Flipping houses is a popular real estate investment, where the investor buys the home with the goal of quickly reselling it for profit. Often, they make improvements to the property to maximize its value.
Flipping houses in the GTA real estate market can be a smart investment and a positive experience if the investor knows what they’re doing. The biggest aspect that many don’t consider are the tax implications that come with flipping a property.
How to Flip a House
There are different ways that one can go about this. Some prefer to hold onto the mortgage for the shortest amount of time possible by flipping them as soon as the market heats up. They might not maximize value but they should yield a profit.
Other investors play the longer game where they invest in the property through renovations and improvements. This can result in a greater return on investment but it means the investor will be responsible for the mortgage for longer, and must finance the renovations. A greater financial commitment can lead to a much greater reward.
What’s the Risk?
There is risk with any investment. Each property comes with some problems, which could affect how quickly the house can be sold. In addition, markets fluctuate fast and if it happens to cool before an investor can resell the property they could have to financially carry it for longer. This could reduce the profit margin.
Any unexpected delays in renovations or construction could also result in less profit.
Restrictions and Tax Implications
When the GTA market heats up, one suggestion to cool the rising prices is to tax house flippers. This would impede speculative purchases and allow more residents to buy a home. Restrictions and tax implications could hinder some investment opportunities, but in conjunction with the new mortgage rules could protect borrowers, lenders and investors.
Another idea being considered is a graduated tax system. This means that an owner who buys and sells a home shortly after purchase would pay a higher tax rate.
These ideas do come with the contrarian viewpoint that it would take value and money out of the market, driving down the price of homes.
Flipping a home isn’t for everyone, but savvy investors who understand a specific market could yield a huge return.