What exactly is property flipping?
Property flipping is a term used to describe the practice of buying a property, usually at a low price, and then selling it soon afterwards for a higher price. This can be done with or without making improvements to the property. Property flipping is often associated with real estate investing and can be a way for investors to make a profit by taking advantage of market trends or specific opportunities.
Property flipping can involve a variety of different types of properties, including residential homes, commercial properties, and even land. Investors may buy a property that is in need of repair or upgrade, make the necessary improvements, and then sell it for a higher price once the work has been completed. Alternatively, they may simply buy a property that is undervalued and then sell it for a profit once the market value has increased.
While property flipping can occasionally result in a good deal for the buyer, it can also lead to rising prices and artificial shortages in the housing market. In some cases, it can even damage the market value of a property and negatively impact the surrounding community. As a result, some governments have implemented rules and regulations around property flipping to ensure that it is done in a fair and transparent manner.
The real estate headlines in Canada have been dramatic in 2022. One minute we're seeing strong sales and limited supply leading to big price gains, and the next we're seeing homes selling at discounts of $200,000. For many homeowners, their home is a significant part of their retirement and overall financial health, so these headlines can be nerve-wracking. On the other hand, there are those struggling to enter the real estate market, with sky-high rental prices making it difficult to save for a down payment.
In response to these fluctuations, the federal government announced anti-flipping measures in their spring budget. These measures will apply to any home or rental residential property held for less than 12 months and sold on or after January 1, 2023. Any profits from these sales will be treated as business income.
Property flipping is a popular practice for real estate investors, involving buying a property at a low price, making improvements (if necessary), and then selling it soon after for a higher price. While flipping can occasionally result in a good deal for the buyer, it often leads to rising prices and artificial shortages in the housing market. In some cases, it can even damage the market value of a property and negatively impact the surrounding community. The new rules are designed to protect consumers and ensure that properties are being flipped in a fair and transparent manner.
These changes are also meant to prevent criminals from using house-flipping as a way to launder money, which has been a growing concern in Canada.
There are exemptions in the works for certain circumstances, such as a death in the family, disability, divorce, the birth of a new child, or a job change. If you need to sell your residence within 12 months due to one of these circumstances, you may be able to avoid taxation.
To minimize the impact on your portfolio, it's best to speak with your accountant. They will be able to explain how the new rules apply to your portfolio and give guidance on the best way to structure your transactions to minimize your tax liability. They will also have insights on any tax breaks or incentives and can advise on the best type of account to hold your funds in.
Overall, these new rules are just one more thing to consider when it comes to investing in real estate. It's always a good idea to do your due diligence and understand the tax implications of your investments. By staying informed and planning ahead, you can make the most of your house flipping ventures.
- The Accountant.