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Market Financial Solutions (MFS) are a bridging loan and buy-to-let mortgage provider, not financial advisors. Therefore, Investors are encouraged to seek professional advice. The information in this content is correct at time of writing.
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 flip investments 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 property 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. Demand has risen for smaller homes recently, pushing prices up in the process. Much of this demand is believed to come from buyers who are being squeezed by rising costs, and so must review what they can realistically afford. Flippers could take advantage of this.
From a product perspective, environmentally friendly properties could be bought and flipped. Demand for greener homes continues to grow and with the threat of new environmental legislation looming, the need for speed could be paramount.
Source: Today’s Conveyancer, LandlordZone
Fix-and-flip investments
Arguably, the most common method of flipping comes from what may be known as “fix-and-flip” investments. 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. Read more here on bridging loans to flip a property.
Where can potential property flip investments 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 property 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.
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. Even in the current market, it’s still possible to generate healthy returns in a matter of a few short weeks.
Locking in a profit may be a relatively achievable goal at the moment given how quickly property prices are rising. The latest data from Halifax revealed house prices rose for the sixth consecutive month in May 2024. The average price hit £288,688, up 1.5% annually.
Some regions across the country are presenting buyers with particularly strong opportunities. Across the northern parts of England, properties sell particularly quickly, according to Zoopla. Specifically, Liverpool, Manchester, and Salford offer the fastest-moving markets.
Source: Zoopla, The Sun, Homebuilding & Renovating
What are the potential downsides?
As with any investment, profitability is heavily dependent on costs and there are plenty in the flipping world. The average renovation cost for a 3-bed house sits between £43,530 and £110,350 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
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