As rising costs and uncertainty affect the market, mom-and-pop home flippers are forced to leave.

Real estate firm Engel & Völkers says mom-and-pop house flippers have entirely left the market, blaming rising costs from construction, interest rates, taxes and elevated housing prices.

These costs, which have risen in recent years, have priced out small investors from a market that was thriving for years.

That’s left this particular aspect of the market in the hands of bigger players and developers. 

More education is needed to deal with the market uncertainty

Andrew Carros, chief operating officer of Engel & Völkers Vancouver, says people today have to be more educated if they’re going to be house flippers because they’re taking a higher risk with the uncertainty in the market and the rising costs and taxes. “There’s a lot of uncertainty in our economy. There’s a lot of uncertainty in every market.”

Carros explains that, of course, the effects of COVID have changed people’s perspectives on what they’re looking for. “I think people made their lives a lot more personal but in Vancouver, in particular, we started noticing a real trend moving away from casual house flippers. We’re not talking about your developers here. We’re talking about people that are doing it as a hobby, or a way to make some extra income or do something fun with their family.”

Change with foreign buyers’ taxes

He notes the change happened when the foreign buyers’ taxes came into Vancouver in 2017. “There were opportunities in other cities, but if you look at Vancouver’s market we’re usually first in and first out when it comes to how the market trends.”

Carros continues, “When that happened, the manipulation from the government to try to force prices to come down obviously changed the tone of the economy quite drastically, and in Vancouver, I think the narrative that anything can happen really scared people, the casual consumer. 

The best way to move forward and up

He says that mom and pop house flipping is a good way for people who want to live in their home for a while, renovate it, then move on to another property with the assets of the property they flipped. “keep moving forward and moving up in the market.”

“It’s stalled out a little bit, unfortunately,”Says Carros “In the last two years, we’ve noticed that shelter costs have gone way up, energy costs have gone way up, holding costs on interest rates have gone way up.”

The gap: shrinking, unpredictable

Carros explains that a severe lack of inventory on the market has led to an increase in the prices of lower end homes. This means the gap between what someone pays to purchase and renovate a home, and the higher price they get once it’s flipped isn’t big enough anymore when you consider all the rising costs. 

Plus, “The government has made it very clear that their mandate is to try to stop people from inflating the price of real estate, so they’ve come down hard on capital gains, flipping homes, taxes you have to pay when you come in and out,”He notes. 

“And I think the bigger, greater concern is that the predictability of what might happen in the time that you own that property to when you flip it is unknown. With elections, they just keep throwing out policies that are meant to help affordability but unfortunately, when we look at what’s happening, I don’t think it’s having its greatest effect.”

What makes today’s successful flipper?

Carros says the first thing a potential house flipper needs is cash — and that’s the hardest thing for most people as they don’t have the money to put into a house project. If they’re borrowing, with interest rates elevated, it just becomes harder to do. 

Flippers must be organized to control costs. Cost savings can be achieved by people who are able to invest in their own property. To get the most out of their investment, they need to plan and focus on the right areas.

Patrice Grouleau, with Engel and Völkers in Montreal, adds that today’s flippers are the pros: professional builders navigating a market where hiring a general contractor can quickly eat into your profit margins.

More rates and uncertainty = less mom-and-pop flippers

Christopher Alexander, president at Re/Max Canada, said that as soon interest rates began to go up, fewer mom and pop investors were getting into the market to either add to their portfolios, or start flipping.

“And it makes sense,”He notes. “Because a lot of times, people will buy a house whatever the cost is and then go out and borrow (money) to pay for the materials to do the flip. So when rates started rising, the margins on those projects got smaller and smaller,”He explains. 

He also highlights the uncertainty in the mix. “It was hard to determine how long it would take for a property to sell or what price it would sell at, but for so long in much of the country you had pretty decent predictability. It’s impossible to have a crystal ball in this business, but there was a good chance if you bought a house today, fixed it up and renovated it, you could sell it for more tomorrow. That’s disappeared since the spring of 2022.”

Making a comeback to Calgary with economies-of-scale

Joel Semmens is a realtor at Re/Max Real Estate Central in Calgary. He says that the local housing market has been stagnant for the past decade. 

“There just weren’t many people flipping houses because the market was declining; it was not on an incline. (Now), this is the type of market where you start seeing that kind of activity again because we’re in a buoyant, upwardly mobile trajectory of a market,”He explains.

Semmens sees groups of people working at multiple properties simultaneously. “I see the guys that are like mom-and-pops in a way because they’ve got their whole family working for them, three to five at a time.”He notes. “They’re doing five (properties) at a time, so there’s an economy of scale in terms of getting the trades, and they pick the same stuff (for renovating the homes).”

Government deeming rule for flipped properties

The federal budget of 2022 introduced new legislation. deeming ruleThis will apply to all residential properties, including rental properties, that are flipped after January 1, 2023. The Government of Canada’s website says this is “to ensure that profits from the disposition of flipped property are taxed as business income”You can also find out more about the following: “profits are subject to full income inclusion”. 

It goes on to say that: “The profit from property flipping is fully taxable as business income and does not qualify for the 50 per cent capital gains inclusion rate or the Principal Residence Exemption.”