Flipping vs Long-Term Investing

It is not how much one makes, but how much one gets to keep AFTER-taxes.

Buying and selling real estate is very expensive. Here are 10 commonly incurred expenses:

1. REALTOR COMMISSIONS: paid to the listing agent for marketing the property for sale and brokering the transaction.

2. TRANSFER TAX: paid to tax authorities for land transfers.

3. INSPECTION: to inspect the property for structural and building defects

4. ENVIRONMENTAL: to assess the property’s environmental risks

5. SURVEY: to assess the site’s legal status

6. APPRAISAL: to estimate the fair market value of the property

7. LEGAL FEES: paid to lawyers / notaries for registering the mortgage and property title transfer

8. TITLE INSURANCE: insurance against title defects

9. FINANCING FEES: can include Broker and/or Lender fees, depending on how the financing was arranged.

10. CMHC PREMIUM: applicable if the financing was insured by CMHC (i.e. high ratio mortgages)

While not all costs will be applicable to each and every transaction; nevertheless in a buy-sell cycle one can easily accumulate total costs in excess of 10%+ of the property’s value. Flipping would have to generate 10%+ appreciation just to break-even, and it becomes speculative by nature.

Furthermore, it is not how much one makes, but how much one gets to keep AFTER taxes. Rental real estate, when kept for the long term, becomes a highly tax efficient investment.

For these reasons, real estate investments are best held for the long term. Let time and compounding do its thing.