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Flippers could be Hardest Hit if Mortgage Rules Change

Just this morning we looked at the proposed changes to mortgages in Canada that the OSFI is considering making. The changes dictate that all mortgages in the country, not just those without a full down payment, will be restricted to a 25 year amortization cap. While some think this is going to be a move that benefits subprime lenders, others think that the effect is going to be detrimental to most. And Canadian Real Estate Magazine believes that one of the group to be hardest hit by it will be flippers.

Flipping a property of course requires that a property be bought for cheap, fixed up real nice, and then sold very quickly again – this time, for a much higher profit. But during that time, the flipper is still holding onto the mortgage until they can find a buyer. If amortization periods are restricted to 25 years, instead of 30 years that they are now limited to, that means investors will need to pay more on that mortgage the longer they hold it. And with hundreds, or even possibly thousands, being added due to the shorter length, that leaves them significantly less in their budget to make renovations.

Of course, less money to complete renovations spells a lot of trouble for investors, and it goes deeper than just not having enough cash flow to make the necessary renovations. Because they’d be paying more towards the mortgage for the short time that they own the home, flippers may not be able to make all of the renovations that they want, and that could prevent them from getting the biggest return once the home sales.

Also, because the OSFI rules would have an impact on everybody, it may also mean that there are even fewer buyers on the market than there are today, meaning that the flippers would have to hang onto the home even longer. That means more money towards a mortgage payment, and even less money in the flipper’s pocket.

Of course, it doesn’t mean that the industry of flipping as we know it is completely over. It simply means that, should these proposed changes go through, flippers will need to give extra special consideration to the properties they buy. They’ll need to pay closer attention to their budget than ever before, and they may need to negotiate harder than they ever have before in order to get the best price for a property, and still be able to turn a profit on it.

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