada polled are reviewing their business strategies to prepare for a change in leadership.
The concerns are primarily being felt by larger Canadian companies and sectors that are highly integrated with the U.S. economy, such as manufacturing, automotive, transportation and warehousing, energy and natural resources, as well as technology, media and telecommunications.
Shaira Nanji, a KPMG Law partner in its tax practice, says the prospect of further changes to economic and trade policies in the U.S. means some Canadian firms will need to look for ways to mitigate added costs and take advantage of potential trade relief provisions to remain competitive.
Both presidential candidates have campaigned on protectionist policies that could cause uncertainty for Canadian trade, and whoever takes the White House will be in charge during the review of the United States-Mexico-Canada Agreement in 2026.
This report by The Canadian Press was first published Oct. 22, 2024.
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