Buying and selling property is nothing new in the UK. It’s one of the biggest housing markets in the world and is growing to become one of the most lucrative, too, especially if you’re looking at the lower end of the market where some hidden gems lay waiting to be discovered by the next property mogul and flipped into a profitable abode fit for a family of 5.
Flipping a house as a means of specifically making money rather than providing a place to live is becoming increasingly common. If done correctly, it will make you a lot of money quickly, but as with anything in the property industry, there are a lot of factors to consider.
So What is Property Flipping?
Buying and selling houses for profit isn’t all that flipping entails. We all strive to do it in some way as we go through life, even if it is more passively. Flipping can be described as purchasing a property for a low price and then selling it for a higher price.
This can seem to be very appealing at first, but the reason why not everybody is flipping houses left, right, and centre is because there is a very small market of houses with the ability to make a fast profit. Not only that, but the assets that do exist are in high demand.
There is no time limit to what can be considered ‘flipping,’ but the principle of flipping is naturally focused on the premise that the buying and selling is done quickly, and therefore you make money quickly and move on to the next project.
But we’re not talking about profiting from capital growth or the concept of a business or place-shifting over time. This does happen, and it is possible to make a long-term profit this way, particularly if you are wise and invest in a good place, but it is not flipping.
There are a variety of explanations for why a property might be on the market for a low price. Even if those reasons are addressed, you must determine if the property can gain value as a result. If, for example, a legal dispute is stopping a sale, it can be resolved, and the house can sell easily. When we talk about flipping a house, though, we’re usually talking about how the house can be physically changed to add value through structural, integral, and aesthetic improvements.
The Abilities You’ll Need To Be A Good Property Flipper
You may believe you are knowledgeable enough to handle the real estate market, but flipping houses is a completely different animal that necessitates entirely different skills. You’ll need the following items in particular:
Vision – the ability to spot a property with the potential to rapidly increase in value.
Can you juggle numbers – to make an accurate projection of a property’s future value and whether that value can be realised cost-effectively, taking into account the purchase price and various ongoing costs?
Nerve – will you stick to your strategy even though prices are rising or you’re having trouble selling the house?
Negotiation – Will you come to an agreement on a reasonable purchase or sale price to make the project profitable? This might include learning a new skill, such as bidding on a property at an auction, which is a common way to get a good deal on a home.
Project management – in addition to calculating the different costs, you will need to hire contractors and oversee the property renovations yourself, taking into account time constraints, costs, and quality of work.
What Motivates People To Flip A Property?
Simply put, the motive is typically to make fast money. In that regard, flipping properties is very appealing and can be extremely profitable, as opposed to you being a buy-to-let landlord, where income is more modest yet consistent.
Before you can make a healthy profit, you’ll need to put in a lot of effort and possibly some anxious moments, and a flip can quickly turn into a flop, so the appeal of “easy cash” should not be your sole incentive. If this is your first time investing, you could be better off focusing on smaller, more manageable investments.
The process of flipping a property is certainly something you can get your teeth into; it can be a time-consuming process that involves looking for properties, negotiating a price, working with vendors, doing the work yourself, and then finding a buyer. As previously stated, several different skills are needed, and for some people, the challenge is enough to motivate them.
As a result, flipping a property can be a great way to start a new career, and flipping a property helps you to create a portfolio of properties by quickly releasing cash to encourage you to purchase another property. This could diversify your property portfolio, which is always a good idea, so you could flip a property to get into the buy-to-let market, or you could flip another property if you can find anything suitable.
What Types of Properties Are Good For Flipping?
The concept behind flipping a house is that you not only need to sell it fast, but you also need to sell it for a profit. As a result, choosing a property with a niche appeal, such as a small flat or a trendy loft apartment, is pointless.
You’re looking for a property that has the potential to appeal to a broader market and, as a result, could spark a bidding war. A three- or four-bedroom semi-detached house might appeal to a family relocating to a new area or a young couple upgrading from their first home.
You should also keep in mind that this form of property has the best chance of rapidly increasing in value. In other words, a larger house can quickly deteriorate in condition and thus lose value, but it can also quickly be restored and thus gain value. A smaller property’s price swing would not be as drastic or lucrative, but it may appeal to a more risk-averse or novice ‘flipper.’
When it comes to flipping homes, research is crucial. As with every property purchase, evaluating a suitable property necessitates a thorough understanding of the neighbourhood and the property’s desirability.
So, what is the location’s main draw? What are the schools like, and how are the transportation options? What are the local shops like? Is there room for zoning problems to lower the house’s value? Are there any upcoming developments that could increase the house’s value?
When buying a home, you must weigh all of these factors, but when flipping a home, you may want the situation to be relatively stable because you are looking to turn the house around in two or three months.
This way, you’ll realise that merely refurbishing the property would increase its value, and you’ll be able to make more confident financial predictions.
True, houses in bad condition but in a decent location are hard to come by, and as a result, you’ll be competing with other aspiring flippers who have the same goals as you. As a result, it’s crucial to hold your ear to the ground.
Other situations may emerge if you talk with locals. For example, there may be some explanation of why someone needs to sell a property quickly, and they may be enticed by a low-ball bid. There could have been a death in the family, and the family wishes to sell the property in order to free up estate assets and cash. Alternatively, you could discover that a property has no chain or that a recent transaction has fallen through, allowing you to jump in and make a lower bid to expedite the process.
If you want to do any of the renovation work yourself, you’ll need to choose a spot that’s close to your home; otherwise, the time and money you spend travelling would be wasted.
But, in essence, you’re looking for a property that strikes a reasonable balance between the purchase price, the cost of renovations, and the sale price. This may seem self-evident, but it is a relatively straightforward equation to remember, even though a lot can change in the interim, and your forecasts must be precise and practical. This takes us conveniently to the subject of finance.
How Do You Benefit From Property Flipping?
Simply put, if you purchase a house for £150,000, spend £20,000 renovating it, and then sell it for £200,000, you have made a £30,000 profit. This may sound idealistic, but it IS possible to accomplish in two or three months if everything goes according to plan. However, there are a lot of costs and fees to consider, as well as a lot of factors that may or may not work in your favour.
All of this makes it very difficult to make realistic forecasts in order to determine a project’s viability. Can you identify a property where the amount of work that needs to be done will increase the value enough to make it worthwhile to take on? Of course, with practice, this becomes simpler, and you may find that a calculated £20,000 benefit ends up being closer to £5,000 in the first instance. That isn’t the end of the world for a couple of months’ worth of work. The issues arise when your mistakes, or a run of poor luck with contractors or in the real estate market, cause your project to fail.
You need a keen eye for what a property Might sell for in a given place, so it’s no good buying a bargain three-bed semi for £100,000 if £20,000 spent doing it up won’t boost its value any more than the same £20,000 spent elsewhere. Some places will still be the same. This is generally due to the location’s attractiveness, which explains why properties that are truly ripe for flipping are so scarce.
When Deciding How Lucrative Your Opportunity Is, Consider All Costs
You must be completely conscious of all expenses when estimating your future earnings. Even if expenses have already taken account of refurbishments, a £20,000 benefit in simple buying and selling rates may be easily wiped out by costs. The following are examples of ‘other’ costs:
- Legal Costs
- Estate Agents Costs
- Broker Costs
- Stamp duty (after the stamp duty holiday has ended)
- Survey costs
- Holding costs
- Property Tax
A more seasoned property developer could be able to manage the financing of a house flip with cash and a bridging loan. Since conventional mortgages are only available for long-term transactions, which can take a long time to arrange, bridging, loans are perfect for flipping.
These have higher interest rates than a typical mortgage, but there are variables to consider, and as a short-term loan, this isn’t necessarily a deterrent. Typically, you will borrow a portion of the money (around 65-75 percent) and pay cash for the remainder of the property purchase.
How to increase the value of a home before selling it?
Of course, all of this must be considered before you purchase the house, but you must first conduct a feasibility study to determine if you have the necessary expertise, connections, and experience to maximise the property’s value. This can be done by looking at the value of similar properties in the region on Rightmove or Zoopla.
So, what is the property in need of? It might be necessary to improve the garden landscaping, the driveway, or the garden decking. Fascias and soffits can also greatly increase a property’s exterior visual appeal. Within, the property may need rewiring or re-plumbing; you may need to instal a new kitchen or bathroom; you may need to knock some walls down to improve the flow of the house, or you may need to add some walls to create an extra room. You might instal a conservatory or convert the loft or basement.
The bottom line is that a little painting and decorating would almost certainly not be enough to raise the value. This is the sort of work that most people intend to do when they purchase a home. So you’ve agreed to make major changes to the house’s configuration and appearance in order to modernise it and add functionality, essentially bringing it up to current market value. Unfortunately, this isn’t inexpensive, and you’re unlikely to be able to do it yourself.
Keeping a close eye on the property and being heavily involved is an important part of the process of developing it. If you aren’t physically assisting, you should be on-site at all times tracking progress, coping with delays and decisions, and determining where costs could be rising or falling. Even if you have hired a contractor to manage all of the various disciplines, you must live and breathe the project as it is being renovated since this is the critical time where expenses will escalate out of control and your future profit vanishes.
What are the advantages and disadvantages of flipping a house?
Any property transaction entails some level of risk, but flipping a property is especially risky. Flipping is risky by definition because you’re attempting to leverage a healthy profit quickly, and the financial and time considerations are difficult to balance because so much is out of your control.
And if you complete a good flip, the process is not always repeatable because the economy shifts, the cash flow fluctuates, and each property is unique. As a result, establishing a winning formula is difficult, though experience certainly helps.
The biggest danger is making financial predictions because it’s pointless to take a chance on a property without thoroughly analysing all possible outcomes. You can face construction delays, tax issues, or trouble selling the house, all of which result in higher holding costs and the possibility of lowering your selling price.
If you are unable to sell the house, you will be left with a mortgage on your current home as well as a second financial burden with this new property. This may financially bankrupt you or, in the best-case scenario, have a significant effect on your future plans as well as your health.
On the other hand, preparing a property to sell quickly can be a lot of fun, and if done correctly, can result in substantial income. This will help you build and diversify your property portfolio, as well as meet any other short-term financial needs you might have. Flipping a house gives you valuable experience and puts your intuition and ability to make decisions to the test.
Property flipping can be profitable, but it’s also High Risk.
Flipping a house can appear to be a simple equation and a simple exercise on paper, but this is only true on paper. In fact, there’s a lot to think about and a lot of variables that can make or break a project, sometimes before you’ve even purchased a home to sell.
The purchase price is inevitably the one thing you can’t afford to get wrong, as it won’t adjust over the course of the project, while the costs and selling price are still under your direct control.
Flipping a property for profit is more the domain of the seasoned property developer, who is aware of the numerous risks, has access to cash reserves on short notice, has a network of connections, and is best positioned to take a chance.
If you’re completely unfamiliar with the idea of property development, be sure to read our guide on how to get started.
It may be tempting to jump in and make money quickly, but for a newcomer to the property market, a risk-free investment like crowdfunding through UOWN would be a more realistic introduction, as it would enable you to develop funds to diversify and take a more ambitious plunge in the property market later.
We hope you found this post useful. We write a lot about the property industry, the housing market, alternative living, renewable energy, eco-houses and moreover in our blog section.
You’ll also find a great deal of useful information over on our property help forum, which is a community of people interested in everything property – just like most of our online readers. If you ever have any questions relating to paying tax on flipping houses or flipping houses in general, then head over there, post up a question or search to see if similar discussions already exist.