Property flipping may be considered the most desirable form of investment for many. The idea of buying a property to sell on quickly for a massive profit is tempting to say the least. Obviously though, this is an overly simplistic way of looking at it.
There are several variables at play in the flipping world. While potentially being very lucrative where everything is done right, investors will need to be aware of the costs and risks involved. In this blog, we’ll break down everything you need to know about property flipping and where opportunities could be found.
What is flip investment used for?
Flipping in general broadly refers to investing in an asset to sell on (or otherwise utilise) quickly for a profit. Property flipping can be considered the most common form of this, but shares, cryptocurrencies and even cars can be flipped.
Assets bought for flipping are meant to only be held for a short period, but what defines this timeframe will vary. Traders buying shares to get a quick return may only hold them for a few hours, whereas short-term investment in property can be measured in months.
For property, there are two main options for those wondering what flip investment is and where they should start.
Following market trends
Investors may be able to follow appreciating trends in the market to flip a property. Perhaps property in a specific market or location is rising in value particularly quickly and the opportunity could be jumped on.
A few obvious examples could come to mind. In May, demand for London’s “super-prime” market reached a six-year high, according to Knight Frank. A lot of this demand is believed to come from participants desperate to get ahead of rising interest rates. Flippers could take advantage of this.
From a product perspective, environmentally friendly properties could be bought and flipped. Demand for greener homes has never been higher and with looming environmental legislation, the need for speed could be paramount.
Source: Property Reporter
Arguably, the most common method of flipping comes from what may be known as “fix-and-flip” projects. With these, investors take undervalued or unappreciated properties and turn them into desirable assets.
There are multiple ways to achieve this. Houses can be renovated to make them more comfortable to live in. Derelict buildings in desperate need of TLC can be brought back to life. Commercial spaces can be converted into residential homes etc.
Where can properties with flipping potential be found?
While there are many sources for finding properties, auction houses may be a good place to start for investors looking to get into the flipping game. Auctions can provide quick access to underappreciated properties. The speed of auctions can also meld well with the flipping process.
It should be noted those with quick access to cash or short-term capital are more likely to succeed with flipping than those needing long-term mortgages. Auction bridging loans could help with this as funds can be issued in mere days while longer plans are worked out in the background.
In terms of keeping plans profitable and on track, investors will need to factor in a simple equation. A project’s return will be determined by whatever the eventual sale price is, minus the purchase price and other costs. Of course, this is a simplification and when getting down into the details, buyers will need to weigh up various pros and cons.
What is the flip investment benefit?
Generally, where flipping is done well, it can be very profitable. In late 2021, Hamptons estate agents revealed 19,000 properties had been flipped since the start of the pandemic. On average, these investors generated profits of £48,190, with 75% selling their properties for more than they paid.
Locking in a profit may be a relatively achievable goal at the moment given how quickly property prices are rising. The latest data from the ONS shows the average UK house price reached £281,000 in April 2022. This was £31,000 higher than what it was just a year prior.
Some regions across the country are presenting buyers with particularly strong opportunities. Across the Southwest, the average property is taking just 19 days to sell from listing, according to Zoopla. Specifically, Bristol, South Gloucestershire, Plymouth, Swindon and Exeter are the fastest-moving markets. Manchester has also been touted for providing the perfect balance between rising prices and having lots of existing owners selling up.
Source: Metro, Buy Association, ONS, Express
What are the potential flip investment downsides?
As with any investment, profitability is heavily dependant on costs and there are plenty in the flipping world. The average renovation cost for a 3-bed house is £76,900 according to Check a Trade, which also advises people to add 10 -15% onto this for unexpected issues. Investors will also need to factor in taxes and whatever other admin costs emerge.
Many of the risks associated with flipping may come from external factors that cannot be predicted. You can be as prepared as possible, but poorly performing builders or other workmen can ruin any plans put in place.
The rapidity of the property market itself may also be difficult to manage. Houses can be flipped in mere months which, while being sort term by property standards, still leaves plenty of time for tastes to change and things to go wrong.
There are also potential issues in what can’t be predicted. In recent months, second homeowners and landlords have been hit with stricter rules from the Government. As new leadership comes into play, who’s to say property flippers won’t be targeted next?
There’s plenty of scope for success in this market, but investors will just need to keep on top of plenty of moving parts.
Source: Check a trade
MFS are a bridging loan and buy-to-let mortgage provider, not financial advisors. Therefore, Investors are encouraged to seek professional advice.