Quick Flips Flounder

The Other Shoe Drops

A minor change in the housing market trajectory is bound to happen from time to time, and a major change will occur with less frequency but is still going to happen if you just wait long enough.

Those major shifts are destabilizing for everyone, but if your plan can’t withstand some minor downturn then you need a new plan. If your property taxes increase from $10K to $12K annually, for example, and this is going to ruin you financially, then you couldn’t afford your home in the first place. If mortgage rates go up a point or three and that’s going to put you on the ropes, reconsider that purchase.

But another kind of shortsightedness has been more prevalent in Vancouver since prices started spiking a few years back. People started to ask their agents, with alarming frequency and conviction, “what can I buy today and sell at a profit in 6 months?”

No matter how many times this question was put to me, I always choked on my coffee a little bit. The conversation went something like this, with minor variations:

Me: “What are you hoping to accomplish?”

They: “I just want to pay a developer the down payment and then sell before completion, ideally within the first year.”

Me: “Ummm… What if values don’t go up this year the way they did last year? Do you have a plan B?”

They: “No, you always make money off of presales, so I’ll be fine.”

Anyway, the conversation would go on like that for awhile, but you get the idea. And the thing was, people have been making money assigning their contracts the last few years, but mainly because of what the market has been doing. The gains were rarely about having made a wise investment in a particular project or some magical quality of presales.

And now the market is flat-lining and a lack of a plan B is really going to hurt some folks.

The weird part is, I AM STILL GETTING THESE SAME QUESTIONS. And the developers seem to be the only people not responding to recent market changes (yet).

I love the people I work with and I want the best for them. I want these relationships to last a lifetime, so I’m not as excited as you might expect when someone tells me they want to buy something. It really depends on the situation. I certainly don’t want anybody getting stuck in a situation where they can’t complete. And no, the Realtor won’t get paid by a developer in those situations.

If you’re still tempted to go the presale route, please please please:

(1) Survey prices for comparables in the area that are recent builds. Remember buyers of the existing units are not paying GST.

(2) Negotiate with the developers. They should be showing more flexibility now as they worry about a backlog of units. Things may pick up in 2019, but that remains to be seen, and they should be hedging by trying to sell a steady number of units even through tough times. Nobody wants a white elephant.

(3) Pay attention to the project details. This matters now. You could sell any piece of crap at a profit last year. When buyers can choose, they’ll choose better product.

(4) Have a plan B. Maybe make plan B your plan A. Believe that you will need financing and believe that you will be renting this unit out if your intention isn’t to live there. Get the rental data and lock in a mortgage rate today (some lenders will do this). And if the market starts shooting up 20% per year again, then by all means, let’s assign your unit.