These Vancouver Neighbourhoods Kill House Flippers
It's called "home porn," those sensuous scenes in house flipping TV shows where some broken-down shack is transformed into a mansion worthy of the Prince Harry and Meghan Markle. And it all comes together in a few weeks at prices anyone can afford! It should come with a “DON’T TRY THIS YOURSELF” disclaimer because in a falling market you can get seriously burned.
Up front, you need to know that the Canadian real estate market has softened significantly (see latest market reports). To bring this point home, we’ve highlighted the worst markets in Metro Vancouver to attempt a house flip. If you’re looking to buy a home to live in for a long time then the current market weakening is simply are a good indicator that home buyers have the ability to drive a hard bargain. For someone flipping a house, a 10% drop in the market can put them deep in the red. Particularly after factoring in the real estate agent fees and property transfer tax.
Over the past year, a West Vancouver house has dropped about $350,000 in value. If someone bought a benchmark $3.2 million house a year ago to flip it, Property Transfer Tax and the commission to the real estate agent would be approximately $150,000. For argument’s sake, let’s assume they spend $100,000 on renovations. So for a flip to cover its costs, the home would need to sell for at least $3.45 million but since then prices of the benchmark house have dropped to $2.85 million. Of course, with the renovations, the flipped home should look better than the benchmark home but will a good showing get it a price that is $800,000 higher than the run-of-the-mill home down the street? Flipping in West Vancouver is risky business these days.
The westside is also a tough market for flippers. In this case taxes and commissions would cost the flipper about $175,000. One challenge with these +$3 million homes is that most of the value is in the land, so all the improvements to the building and decor barely add to the property’s market value. This is a factor throughout Metro Vancouver and it has meant that flipping in a market of rising land prices was easy, but it amplifies the risk when the market turns.
In a surprising 3rd place is North Vancouver. It’s a great place to live but a tough place to flip a home. Property transfer tax combined with Realtor fees would eat up close to $80,000 plus the $210,000 drop in land prices and you’ll need cover a $290,000 loss with the your HGTV-worthy renovation.
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East Burnaby is new to this list, the last time we had looked prices were peaking and it seemed they have been stable for between 2017 and 2018. Prices have tumbled since the summer of 2018.
It takes easily 18 months to to re-build a house so imagine the dismay of some flippers who’ve lost $175,000 in land value over the past 6 months!
Okay so East Vancouver has only dropped $145,000 but that’s not pocket change!!! Once you factor in transaction costs you can see that flipping a home and turning a handsome profit in this neighborhood might be challenging.
A rising tide lifts all boats
Most people have heard the saying, “a rising tide lifts all boats” which is associated with the idea that rising land values will benefit all home owners whether they bought to live in the home or bought to flip it.
On the other hand a dropping tide grounds boats. If you’re not trying to sell a property a drop in prices or “soft-landing” doesn’t matter to you because you’re deriving value from living in the home. For home flippers a sustained downward trend in prices is terrible for business. That home will sit grounded on the market while the mortgage eats up a flipper’s profits.
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