Option # 2 – After Closing
In this option, you close the deal, either because the developer of a pre-sale document will not permit assignment of it before closing, because they know what game you are up to, and don’t want to play it; or you can’t find someone who will take over your position and pay you for it; or it was your intention to close the deal. Once you have the deal closed, you then put it back on the market right away, or hold it for several months in an increasing market.
Inherent Risks
The risks in this option include those outlined in the first example. As well, you could end up having to negative debt service your investment, as you don’t want to rent it out and tie up the property. The reason is that you never intended to become a landlord. You want to have it available for purchase by an investor or end-user. In the latter case, if you are buying a brand new home, an end-user might not be interested if has been rented. If you are buying a new home, you will have to pay GST on the purchase price, that you don’t have to do if the home has been “used”, eg an older home or is, or has been rented. Also, if you close the deal and put it back on the market, you could be paying a real estate commission, that could end up eliminating your profit, and could even end up costing you money if the market slows down, interest rates go up, and the prospective buyer pool shrinks.
My next column will cover the joys of litigation involving real estate issues, including the legal perils of playing the flipping game. This will cover understanding the legal process, how to protect yourself in contract wording or otherwise to minimize your risk exposure, how to select a lawyer, and the types of legal costs involved, whether you are being sued, or you are doing the suing.
