What to Look for When Buying a House to Flip

There's really no simple answer, but here's the nuts and bolts of it;

Houses have a few major "components" that can fail, and if they fail the replacements are expensive, but even more expensive to delay.

They also have fairly predictable lifespans and predictable replacement costs.

Roof: Easy to see how much life is left. If it is already leaking, replace it yesterday, because otherwise mould, rotten roof trusses or soggy insulation costs WAAAAAY more to fix. The cost depends on how big the roof is, how steep, and what kind of roof you want to replace it with (builder basic or something a bit nicer looking).

Furnace/HVAC: not as easy to see how much life is left, and when it fails, you need to replace it right away.

A/C is not vital to replace if it fails, but a broken furnace in the winter....just like a roof....replace it yesterday. Otherwise frozen pipes, etc etc.

You can usually get a gut feeling for the furnace lifespan by looking at how old it is, and how well its been maintained.

If you are looking to buy a house; pull out the air filter. If it's clean, chances are the rest of the house has also been maintained. Look at the condenser coils on the outdoor AC unit, if they are full of leaves/dirty, then the whole unit hasn't been maintained.

Water heater is a bit of a variable.....Many have a drain spigot. You can drain a cup full of water out from the bottom drain. If it is cloudy/rusty/brown, the water heater is well past half way through its life.

Windows are easy to figure out how much life left. If the seals are dry and cracked, or you can hear the pssssstttt of wind or road noise, the seals are going.

Flooring, same thing....use your eyeballs.

Electrical, if it has knob and tube wiring, or aluminium wiring, count on replacing that to lower your insurance, or even get a policy

Long story short.....a house is like a car in a lot of ways. A brand new one off the dealer lot won't need any maintenance or repairs, and will give you worry free ownership for ~5 years.

A used car will be a lot cheaper, but may have "surprise" maintenance and repairs that need to be fixed right away, and could be expensive.

Even if you don't intend to do the work yourself, DO NOT look at real estate investment unless you have a strong "gut feeling" for what home repairs/reno/replacements will cost.

Replacing a toilet could be $120 at home depot and a half an hour of your time.....OR a $750 bill from a plumber, depending on how much of a sucker you are. There's no right answer. 1% of a property value in Vancouver isn't the same as 1% of a property's value in SK.... even though they may have the same maintenance costs.

Where the house is....(geography, weather) how it's made (2x4 and 2x6) with above or below grade basements, footings, concrete or stone foundation, flat sheet roofing, or shingle or cedar shakes, drywall or stucco interior, natural gas or oil or electric heat, single or double pane windows, real hardwood floors or $1/sq ft vinyl laminate..... proper landscape with water drainage or no eaves troughs and negative grade slope, recent permitted work or a lot of homeowner DIY...........and on and on and on.

You want a simple answer.....there isn't one.

Buy shares of a REIT, or offer up "hard money" to a local flipper for a chance at a % of the profit....but unless you have a LOT of ability to throw meaningful numbers into a spreadsheet and let the spreadsheet answer your question....stay away from real estate.

Trust me on this.....I secretly love guys like you. Real estate flipping is my "side hustle"and I LOVE to swoop in and buy a house that's half renovated or driven into the ground by an absent/slum landlord and hellish tenants.

Here's how it would likely go:

You'll buy a house with big dreams, and dump another hundred grand into it....and then six months of carrying costs and delays, and BS from contractors and city permits, you'll dry up your savings and the bank will call the mortgage or you will just put it up for sale. You meet with a few agents, and tell them your story. The agent will say "Mr Penguins...I see from MLS you paid $500k for this house six months ago....but in its current state....I think we should list it for $450K". You've already dumped $50K into it, so you are balls deep for $550K and don't want to lose your shirt. You push back....and eventually get an agent (likely a new one who just wants a listing) and list your house at $550K. Well, after two months and only a few wishy-washy offers, with inspection contingencies and finance contingencies that make the offers nonviable....you've spent another 3-4K just on mortgage payments and property tax and vacant occupancy insurance, keep in mind you are already broke.

You get frustrated, decide to fire your agent and list it yourself on property-guys or craigslist or whatever.

Now I show up.....I hmmm and haww and fake looks of disappointment and disgust about the condition as you guide me through your house. I throw you some fake compliments about the quality of the work you've done so far, and how I admire your vision, and poke and prod for some more of your desperate financial situation.

I walk the property, take a TON of notes (see all the stuff I mentioned at the start....furnace, water heater, roof, attic insulation, wiring and fuse panel, windows, foundation etc) take a bunch of measurements, and look up the tax records and title and permit history, and then call you back the next day to meet you at a local coffee shop to make my offer in person.

I arrive in my 1997 Honda CRV (not my classic Porsche) dressed in jeans and a T shirt so you don't think I've got a lot of money....I get myself a coffee and sit down with you, and tell you I'm able to buy the house from you, and close inside a week, all cash, for $400K, no conditions.

You paid $500 purchase + 50K in renos and purchase of materials so far + carry costs. But you put 20% down as an investment property so you only have a mortgage for $400K. I know this before I even met you or saw the property. At this point you are so tired of spending money on this "great investment" where you've had dead-beat tenants that took 3 months to kick out, and then tried to fix and repair their damage, but got in over your head.

You want out....and so you take my offer. I slide you a cashier's cheque for $40K (10% of purchase price) right there....you sign the contract and we both enjoy the last few sips of our machiato-frappe-latte-caramel-no-fat-Colombian-roast-organic-fair-trade-double-shot espressos.

A few days later we meet again at my lawyer’s office (I offered to cover all closing costs so you don't have to pay your side of it all)....and you and I close. I get the keys, you get out of your bad investment, $150K poorer.

I spend my evenings and weekends repairing and replacing what's needed, hiring out to local contractors when I get too busy with my day job, and in another 2-3 months, I carefully screen tenants and rent the place out, and call it a day.

Please don't be that guy. I love you man, but really, it's a cut throat world and (no homo) even with his dreamy eyes, Scott McGillivray is just another actor. Mike Holmes and his bulky biceps make it look so easy, and even if you paint everything white like Sara Richardson, home renovations and flipping is NOT EASY, and NOT ALWAYS profitable. IF you want to get into real-estate, find a partner or mentor. Get on deeper pockets or that Don Campbell website and find some other local guy who already knows all the answers to your post, and in exchange for some free labour now and then, or the cost of a nice steak dinner at the Keg, will tell you EVERYTHING you want to know about How do you estimate repair and maintenance costs when considering a property you might buy?

SOURCE