Easy Things You Need to Know to Fund a Successful House Flip

There is no magic formula for a successful house flip.

The success of a flip largely depends on the efficient allocation of your time and money. The best way to optimize this allocation is to plan the project based on your skills and the specific characteristics of the property and area. While good planning is essential for a successful flip, a seasoned investor knows all too well that he or she will have to adapt as the situation unfolds. What seemed like a good idea on paper can later turn out to be too expensive or unnecessarily time-consuming.

I have participated in dozens of house flip projects myself and have made every possible mistake. Here are four things I wish I had known at the very beginning of my flipping career.

Time is the most important opportunity cost in a real estate flip.

While it may not always result in actual cash flow, the time and effort invested in a flip must be factored into the return calculation. As the saying goes, “Time is money!”

This adage is very relevant when it comes to real estate flips, but many investors ignore it. For example, a $50,000 profit on a project that takes three months to complete, and requires a total of 150 hours of your free time, is likely to be more profitable than a project that takes months to complete, and drains your energy.

It’s important to understand that the concept of time manifests itself in two ways during a flip.

First, there is the time frame, or the entire duration of the project, which extends from financing and purchasing the property to its sale. As the name suggests, flipping is the opposite of a “buy and hold” strategy. Quality is a priority, but the goal is to move forward as quickly as possible.

Next, you need to estimate the actual time you will have to invest in the project. In addition to the work you are responsible for, you will also need to consider the time you will spend purchasing materials and negotiating with subcontractors. Even your travel time should be included in this calculation. For example, renovating a cottage in a high-demand area may seem financially profitable, but if the property is two hours away from your home, the time spent in the car can be considered a significant opportunity cost.

Also, keep in mind that the many hours spent poring over listings before buying are considered sunk costs. In theory, these hours should be excluded from the calculation of the return on investment of the project. Working with a broker can significantly reduce this aspect of the project.

The work to be done varies depending on the specifics of the project. Replacing the entire floor, installing new windows to increase natural light in the living room, modernizing the bathroom, completely redesigning the kitchen many “experts” will tell you that you “must” do this or that.

But I repeat: there is no perfect formula. To make the best decisionsthe ones that reduce costs and increase added value you must define your target customer group.

In areas like Rosemont La Petite Patri in Montreal, which are popular with young families, adding a floor to a small home is undoubtedly more complicated than renovating a bathroom, but it can significantly increase the value of the home.

Understanding market trends across Quebec is important, but it’s even more important to research the local, or even ultra-local, market. This means identifying the typical buyers in a given area (demand) and what types of properties are available (supply).

For example, converting a duplex in the Plateau-Mont-Royal area into a single-family home may be more convenient if you determine that your best potential buyer has no interest in managing tenants.

The best way to get a clear picture of all this is to work with a real estate broker.

It’s essential to choose which tasks to do yourself and which to hire professionals. It goes without saying that the more work you do yourself, the more your costs will decrease and your profits will increase. 

However, while some tasks, like electrical work, should definitely be left to the professionals, remember that you won’t become a drywall finisher or real estate broker overnight.

It’s crucial to be honest with yourself. If it takes you two weeks to paint your house, it’s probably more cost effective to hire a professional painter who can complete the entire job in one day.

When I first flipped my house, I decided to sell it myself to save on the broker’s commission. In the three months after listing, the potential buyers I met were all bargain hunters with a million questions. Tired and frustrated by showing me this worthless house, I finally decided to work with a broker.

And just like that, the house sold in a week!

The lesson to be learned from all this is: Take the work you can do yourself and leave the rest to the professionals. Of course, you will need to take the time to carefully select your experts. To do this, get three quotes and don’t just rely on price. It is equally important to work with people you trust.

Mortgage financing is not just about interest rates. Finding the right type of financing for a home flip is crucial. You need to evaluate your options based on your project and financial situation and determine all the options available to you. The terms of mortgages offered by major banks and credit unions are not always the best fit for financing a flip. In some cases, the terms of obtaining a loan can be very strict, but this will not prevent you from implementing your project.

A private lender can offer a convenient financing solution. For example, Quebec based private lender Financière Victoria primarily lends based on three criteria:

The property is a single-family home, a condominium, a commercial or income-generating property, or land.

Since the application process is often faster than at a traditional financial institution, you can save time. Another advantage: You can reduce your cash needs until the property is sold, because only the interest on the loan can be paid during the project.

No. One of the biggest mistakes a new house flipper can make is assuming that every property needs the same renovations. A completely redesigned kitchen, luxury bathroom, new windows, or additional floor may sound like obvious ways to increase a property's value, but these improvements are not automatically profitable. The right renovation depends on the property, the neighborhood, the available budget, and the type of buyer you are trying to attract. A renovation that works extremely well in one neighborhood might produce very little additional value somewhere else.

Yes. Doing work yourself can certainly reduce your direct renovation costs, but it does not mean that DIY is always the most profitable strategy. Your time has value, and inexperienced work can sometimes take much longer than expected. Imagine that painting an entire house would take a professional painter one day, but it takes you two weeks because you have limited experience and can only work in your spare time. You may save money on labor, but during those two weeks you could be delaying the sale of the property, paying additional financing costs, spending time traveling to the property, and potentially missing another investment opportunity.

Knowing broad real estate trends is useful, but house flipping is ultimately a local business. The buyers interested in a property can vary dramatically from one neighborhood to another—even between two nearby areas. Understanding the target buyer helps determine where renovation money should be spent. For example, converting a duplex into a single-family home might make sense if the local market has many buyers who want a family home but don't want the responsibility of managing tenants. In another neighborhood, keeping the property as a rental-income property might be more attractive.

What’s the main lesson from all of this?

It’s always possible to make money by flipping a property. You just have to manage your time effectively, allocate resources efficiently, and work with qualified and trustworthy partners.