# INs and OUTs of Flipping



## 72camaross (Apr 26, 2010)

Hey guys, 

My mom said she would like to start flipping houses (just like everyone else) and I really had no advice to give her. It's not a risk I'm comfortable with but I said I would help her out with whatever I could so I'm asking you guys.

Could you give me the ins and outs of flipping? the ups and downs? the what-to-do and what-not-to-dos?

What should she look for in a house? how can she tell if the market is going to allow her to make money on it? 

All I see is a lot of work for very little gain but it's her idea so I'll pass along any info you can give me!

Thanks for you help


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## andrewf (Mar 1, 2010)

It's really high risk and requires a booming real estate market. I'm not convinced that that is the case here. Does she at least have a lot of construction experience? If you need to rely on someone who does have that expertise, it's not a good sign. 

You need to look at real estate, legal fees, and land transfer taxes. Any flip has to generate that much beyond the renovations and carrying costs to even break even.


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## MoneyGal (Apr 24, 2009)

...you also run the risk, after ONE house, that CRA will declare you are in the business of flipping and will tax any gain as business income, not a capital gain.


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## Four Pillars (Apr 5, 2009)

Why isn't your Mom in here looking for info? 

You/her need to do some googling and start researching. Maybe check the library/bookstore for some resources.

These guys are somewhat legit - they are way too optimistic, but if you want to learn, then you might want to start here. They have a lot of experience with flipping and document a lot of their knowledge. They also sell a course as well.

http://www.revnyou.com/


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## 72camaross (Apr 26, 2010)

@four pillars - I might try and get her in here except she only goes on the internet with her iphone (she's not up to speed with pcs totally). With some teaching she could be in here soon enough. I'll tell her to start googling from her phone to research it and see what she can come up with. I will check that site out for sure, thanks!

@MoneyGal - that's something I never knew, thanks! I will mention that to her. I'm sure there are ways around it if it ever did get that big but I doubt it will unless she gets really good at it haha.

@andrewf - I also think it will be hard to sell the house once it's done because in the last little while houses that would have sold overnight are on MLS for months and months and some even expire and come back on. How would I point her in the right direction to get a better understanding of the current market conditions in our area?? She worked at a bank for 25 years (and retired) as a manager so she's good with numbers and she's reno'd atleast 4 houses in my lifetime but she only does the finishing touches herself. There's always contractors which I know is bad and will cut in on your profits.


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## Dr_V (Oct 27, 2009)

72camaross said:


> flipping houses (just like everyone else)


I find it interesting that you phrased it this way.

Is there really a perception that "everyone" flips houses? If so, what percentage of people do you think are actually successful at it? I've never flipped a house (nor do I have interest in it), but I suspect that you have to be pretty handy and an excellent judge of both time and resources in order to be profitable. (In that light, I suspect that it's a skill best suited to people who have substantial handyman/contracting experience.)

Philosophically, do you expect to do better flipping houses than, say, the oft-quoted 8% long-term return that you may achieve in a balanced investment portfolio? (It's an open question; I don't have an answer.)


K.


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## andrewf (Mar 1, 2010)

If she really wants to get into real estate, maybe a hybrid of flipping/rental would make sense.

To demonstrate challenge of current market conditions, I would look at time on market statistics and what % of asking price is paid. It used to be that properties in the GTA would get a premium on asking, but that isn't happening anymore.

I think she should investigate/budget for four months (plus reno time) of carrying cost (mortgage, property tax, insurance), plus all the transaction costs. Maybe that number will make her think harder about the risks/rewards.

I say you need to have a decent understanding of construction because you don't want to get stuck paying way too much for a lemon. Not that you need to do all the work yourself, but understanding the work required and cost is important.


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## 72camaross (Apr 26, 2010)

@Dr_V - I think I phrased it this way because I've seen a few houses that I know are flips and they are trying to sell for prices that seem ridiculous atleast to me they do. I know what you mean when you say not everyone is doing it I know a lot of people that avoid it just around my area it seems to be happening a lot. I personally would be more comfortable with a balanced portfolio haha but it's not my choice. That is a good question I can pose to her, thanks for your input!

@andrewf - a hybrid could be a decent solution for her. Also adding up those carrying costs and reno time and legal fees could make her decide if it is a good buy or not. thanks for the tips! luckily I have a few friends that are carpenters that could tell me the structural issues of a building and give me an idea of costs. Would I be able to get those stats (% of asking price paid, time on market) from a local realtor? That seems like something to look into.


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## kcowan (Jul 1, 2010)

I had an aunt who was flipping in Toronto in the 70s and 80s. She was a realtor but spent most of her latter years flipping. She would find an underpriced house, buy it and rent it out. In 5 or 8 years, when the market was buoyant she would sell and then repeat the process. At peak she had 4 houses on the go.

From her experience, I would suggest that being a realtor was the key. She did not rely on a middleman. When hot deals came on the market, she was there along with other realtors.


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## Addy (Mar 12, 2010)

I wonder if some get their realtor licence mainly because of reasons the former poster mentioned?


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## 72camaross (Apr 26, 2010)

I often wondered the same thing and even thought of doing it. I'd only have to give up 4 weekends of my life and 4000$ and then in 6 months I have to find a company to work for and bang I can get all the info on houses before the majority of people...


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## Cal (Jun 17, 2009)

The question was phrased more so as to what advice should you give her.

Does she have any RE experience? Construction experience? RE agent license?

How much is she thinking of starting with to invest? And what market is she looking in?

In some situations a REIT may be her best bet to make money, an inexperienced person might be inclined to lose money flipping houses.

I don't mean to sound harsh. Just trying to help her make some $$. Not lose any.


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## james_57 (Jul 5, 2010)

72camaross said:


> Hey guys,
> 
> My mom said she would like to start flipping houses (just like everyone else) and I really had no advice to give her. It's not a risk I'm comfortable with but I said I would help her out with whatever I could so I'm asking you guys.
> 
> ...


Read my last post on the Glowing Canadian Economy. She's about 7 years too late for this cycle. Wait five years and catch the next one at the bottom.


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## bean438 (Jul 18, 2009)

MoneyGal said:


> ...you also run the risk, after ONE house, that CRA will declare you are in the business of flipping and will tax any gain as business income, not a capital gain.


Of course you can always live in the flipper until you sell, BUT I have heard that CRA can still come after you if you exceed something like 3-4 per year, regardless of principal residence exemption......

Any thoughts moneygal? You seem to come up with loads of info for us


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## Rob_23 (May 29, 2010)

The hardest part would be finding an undervalued property. It seems a flipper would be best off looking for recently abandoned homes (if you can find any) to try to stay on the cheaper end of homes. From what I have noticed when I find an undervalued listing, is that it is not necessarily cheap, most times it is a house for 500k in a neighborhood of 600Ks. Then it needs a new kitchen+baths+etc, and to reno a high-end kitchen to go in that house you could be looking at 40-50K. So you really need to know your numbers going into it. 

What could be the best idea is what kcowan said. Buy a easy fixer in a nice neighborhood, rent it out until a good market comes by, and then sell.


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## james_57 (Jul 5, 2010)

The general idea in real estate is buy low and sell high. This does not mean individual properties. It means buy and sell the market. The market is at an all time high for this cycle. The BOC just fired the 9'Oclock gun yesterday, because they know this is way out of hand. 

A sustained decline in RE prices precedes a recession by a few quarters, in this case i am guessing about three quarters. Being at the tale end of the cycle prices have a long way to correct. 

That the US is going to print, seems obvious, the fallout might keep our exports and oil up for sustained while, floating RE prices, bouncing along the top, but its not a real economic driver and the piper will need to paid for that too. If you want to invest in RE, go to cash now. Wait for the fire sales because they are coming. Talk to your bank, they will have inventory.


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## 72camaross (Apr 26, 2010)

Cal said:


> The question was phrased more so as to what advice should you give her.
> 
> Does she have any RE experience? Construction experience? RE agent license?
> 
> ...


No worries about sounding harsh! Sometimes people need to hear it. Her RE experience would be just from buying and selling her own homes plus we have a 4-unit apt building. Construction would be from renovating every home we've moved into. They were major renovations too. She has no RE agent license. I have no idea of her budget but I know she has money tucked away somewhere and market is in NB so housing prices aren't as crazy as say ON. I will tell her to look into REITs and she what she thinks.



Rob_23 said:


> ...
> What could be the best idea is what kcowan said. Buy a easy fixer in a nice neighborhood, rent it out until a good market comes by, and then sell.


I think this would be a good idea as well if she was going to go ahead and buy something anyway. In our town I don't think it would be difficult to rent it out as we have a lot of people coming in for all the new work. 

@james 57 - Does the bank have a list of houses at better prices? Or how does that work? A lot of this stuff is new to me.


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## MoneyGal (Apr 24, 2009)

Aahhh! Would it be mean for me to confess that these kinds of threads just make me think of the (now discredited) odd lot theory? 

As in, if everyone and their mom (literally!) has decided that (despite a lack of experience and lots of questions), flipping houses is how they are going to make their money, that this sends a big contrarian signal about real estate generally and house flipping specifically?

(Disclaimer: I know there is money to be made in flipping. My next-door neighbour was featured on one of those "How to Flip your House" shows and I've had many a conversation with him, over the years, about real estate investing. He just bought the triplex up the street and is renovating it...this is in addition to the multiple rental homes he owns and the ones he's already flipped.)


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## MoneyGal (Apr 24, 2009)

More grist for my personal mill, courtesy of a tweet from Toronto Life magazine. 

Note this story has a real estate agent (who used to flip houses; by chance I actually know this guy) and his search for an "underpriced listing" is characterized as a "miracle."


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## 72camaross (Apr 26, 2010)

haha could never be mean! That is a neat theory though, I've never heard of it till now. I wonder if it's because I'm always the odd one? lol


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## Potato (Apr 3, 2009)

72camaross said:


> > Buy a easy fixer in a nice neighborhood, rent it out until a good market comes by, and then sell.
> 
> 
> I think this would be a good idea as well if she was going to go ahead and buy something anyway. In our town I don't think it would be difficult to rent it out as we have a lot of people coming in for all the new work.



In NB this shouldn't be as hard as in say Toronto or Vancouver, but care must be taken to be sure that if she's going to become a landlord, that the rental is profitable on it's own, and isn't just a backup plan for a bad flip. There's an important distinction between easy to rent out, and easy to rent out at a profit. Something else to keep in mind when determining that is that sometimes with flips (at least from what I've seen so far -- not my area of expertise), people are trying to make cosmetic renovations that make houses appear more upscale: granite, stainless, wainscoting, etc. These can help get a premium for the house, but a renter generally won't pay nearly the same premium as a buyer would...


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## Berubeland (Sep 6, 2009)

Well my advice would be for her to look for abandoned properties. I know of 6 in Toronto. You might be able to get a deal. 

These are advanced projects, one has been been without shingles for several years. There is more profit in getting a house from 20% to 80% then to get a house from 80% to 99%

Other than that most of the successful house flippers I know are contractors who have gotten sick of the grind of working for others. They get a job that ensures payment for themselves. 

The major problem with flipping if you are not a construction expert if that you get taken to the cleaners by your contractors. The city takes forever to give permits and they don't care how much it costs you. 

Realtors generally know how much renos cost and discount the price by just that much unless it's really disgusting. 

For example my friend who is a contractor told me about a house going up for sale in which a man lived for 50 years. His toilet broke and there are buckets of feces throughout. The guy was also a hoarder. 

This sounds like money to me. I asked him to find out if it's for sale. If it doesn't sound like money to your mom she's in the wrong game IMHO. 

In any case I think that the real estate market is going to take a beating in the next while as investors can't buy because of 20% down and first time buyers collect their 5%. It's going to slow down to match those realities.


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## james_57 (Jul 5, 2010)

Berubeland said:


> The major problem with flipping if you are not a construction expert if that you get taken to the cleaners by your contractors. The city takes forever to give permits and they don't care how much it costs you.


Precisely. 

Having been a builder/developer through three cycles, i can tell you that in each cycle you have a quick 3 years to get in, and catch the curve. In the beginning of the cycle price inflation is low, it begins about midway in the cycle and if you are not vested by then, its too late (as a rule of thumb). 

There are a couple of holy-grail level trade-secrets to this game that most people never understand, even when its explained to them. Even many builders never catch on, surprisingly. Production housing developers understand them well. I was in my second cycle before i got it.


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## chaudi (Sep 10, 2009)

Flippers, landlords and real estate agents. Do we need any of them?

If it weren't for these people housing in Canada would be much better off. They are too responsible for the bubble effect.

Problem with the flippers and landlords is that listened to the agents who are the real flippers. But RE agents are professionals.

Flippers and landlords are gamblers that imagine they have a respectable profession, but they're just like day traders on the stock market. The flipper works with agents to find houses they know will sell fast to people who have more money than time. 

If you think about it flippers should be taxed and penalize because they take away good deals from regular home owners. Normally what should happen is that some buys a house to live and then does quality renovations. When they sell someone else gets the equity. Flipper typically used substandard labour and they want to be paid like a contractor and brilliant investor. Well it works sometimes sometimes not. 

Landlords too are often flippers. They put a little paint over things and try to rent it out for over market value. Then they can't understand why all the tenants are so bad and rip them off. It's because they really they are the bad ones who are after the easy money, they don't want to work they want to flip. Guess who pays for the flip? 

If you ask me flippers should stay in Marineland.


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## Berubeland (Sep 6, 2009)

Chaudi, 

First of all real estate agents are NOT professionals. They have the grand total of 3 correspondence courses and one weeks worth of classes under their belt. Some of their course even involve OPEN BOOK TESTS. 

Drs and lawyers are professional.

Flippers do provide a service as well, they mostly compete against each other for property. These properties would never be considered by most first time buyers. I gave an example of a house my friend was hired to clean out that is a prime flipper buy. It's been occupied by the same guy for 50 years and his toilet broke and he never fixed it and he's been going to the bathroom in buckets. Those buckets are all over the house. He's also a hoarder and there are very narrow paths. You think the people who are cleaning up this mess don't deserve every single penny? Would you buy it?

Landlords hmm well not everyone can afford to buy, maybe they should live in tents in Mel Lastman square? Landlords also provide a service.


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## kcowan (Jul 1, 2010)

Potato said:


> ...people are trying to make cosmetic renovations that make houses appear more upscale: granite, stainless, wainscoting, etc. These can help get a premium for the house, but a renter generally won't pay nearly the same premium as a buyer would...


My aunt used to do the fixing after the renter had left. It was fine to rent it out with the old stuff. Then do the cosmetics before flipping it.


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## GeniusBoy27 (Jun 11, 2010)

Chaudi:

I agree with Berubeland on this. I think that demand and supply determine fair market value. And if you don't agree with the fair market value (being above the historic norms ...), then you wait, rent, and then buy when values come down.

Flippers take a risk. In investment, there are risk premiums, and if they time things right, they profit. However, if they time things wrong, they can lose big. Our current home was a flipper who failed, and went bankrupt, and we bought our property in power of sale (with the flaws, some minor, some major ...) You can lose big.

Landlords provide immense value, and generally, most of them charge what is below fair market value (at least, in Ontario), due to rent control. If the market lid came off, the rents would increase and increase quickly. (which is why I went commercial and not residential). When you take a look at the pure numbers, for the purchase price and the net return, being a landlord isn't highly profitable. Their value gain in the investment, in general, doesn't come only through the rent, but also through the appreciation in the value of the property.

To me, it's simple business. If I give you use of my property, I expected to be paid for that use. I don't see how landlords inflate property prices. If anything, as a landlord, I want to lower my costs and expenses as much as possible.


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## Cal (Jun 17, 2009)

chaudi said:


> If you think about it flippers should be taxed and penalize because they take away good deals from regular home owners.


I have a principal residence. If I buy another home, to flip, I would pay taxes on it. I would also claim all related and allowable business expenses. I would also be providing work for several people employed in the construction business.

Having said that, I don't flip houses. Its not for me. But I have nothing against it. Not all flips are worth the time and money put into them, and not all are profitable. Also not all regular homeowners want to buy a fixer upper, nor are all people entitled to home ownership. Landlords do provide a service, affordable housing to many.


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## 72camaross (Apr 26, 2010)

Potato said:


> In NB this shouldn't be as hard as in say Toronto or Vancouver, but care must be taken to be sure that if she's going to become a landlord, that the rental is profitable on it's own, and isn't just a backup plan for a bad flip. There's an important distinction between easy to rent out, and easy to rent out at a profit. Something else to keep in mind when determining that is that sometimes with flips (at least from what I've seen so far -- not my area of expertise), people are trying to make cosmetic renovations that make houses appear more upscale: granite, stainless, wainscoting, etc. These can help get a premium for the house, but a renter generally won't pay nearly the same premium as a buyer would...


yeah thats true. Our market down here is a lot different then TO haha. Don't worry she already is a landlord with 4-unit and knows about the losing money on them! 

Real Estate Agents are definitly not professional. 

And a funny thing happened last night. My friend, an REA, calls me and says an offer just fell through on a house you have to look at. So I do, estate sale, in great part of town, DIRT cheap. I put in an what I thought was a lowball offer and was comfortable paying it. They accepted. The house would be a total flipper if it was for a flipper lol. Off to the bank I go.


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## Berubeland (Sep 6, 2009)

Congratulations on your new acquisition!


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## 72camaross (Apr 26, 2010)

Berubeland said:


> Congratulations on your new acquisition!


Thank you! I'll probably have to start another thread since I'm a first time home buyer and I'll have a ton of questions.


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## chaudi (Sep 10, 2009)

Just to prove the point that there where a lot more rental accommodations and a lot more new housing starts when there WAS rent control in Ontario. 
This made it affordable to be a renter or a home owner. Now, for years without control, neither is affordable for the average worker, effectively pushing the quality of life to a 3rd world country.


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## Berubeland (Sep 6, 2009)

Chaudi,

First of all if you read that site you would know that the reason that developers built was because there were generous government incentives during that time. The site states this!

Second the fall of building rental housing coincides with the introduction of the condominium act.

Developers can build a building and WALK away after making their money transferring their liabilities to the owners. 

Property tax on a rental building is about double what is paid for a condominium building. 

I worked during rent control and it's absolutely horrible for tenants. It becomes impossible to get any work done on your suite. There is zero customer service. 

The vacancy rate during rent control was less than 1% Do you know what that means? That means you live with what you have because when you get a place you have no guarantee to get another. 

Rents are currently being subsidized by small investors to the tune of hundreds of dollars per month as the buy "investment" condos and rent them out for less than the place costs them.


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## chaudi (Sep 10, 2009)

hi ber,
"First of all if you read that site you would know that the reason that developers built was because there were generous government incentives during that time. The site states this!"

Yes i am aware of that, it sounds like a good type of stimulus now we have a bad type: no capital gains tax on your personal residence. You think landlords don't lie about this - they do all they time. In fact my lease now says the landlord lives in my apartment! I know of many landlords that insist on cash payment every month. This is a lot of wealth people have many tax free.

"I worked during rent control and it's absolutely horrible for tenants. It becomes impossible to get any work done on your suite. There is zero customer service."

I remember in 2000 when i got a huge 750$ 2 bdrm near st.clair and bathurst on a nice street, i even fixed it up, painted sanded etc. That same apartment is probably $1400 now. I'm happy to put in $300 to fix a place i know is a good deal and i want to stay for while.
I think there was low vacancy back then because no one wanted or was willing to pay anymore for rent, so the place became run down, but it was much cheaper to rent.

In the 60's and 70's is was common for people to pay of house in 3-5 years, people who made low wages.
If rent control was in place today that same st.clair apartment would be say $800 now. If you think about renters are losing a lot of money, $600 per month to nothing. Poof in to thin air. Over 20 years they could have owned their own houses. 

But who cares right? This capitalism at it's best supply and demand. 

Wrong this Canada a socialize bastion, everyone agrees on free health care and it is a right, why isn't housing a right as well. It's the same concept both are about basic quality of life issues.

We know that if the state runs health care it will be efficient and with lower costs, we can see the US model is immoral, why would housing be any different? Why have a Canadian style health care system and US style housing? They are interconnected. 

You know health care really isn't free right? Taxes we all pay %15 on everything, the young renter also has to absorb this cost, the humongous fees for ageing population that needs new medical technology at an expensive new cost.
You see how unfair this is, the young Canadian low-medium wage earner is basically a slave to the rich older wealthy class, as it is now have little hope of getting out. 150 hrs @ $10 a hr = one months rent! 10.50$ a hour is one of the highest minimum wages in the world.

Tenants will continue to be gauged by greed landlords and flippers, enabled by the goven't capitalist agenda. We could regulate house and spend the billions of dollars wasted on police to give Canadian fair and honest housing (aka 'a home') This would reduce the crime rate, increase happiness, productivity and even protect us for other nasties such as a bursting housing bubble and wide spread economic deflation.


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## andrewf (Mar 1, 2010)

I don't agree that landlords are gouging tenants. Rental housing is very competitive. If you don't offer good value, your unit stays empty. Many landlords have negative cashflow, after they pay their mortgage.


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## Berubeland (Sep 6, 2009)

We have social housing Chaudi. You can choose to go live there if you like. I'd suggest that you go visit during the day. 

You can also go eat at the soup kitchen. 

You talk about these utopian ideals like a person who has never once been in one of these buildings. 

I'll tell you something else. The cost of housing the dysfunctional people that are eligible for our social housing is probably double the cost of housing normal people. Who do you think grafitti's the building, destroys the elevators, and rings fire alarms all hours of the day or night?


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## GeniusBoy27 (Jun 11, 2010)

*Whoa. Really?*



chaudi said:


> Chaudi:
> 
> I think your statements should be backed by numbers and/or facts.
> 
> ...


So my question would be, if this is your underlying concern, Chaudi. "What's your solution in simple manageable terms." How would you see a policy where things could be made right?

The facts are this:

1) Landlords pay taxes (or should pay taxes) on any money they make.
2) Flippers pay capital gains tax (which is 50% of their normal tax)
3) Both parties invoke risk when you buy a property. As you'll see when you decide to buy a property, there are lots of costs. Insurance, hydro, gas, repairs ... the list goes on and on. They could in theory, stick it in stocks and/or bonds and make a certain percent.

I'd love to hear solutions. Thanks!!


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## chaudi (Sep 10, 2009)

"1) Landlords pay taxes (or should pay taxes) on any money they make."

Again the point is that it is due to lack of any true rent control that help to drive the realestate values up to unrealistic values. Real rent control would provide stability to landlords too, profit would stabilized. It would keep realestate value low so people could get out of the rental traps and move to a home of there own sooner, thus saving more money. It's called a home ownership scheme.
This is because everyone would know that return they would get and that return would be more guaranteed for everyone, landlords, RE owners/sellers/agents. Just as your property tax is assessed so would the amount of rent a landlord could charge. Also landlord should have to go through some sort of accreditation course, the job of land lording would be pushed to private companies. 
Housing and rental starts are not subsidized housing ghettos. They are real buildings or houses. The price of land would be lower, a builder would calculate exact rental costs of the future. The govn't would be forced to address the issue of housing just as they are with health care. 

I am surprised you don't understand the analogy between our health care system? For example if the goven't put $1000 in a bank account for you starting when you are born, after 40 or 50 years when most people start to need medical care that amount would balloon over a 100,000 medical credits that could be used for any sort of treatment. We used this system because it is cheap and efficient and the smart why to run an economy. If you tried to save that money your self it would only be 40k by then and the procedure would cost 10x vs the state run system. Like the usa.
I am not against capitalize but* not from my living body, from my food basket or from my home.*

Leaves plenty of room for flipping and usury schemes. For example if someone loses a lot of money on the stock market i do not blame the TSX or even the company involved (unless they committed fraud.) Owning stocks on the TSE are not a necessity of life.


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## andrewf (Mar 1, 2010)

Chaudi, I don't think your vision of rent control is realistic. Any time you put a ceiling on prices lower than the market clearing rate, there will be less supply than demand. That's basic economics, and we see it crop up everywhere someone tries to enforce a price ceiling.

Real estate prices are not driven exclusively by rental prices. There are implied rents, too. When you buy a house, you do so because the house supplies an implied rent to you that you choose to consume. So, you put a ceiling on rental arrangements, there will be fewer of them. People who have no capital, bad credit, etc. will be stuck fighting over what few rental units are available. We'll have more people on the street, or in government funded housing, often in appalling conditions.

For instance, you suggest that having low rent would give people chance to save and buy a home. Why on earth would they buy a house if they could live in a house they are renting for 400$ a month? I would continue to rent forever, and invest elsewhere.


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## GeniusBoy27 (Jun 11, 2010)

Chaudi:

This is basic economics 101. If you put rent control, you restrict supply, and it takes MORE homes off the rental market, making much harder for people to find places to rent.

It may put more homes on the market and dampen the housing sales market, but there's also going to be a sudden increase demand especially for lower priced housing. I'm not sure where prices will settle to be honest. There's also going to be a lot of people who can't reach home ownership, and won't have a place to live in the shrinking rental market.

It depends where rent control is. If it's at or above inflation, maybe it'll work. But that's not traditionally where things have gone in rental markets. For example in Ontario, it was about 0.8%, which is where inflation approximately is.

A couple of things: first, the government's increase to a 20% deposit on investment properties have and will dampen the investment property market. This is a great way to reduce housing price bubbles, and you'll see the effects as housing prices slowly fall over the next couple of years; and second, it would be unreasonable for landlords to make no money. Why invest then?

I just can't see the government getting involved with subsidized housing sufficiently. They tried it in the 70s and it failed. It led to high crime, high poverty areas, without effectively invoking positive change. Having said that, there are places in the US where it has worked ... but you're going to need sufficiently infrastructure put into place to do so. In the era of deficit reduction (especially in Ontario, with its $20+ billion deficit), where would you think housing be on the priority list, against health care and education?

Practically speaking, how would you invoke this change in the grand fiscal reality? 

I also don't see the analogy. Health care doesn't work by a "savings account" (that's Singapore, if you like). In fact, the health care system in Canada is in major trouble right now, because the baby boomer's retirement is going to escalate costs greatly. It's going to put immense pressure on our taxation system and/or retirement ages because we can't afford it. Health care provision is an "insurance against bad health". If you get bad health, you have the opportunity to have it restored, or have the bad effects minimized, and in Canada, the government provides for this guarantee. 

In housing, how would you invoke this? Most people are generally "poor" when they come out of school, so wouldn't everyone qualify?

Your example of 1000K now, and 100000K in 50 years (which is about a 9.7% return and NO government scheme has ever gotten close to that), doesn't take into account inflation.

So the government's supposed to save for your housing? Who's paying for it? Are you taxing everyone an additional 3% on income, raising the HST by 1-2%?

In the public policy realm, you're talking about a large transfer of wealth from one group to another. The reality is that the majority of people do not gain by this, and I don't see how any government could survive such a proposal.

Of all things, I'm a social liberal. (why else would I come back to Canada from the US?) I just don't see this chaos being a good thing for a sizeable majority of the population. If anything, the market would become even more underground because a sizeable proportion of the population won't have a place to stay.

And it's still not clear to me, what your policy to improve this would be besides "rent control", which is already in place.


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## MoneyGal (Apr 24, 2009)

Surely a GeniusBoy knows the concept of diminishing marginal returns, i.e., when it's time to quit an argument.


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## GeniusBoy27 (Jun 11, 2010)

*laughing at Money Gal* ... okay, I'll shut up. But I had to wait for a program to run anyway ...


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## DavidJD (Sep 27, 2009)

In MB where we still enjoy rent controls, property owners are essentially forced to provide subsidized housing. Whenever this is pointed out - the provincial government is offloading its responsibility - the response is, "Not at all, if they do significant upgrades property owners can apply for rent increases (calculated on the type of work (carpets or roof) at percentage that can be charged over a period of time, ergo a rent increase), which is above the posted annual rate (0%-2.5%).

Rent control exemptions include complexes under 5 units and new construction.

Here tenants are actually opposing upgrades (like a new roof) because they want their rents low and if they are staying for another 8 months don't want to pay for something that will not benefit them like a new appliance or flooring. Tenants can also oppose increases as described above. 

Also the provincial gov sets the rates for welfare so they have an interst in keeping rents low.

Here an investor is better off in one sense having a 4-plex than a 5-plex or more as they have the freedom to set the rents on market demand (and the improvements too I suppose). This makes things complicated to benefit from any effeciencies with complexes that have a high number of units.

For older appartments, if a tenant doesn't move for years their rent is suppressed really low, the next person who moves in enjoys the same artificially low rent. The property owner? Well...I guess that will show in the cap rate! That makes the rental market rates severely skewed.


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## Berubeland (Sep 6, 2009)

I'd also like to point out the vast numbers of investors currently offering subsidized housing in Toronto. They have gambled on appreciation but some are paying $600 - $700 per month towards subsidizing their tenant's housing lifestyle. 

The worst offenders are condos followed by small multiple unit dwellings up until about the million dollar price tag. That's when the larger experienced investors who have been around a while get in the picture and refuse to pay the inflated speculator and newbie prices. They can't make any money so they refuse to buy.


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## GeniusBoy27 (Jun 11, 2010)

Berubeland said:


> The worst offenders are condos followed by small multiple unit dwellings up until about the million dollar price tag. That's when the larger experienced investors who have been around a while get in the picture and refuse to pay the inflated speculator and newbie prices. They can't make any money so they refuse to buy.


Rachelle:

Could you please elaborate on this statement?


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## Berubeland (Sep 6, 2009)

The trend I have noticed is that the smaller the property the less it cash flows.

Condos are especially bad because maintenance fees seem to continually go up and the rent doesn't. 

Once you get past the million dollar mark, investors need $300,000 dollars down, and the prices get more reasonable. Plus few people have the chutzpah to finance this using their work income. The building must make sense to the financiers. 

These investors are more sophisticated and ask much more questions, get hard copies of documents and know their stuff. They are also much more careful and most have lived through some really bad real estate times. 

One of the buildings I worked in changed hands six times back when buildings were leveraged using appreciation from one to the other. During the delevering of the market that time lots of investors got burned. These guys are not buying into the madness they are selling right now. They are very aware of the relationship that interest rates have to the price of buildings. 

Most of all they won't invest unless it pays them.


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