Is Flipping A Foreclosure Profitable In A Seller's Market?

Does Flipping A Foreclosure Make Sense In Today’s Market?

There is no magic formula that makes flipping a foreclosure profitable. Instead, several factors need to align to make the formula work.

What Makes A Flip Profitable?

• A Good Deal On The Purchase: One of the main reasons people consider purchasing a foreclosure is to get a good deal. Securing a favourable price on the buy-side is most likely to result in a profit when you sell.
• Market Forecasts: In a flipping strategy, the majority of the profit comes from a price appreciation to the property. This can happen due to rising market prices or from improvements made to the home, or both. Strong insight into the market and understanding of real estate trends can help forecast the market conditions months down the road when you will be ready to sell.
• Timeline: Timeline is key when flipping a property. Delays in construction or a softening market will result in higher carrying costs that will impact your bottom line. A quick flip will always be the most profitable.
• Budget: A profitable flip relies heavily on your ability to budget effectively. When you do the math, ensure you factor in a contingency to minimize the impact of unexpected repairs, delays, or changes to the construction plan.

Considerations In Today’s Calgary Real Estate Market

• Seller’s Market: Calgary real estate is currently a seller’s market. That means there are more buyers than there are homes to buy. This is both a pro and a con for flippers looking to make money. On the buy-side this means almost all properties are in high demand and finding the perfect foreclosure deal will take time and patience. But this also means that if market conditions hold or continue to rise, and you complete your flip on time and on budget, odds are favourable for a profitable sale.
• Construction Industry Issues: Due to increased demand, scarcity, inflation, and supply chain disruptions, construction materials are harder to find these days. Construction labour shortages are also impacting the industry as skilled trades are more difficult to secure. This can mean delays that will impact your timeline and your budget.   
• Rising Interest Rates: As The Bank Of Canada strives to manage inflation, they are predicted to raise interest rates. This can significantly impact the real estate market. It will likely mean rising housing prices, but it will also impact affordability for Canadians making loans and mortgages more expensive leading to a decrease in demand for homes and a slump in the real estate market.

Alternatives To Flipping A Foreclosure

There are alternatives to flipping your foreclosure purchase that might offer the same or even an increased probability of profit.

• Hold: It is possible that holding the foreclosure property you purchased for a great price might make the most sense. You could consider making it your primary residence and renovate it to become your dream home. This would allow you to avoid capital gains tax when you do decide to sell.
• Sell Fast: You could consider a short-term strategy to buy low and sell high without undertaking a major renovation. The right foreclosure opportunity could make it possible to do some very minor and inexpensive cosmetic updates, or none at all, and sell quickly while home prices continue to rise to realize a profit.
• Rent: The rental market in Calgary is strong. Demand is high and supply is low. It might make sense to turn your foreclosure purchase into a revenue property to leverage high rental income and then reconsider selling down the road.
• Wholesaling: If you have already entered into a contract on a foreclosure property, you may want to consider wholesaling. This means finding an interested buyer to take over your contract (pre-close) at an increased price while you realize a small profit.

A Smart Flipping Strategy Starts With An Experienced Calgary Realtor®

There are many factors that go into purchasing a foreclosure at an advantageous price and realizing a profit after flipping it. But sometimes flipping is just not the most profitable strategy for real estate investors. A skilled and savvy Realtor® will understand current and forecasted market conditions, know the value of homes, advise you about different investment options, represent you well on the buy-side and the sell-side, and work hard to protect your real estate investment. The Mel Star team of Realtors® are Calgary’s choice for buying and selling foreclosures and for other real estate investment opportunities. Let’s chat about your goals for buying and selling real estate investments and work together to devise a strategy to achieve those goals. Contact the Mel Star team by calling 1-403-861-9944 or filling out the online contact form.

For Calgary homebuyers looking to own, rent out, or flip a property, view featured listings here. For home buyers looking for affordable home deals, especially for those interested in flipping, learn more about Calgary foreclosures and bank foreclosures here.