This week, we received a question about fixing and flipping a residential property in Montreal.
Q: I’m considering buying an undervalued townhouse to fix up and sell at a profit. How much should I estimate in terms of renovation and carrying costs? Is there a rule of thumb for this type of work in Montreal?
A: When buying a property to fix and flip, there are four types of cost an investor will need to take into consideration:
- Costs of purchasing the property, including your mortgage downpayment, notary fees, land transfer tax, school taxes and inspection fees. You can calculate closing costs at any price point with our mortgage calculator.
- Costs of the repairs and renovations: These costs will vary based on the condition of the property purchased, as well as the size of the property. You will need to consider:
- Building materials
- Appliances and fixtures
- Labor costs (general contractors, electricians, plumbers, handymen, painters and landscapers)As a beginner, it is recommended to choose a property which only needs cosmetic repairs, rather than ones with large structural flaws or tear-down projects.Cosmetic home repairs are minor enhancements that increase the value of a property, such as repainting the walls, fixing or changing the flooring, basic landscaping in the garden or yard, and updating the kitchen and bathroom.Generally speaking, you can estimate approximately $30/square foot for cosmetic repairs such as new paint, floors and fixtures.
- Carrying costs. Carrying costs are the monthly mortgage costs you will need to pay while you are renovating the home, including principal, interest and insurance. You can calculate carrying costs for any price bracket on our mortgage calculator.
- Selling costs include marketing costs, if you plan to sell on your own, or fees associated to hiring a real estate broker.
Example of Costs for a Fix & Flip Project
|Associated Cost*||All Cash||Mortgage (5% down)|
|Taxes and Closing Costs||$5,437||$5,437|
|Mortgage Payment (30 days)||$0||$1,166.00|
|Total Costs for First 30 Days||$335,437.00||$96,603.00|
*does not include selling costs
ARV (After Repair Value)
Once you know your repair, closing and carrying costs, you will need to estimate your after repair value. ARV is found by looking at market comparables, sold within the last year, or by requesting a professional evaluation.
ARV affects your ROI – the higher your ARV and the lower your purchase costs, the more profit you will make.