‘Flipping’ property is a form of property investment many investors and developers employ across the UK, with the process of buying and quickly reselling a property for profit, gaining momentum in recent years. But what do investors and developers need to look for when choosing a property to flip?
Property flipping has gained awareness and popularity since the rise in popular television programmes such as George Clarke’s Flipping Fast. Many people are becoming more familiar with the idea that they can significantly profit from such projects.
As Stephen Clark from Finbri bridging finance comments, “In the current housing crisis facing the UK, there is an ongoing high demand for new homes – be it new ground-up developments or converting existing properties into dwellings. Flipping and refurbishing property can be lucrative investments that may also bring otherwise uninhabitable properties across the country back into the fold. Since most high-street banks will not offer to fund acquisition or renovation of dilapidated buildings, bridging loans can be an alternative source of finance for the renovation work and bring more vital housing to the population.”
According to recent research completed by bridgingmarket.org, a surprising 63.04% of people think that now is a good time to invest in properties suitable for flipping despite the increase in interest rates, historic inflation and a cost of living crisis. It’s estimated that 19,000 houses were flipped between March 2020 and late 2021, with an average profit of £48,190, making flipping worthy of consideration to property investors and developers.
What is flipping a property?
Flipping is the common property investment technique of purchasing a property for the specific purpose of selling it for a profit. Often, the purchaser focuses on adding value through renovation, as a property requiring remedial work, modifications and modernisation can be obtained below market value.
Where are the best locations for flipping property?
Location is critical when it comes to flipping. For example, purchasing a property in an area where prices are decreasing or stagnant could significantly impact the profitability of a project.
Clark continues to say, “Knowledge of the location nuances of the property market is key. Successful investors focus on areas in the UK experiencing the fastest price growth to earn the best return on investment.”
Based on the number of houses sold, the average number of home improvement stores per square mile for each location (showing access to nearby renovation resources) and the increase in property value & the likelihood of returning a profit, a 2022 study by Best Heating found that the top 3 locations to flip were in Manchester, Nottingham and Liverpool between 2020-2021.
In Manchester, 20,499 properties were sold, with the average value added through renovation being £19,000 and an average house price increase in the last 5 years of 26%.
In Nottingham, 12,187 properties were sold, with the average value added being £18,000 and an average house price increase in the last 5 years of 37%.
In Liverpool, 17,115 properties were sold, with the average value added being £20,000 and an average house price increase in the last 5 years of 12%.
The five cheapest places to flip a property
Although populated areas such as Manchester and Liverpool have seen the highest value-added after a flip, some locations have lower renovation costs, making them potentially exciting investment opportunities.
A recent study completed by CIA Landlord Insurance looked at 28 of the most populated cities in the UK and discovered five of the cheapest places to flip a property due to the average daily cost of renovation work:
Leicester: The average daily cost for property renovations was £1,723.
Coventry: The average daily cost for property renovations was £1,817.
Wolverhampton: The average daily cost for property renovations was £1,845.
Birmingham: The average daily cost for property renovations was £1,855.
Cardiff – The average daily cost for property renovations was £1,865.
How much does an average flip cost?
While renovation costs heavily depend on the property’s condition and how much work needs to be completed, developers and investors will have to budget for the refurbishment.
Bridging Market’s survey discovered that 40.96% of people budgeted between £11K-£25K for renovation work, with 23.98% of people budgeting less than £10k, closely followed by 22.88% of people budgeting £26k-£50k.
The more spent on renovating a property, the higher the sale cost is required to maximise the profit on a flip, so developers and investors need to practise sensible budgeting to succeed.
What types of property are most commonly flipped?
Choosing a property for flipping can be down to several factors, including a budget, the current state of a property and how much it’s likely to cost to renovate.
The Bridging Market survey also discovered that apartments/flats in residential blocks (44.86%) were the most common to flip, followed by terraced properties (32.27%) and then semi-detached properties (26.87%).
What is the most common renovation for a property flip?
The vast majority of property flips will need renovations, but the extent will depend on the type of property and its condition.
New kitchens are the most common, with 69.35% of people completing this renovation. An infographic completed in late 2021 showed that a new kitchen could at 5.5% to the value of a property.
Bathroom renovations were completed by 62.64% of developers, adding 4-6% to the value of a property.
Redecoration was completed by 35.86% of developers and investors, potentially adding 3.1% of value to a property.
What are the pros and cons of flipping a property?
As with any property investment, flipping property has advantages and disadvantages.
The potential for profit. Flipping property can be a lucrative way to profit if completed correctly.
It could be a one-time project or a business for developers or investors.
If the housing market falls after you purchase a property, it will be more difficult to sell for your goal price.
Possible supply chain issues with any refurbishment work resulting in delays and additional costs.
The legal and administrative fees of purchasing and selling a home and any capital gains tax will eat into your profits, so consideration of these should be budgeted.
With interest rates expected to reach 4.25% by August 2023, developers and investors have several months to purchase properties and flip before the rates begin to further increase.
Investors and developers will have to remain observant of the budget and budget accordingly in order to ensure a healthy profit.
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