Property trends come and go, with many dependent on the health of the wider market. But there are rumours that an age-old investment strategy is once again in favour, with professionals noting a rise in properties bought in 2020 solely for flipping. Read on to discover how buoyant house prices and the stamp duty holiday have propelled this ‘profit from property’ enterprise back into the spotlight.
What is flipping?
Flipping is the practice of buying a property at a low price and selling it on, usually very quickly, at a higher price. You may hear the activity also referred to as fix-and-flip, buy-to-sell or trading. When flipping, the buyer never has any intention of living in the property, so it’s classed as an investment exercise.
How do people make money when flipping?
There are three strategies that people can pursue when flipping:-
- The most common strategy is buying a property that needs work and usually a dwelling requiring modernisation will be sold at a discount. The buyer seeks to add value by completing the required works, allowing the property to be sold at a higher price once improved.
- Other flippers actively seek ‘problem properties’ where a more administrative course of action – and not manual labour – is needed to improve the home’s value. This could be buying a property that needs its lease extended, purchasing a property with tenants in-situ, or buying where a legal issue (which they know they can resolve) is devaluing the property.
- The third strategy is the most risky and relies on nothing more than rapidly rising house prices. The buyer will purchase a property, sit tight and do nothing to it, and hope its value will naturally climb, before being sold on at a profit.
Is now a good time to flip a property?
Property values in many parts of the UK are rising, which sets a good backdrop for all flippers. Also, flippers are being encouraged back into activity thanks to the stamp duty holiday, with savings of up to £15,000 – even for those whose purchase is considered an additional home. In some cases, the stamp duty saving is enough to create profit in a flipping project but anyone looking to take advantage of this tax freeze must complete on a property purchase by 31st March 2021.
Common mistakes when flipping
The most common mistake is underestimating costs, therefore making a loss and not a profit. Anyone thinking of flipping will need an eye for detail, a sense of speed (as delays cost money) and some serious Excel skills to ensure overspending doesn’t wipe out gains. Consider and budget for the following:-
- Buying costs: any stamp duty, conveyancing, survey and any EPC due
- Financing the purchase: interest on a bridging loan or interest lost if buying with cash, plus broker fees
- Refurbishment works: materials, parts, goods and labour
- Legal & administrative costs: the cost of extending a lease and court activity
- Bills: utility, council tax and insurance bills between purchase and sale
- Tax: to be paid on any profits made from flipping
- Selling costs: estate agent or auction house fees, plus conveyancing costs
- Your time: hours lost to flipping that you could have spent earning elsewhere
The above is a very simplistic take on flipping and we’d be happy to explain the process to you in more detail, especially in respect of your local property market. Please get in touch to start discussions.