Real Estate Feature: Are Property Flips a Trend?

Retrouvez la chronique sur Soundcloud.comOn this week’s real estate feature on Les Oranges Pressées on CIBL, director of Via Capitale du Mont-Royal Nathalie Clément will be speaking to us about the recent wave of real estate flips in the United States and Canada. Our guest will also explain to us the difference between a prior notice and a home surrender.

For more information, read this article in La Presse:
Are Real Estate Flips Lucrative?

Read the transcript here:

Real Estate Feature: Are Property Flips a Trend?

Julien: It’s almost 8:08. We turn to Nathalie Clément, director of Via Capitale du Mont-Royal. Hello, Nathalie.

Nathalie: Hello.

Julien: Today you’ll be talking to us about property flips and flipping.

Nathalie: Yes. So these last two weeks I noticed an event on my Facebook feed called “Flipping Montreal.” The people behind the event have a television show in the United States, and they tour large American cities, or in this case Montreal, to explain how they do real estate flips. What is a flip? A flip constitutes of buying a property, renovating it, and then reselling it for profit within a year. That’s considered a flip. It’s a phenomenon that began in the United States and has been capturing many people’s imagination. There are plenty of television shows about it. We can start with my children who were watching the television show Méchant Changements… First it was changing up bedrooms, and then obviously it became flipping a house, and then that house, and all kinds of things of that nature.

Julien: For next to nothing. Not many resources.

Nathalie: Exactly. So you know it’s always going to be entertaining. There’s plenty of interest from people because it’s in our nature to be curious. Before and after photos of the houses— that catches our attention because it looks like an easy way to make money, but this is not the case. This is not the case, and I would like to set the context: why did this phenomenon start in the United States and why did it take on such magnitude? I’ll remind you that starting from 2007–2008–2009, there was the subprime mortgage crisis in the United States.

Julien: Yes.

Nathalie: Don’t forget that 6 million Americans lost their homes, which were then reclaimed by the banks. This is huge.

Julien: It’s almost equal to Quebec’s population.

Nathalie: Listen, this is incredible. I get shivers when I remember that. For me, this statistic is moving, important, and should not happen. In short, this gave way to a great deal of unoccupied homes which then became available for resell. Things settled down slowly and quietly, and then people who had renovation expertise started buying up properties. It was contractors—or people familiar with this type of work who had a workforce on hand—who renovated these properties and sold them for profit. And they followed all the television shows dealing with property flips and flipping. Even in Quebec, people speak of flips.

Julien: It really has become a very significant trend.

Nathalie: Yes, it’s a trend, except that the economic situation is not the same in Quebec. So, when I watch these shows…in the United States, there are clues, journalists, and people who follow these flips. There are statistics about them. For example, I recently came across an article titled

“What are the Ten Best American Cities to Make a Return on Your Investment Through a Real Estate Flip?” It requires factors such as a lower-than-average unemployment rate. It takes, for example, cities where there are students. A university with over 20,000 students for example—and I’m not talking about New York, Chicago, or any big city of that sort—but a city which is suited to large populations, where students work in the university, will land good jobs, and will buy properties. And then there’s the turnover rate…

Julien: A booming market.

Nathalie: Yes, a booming market. It also takes a certain foreclosure rate. Now this is not what we have in Quebec. There were articles that circulated last year about the rise of prior notices and repossessions. I just want to explain the difference between the two. To give an example, a prior notice occurs when you don’t pay your mortgage to the bank, and the bank notes a prior notice stating that if you are still in default after 60 days, they will own your house or go to the courts to force a sale under judiciary control. This is a prior notice. Otherwise, there is home surrender, which is when a bank takes back the property. Annually in Quebec, there are less than 9,000 prior notices, and at least 2,000 houses in surrender. There were articles going around lately that claimed a rise of prior notices and home surrenders in 2014. However, statistics are always compared to the previous year, and 2013 was an extremely low year. So do people think there are more prior notices and opportunities in Montreal’s market?

Julien: It can give that impression, but this is not entirely the case.

Nathalie: It might give this impression, but I don’t really think it will be the case. Besides, JLR Solutions publishes monthly statistics on the subject, and according to their January 2015 findings, there was a 17% decrease of prior notices. We’re actually moving more toward the opposite trend. Taking into consideration all the factors needed to carry out a flip, I’m not convinced that Montreal is a place where real estate flips will be carried out with such ease.

Julien: I think we need to step away from this formula, which, as you were saying, is often promoted through television, and falsely presents real estate flips as an equation concerned only with property costs. We invested $50,000–$60,000 dollars in renovations, and in the end, we resold the property for x amount. One and one make two; we made an incredible profit. It’s a lot more complicated than that.

Nathalie: It’s way more complicated than that, and it’s not really aimed at everyday people. You need a strong financial backing. You must be able to take on a home, which will be empty for months, while also obtaining a mortgage. Making payments, paying contractors, and also properly calculating the final sale price of the property. We know that Montreal is currently a buyers’ market, so we are not experiencing price increases. Extremely minimal increases, which means…

Julien: The margin is reduced.

Nathalie: The margin is reduced. So I tell people: be careful.

Julien: Be careful. Thank you for all the precautions that you carefully detailed for us this morning, Nathalie Clément, director of Via Capitale du Mont-Royal. Thank you for being with us.

Nathalie: It’s my pleasure.

Julien: See you soon.

Nathalie: Goodbye.