Renovating a home to sell—buying a fixer-upper, putting in your own sweat equity to fix it up and then selling it (hopefully for a profit)—can seem like a good idea. It always looks so easy on TV!
However, in addition to the construction and material costs needed to make over the property, there’s a long list of other fees to consider before keys are handed to new owners — starting with Canada’s Residential Property Flipping Rule, which adds tax requirements depending on when you intend to resell if you intend to sell before you’ve owned the property for at least a year.
We asked Heather and Nathan Porteous, the Winnipeg-based brother-and-sister team on HGTV Canada’s hit show Hoarder House Flippers, what to budget for when purchasing a home to renovate and sell.
Invest in insurance
In the eight years since Heather has been flipping houses, she’s learned about savvy budgeting.
“There are lots of associated costs people don’t count on when they’re thinking they can flip a house by putting $20,000 into it,” she says. “For me, one of the big reality checks was insurance: when we’re flipping a house [in Winnipeg], having the proper liability insurance runs about $2,000 for three months. If you can get your house flipped, sold and in possession within three months, that’s great. But if you go to four months, it’s $4,000 and you don’t get a rebate for any unused portion.”
Remember that insurance costs related to construction and liability will vary depending on where you live.
Lump in legal fees and land titles
Heather budgets about $1,000 in lawyers’ fees to buy the property and $1,000 to sell it. That figure varies depending on where you live and the complexities of the purchase or sale. So does the land transfer fee, which is usually calculated on the purchase price of the home.
“In Manitoba, we have land title fees based on property value, so if you buy something for $400,000, that’s a $5,000 bill stacked on top,” she explains.
You can use the REALTOR.ca Land Transfer Tax Calculator to get an idea of what this added cost might be.
Carrying costs can cost big money
When looking to purchase a property or investment, many Canadians need to do so with the help of financing.
“If you’re using outside lenders where you’re going to be paying interest, those fees can add up really quickly, especially if your property sits on the market for long, or if your buyer takes possession two months from now,” says Heather.
Factor in time and money for inspections
Typically, during a renovation project, you need sign off from local inspectors at key stages, like before closing in walls or adding flooring, notes Nathan. If you don’t get sign-off, delays or adjustments can strain your budget.
“If we’re doing a basement, it could be a week or a month that we’re holding onto that house with all the associated fees and insurance, while we’re waiting for inspectors,” he explains.
Home inspections are a requirement for most renovations, so this step is necessary. Planning for inspectors ahead of time is crucial, ensuring you can stay on time and on budget with your renovation.
Utilities and property taxes are on you
Keep in mind that while you’re renovating, you’ll also be paying for heat, water, electricity, and property taxes. And, during a renovation, some of those costs – like electricity – can be higher than normal if you’re replacing barriers like insulation and running a bunch of equipment.
Don’t forget disposal and cleaning costs
“For most of our flips, we assume we’ll use two or three dumpsters, but for our last hoarder house, we had six dumpsters,” says Nathan.
Heather says their biggest dumpster bill was $4,000. Home flippers might also be on the hook for mould or asbestos abatement, or for extermination fees to get rid of insects or rodents.
“We try to buy houses we know aren’t infested because that can cost between $2,000 to $10,000 if they have to tent it,” says Nathan.
Calculate a contingency fee
“In season one of the shows, there was so much stuff in the house when we bought it that we didn’t realize one whole wall of the garage was missing,” recalls Heather. “It was completely rotted out, which we didn’t see because it was stacked to the ceiling with boxes. We had to rebuild that whole garage.”
Once you start a renovation, you never know what you’ll uncover. Nathan adds they set aside about 15% of their renovation budget for unexpected problems.
“In season two, which hasn’t aired yet in Canada, we did a house that had all low-voltage wiring. We did the work ourselves and it still ended up being $20,000 to rewire the entire house,” says Nathan.
Staging costs and the right REALTOR® are the finishing touches
Both Heather and Nathan swear by the benefits of staging to sell. They budget between $2,000 and $5,000 to stage a whole house. And once your flip is finished, partner with an experienced REALTOR® to get you across the finish line, suggests Heather.
“I used to be a REALTOR® years ago, so I understand the value of a great agent,” she says. “Knowing which areas have good resale value is important. Working with a REALTOR® who knows what your top dollar out of this house should be is invaluable. They can also bring you back down to earth when you get emotionally invested in your project.”
By Wendy Helfenbaum
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