Property flipping is, in short when you purchase a property below market rate and quickly sell it on for a profit, usually after a programme of refurbishment.
Property flipping is an exciting strategy and success stories make one imagine money raining from the sky. However, it comes with its own challenges and done incorrectly it can suck up time and money and leave you with a world of heartache.
Before we get started it’s worth noting that this article is not intended to give you financial or legal advice. You should check with a qualified professional before making investment decisions.
More often than not trading in property is a long term investment. You purchase a property and wait for the right time to sell when appreciation will give you maximum capital gains. This process can be slow, and in the meantime whilst you’re holding your property, it is sucking up money in terms of maintenance and management. Which means you need to make it work.
So, it becomes a rental property. Which comes with all the hassle and costs of running and maintaining a rental property.
Successfully executed flips can generate tens of thousands of pounds all from the one deal. On top of this, they are fast and the income made from the flip can be applied to the next project to increase the gains again.
Sounds good doesn’t it. You’re probably wondering what the catch is. Flipping as we mentioned can be lucrative and a repeatable strategy that will generate high returns - however it can also be risky and if certain basics aren’t adhered to, or if you’re just unlucky it could end up costing you a great deal of money.
Think about who is going to purchase the house. There’s no point spending money and time on a property that is in a grungy area that no one wants to live in.
Plus, like any business you want to offer a solution to your customers. What is it that they are going to want? Are they a young family? Do they have a dog? Will they want off-road parking or an ensuite? Asking yourself these questions will help you better understand whether the property you’re looking at is in the right place, and what you would have to do to it to make it more valuable.
For example, let’s imagine that you are aiming to flip a 3 bed house - with the intention of attracting first or second time buyers with kids. Amenities and infrastructure are going to be just as important as the house itself on this occasion. Think about the ease of getting to work or schools from the property. The right location will
If you are going to flip a three bed semi-detached house and are aiming to attract first time or second time buyers, then amenities and infrastructure are going to be just as important as the actual property itself.
When it comes to selling, location is key to getting it done quick. A bad neighbourhood or impractical location could see you stuck holding your house for some time.
Certain properties are just more appealing to a wider variety of buyers. For example, a two or three bed house is often more attractive than an apartment in the same area. Investing in the right property will help you move the property fast when it comes to sale time.
Bungalows can often be a good type to flip as you can add genuine value through extensions.
A final note on this topic is that people often want a house that they can just move into that doesn’t require them to do work on. Newly refurbed properties then are very popular.
This is about buying low. To make a good margin on a house flip you want to purchase the property below market value. If you are lucky you will find a good house and the owner will be desperate to sell. This will allow you to negotiate the price down if you are able to act quickly.
A quick word of warning, always do your due diligence when purchasing a property. Sometimes, though not often, when someone is desperate to sell there is something wrong with the building, they will blind you with an exceptional offer and not give you time to properly inspect the property for signs of structural damage or more expensive problems.
Sometimes when a property comes to market after a death, the owner is facing repossession, or the property has been tenanted for some time and the tenants have not looked after the property - in any of these scenarios the owner of the property wants to get rid of the property quickly and will take less than the value of the house.
Competition can be fierce for these properties so don’t get tempted to get into a bidding war as you may just end up overpaying. There could well be someone who is
A) less experienced and doesn’t know they shouldn't be getting into a bidding war on the property
B) Are happy to take a lot less profit than you are (maybe they have a different plan for the property than you)
C) They intend to move in themselves so paying a little extra doesn't matter or
D) They just haven’t done there costing correctly and they’re lining themselves up for a big financial failure.
Profits will be achieved if the property needs updating or refurbishment, you buy low, manage the refurb well, don’t go over-budget and at the end achieve a good, above market sale price.
If you can’t negotiate a good price, refurb to the required standard within budget and achieve the right ROI; walk away. There will always be other properties.
Before committing to a purchase, it is vital that you have done your due diligence on the projected sale price and have been realistic with the price you will achieve.
First you need to have a good understanding of the end sale price. You can estimate this by looking at comparable properties in the area. You can use Rightmove.co.uk sold prices to check the sale price achieved recently by similar properties nearby.
Once you know the end prices you then need to work out the cost of the refurb. Get multiple quotes from any number of contractors. When arranging the refurb you can either use one single contractor or manage the project with individual tradespeople. The latter is often more cost-effective but far more labour intensive.
Next when doing your costings is to work out all the other expenses and include them. Remember to include professional fees, stamp duty, buying and selling costs and utilities into your cost of sales, plus the interest you pay on any finance you require to fund the purchase and works needed.
To increase certainty in your business you will need to be specific with your figures, pleasant with tradespeople and unemotional with your decisions. Only once you know all the costs can you work out how much you can offer for the property to make your required ROI.
Every property and every flip is going to be different. However, the fundamental foundations of the process are much the same.
You might be thinking that - well anyone could do this. And you’d be right. The truth is that anyone can, but most people won’t bother. The trouble comes when they don’t follow the basic rules, get too excited early on or have unrealistic expectations.
If you’re reading this article though, you’re probably on the path to flipping greatness and we wish you every success.
We hope you found this blog interesting! However, do note that it should not be used as a substitute for competent legal and/or other advice from a licensed professional.