In this guest piece, Jamie Pritchard, head of sales at Glenhawk, asks whether macroeconomic challenges are going to halt the renewed momentum of the flipping market.
Over the last 10 years, the majority of the people who looked to take on flipping a property for profit were experienced investors. Times have changed. More and more amateurs are using property as a tool to boost their net worth and use the profits to support their ultimate future property goals.
While rising house prices have been a massive boon for flippers over the past 18 months, the pandemic has created a new set of challenges, not least a shortage of materials and skilled tradesmen.
House price growth aside, flipping’s appeal has grown for several reasons. Property is a tangible asset that the public understand, prolonged periods of lockdown have given people more time and liquidity to spend on bricks and mortar. At the same time, the security of a second income stream has become more appealing as employment in certain sectors has proved fragile.
‘Flippers’ play an integral role in the housing market as a whole; with the improvements they make boosting an area by showing stock on projects other buyers would not consider.
Whilst remortgaging and personal loans are ways to raise equity, the most popular way to finance a purchase is with a short term loan, typically for light refurbishment projects up to 12 months in length. Reflecting its appeal, over the past couple of months we have seen on average between 12 & 15 enquiries a day from people across England and Scotland seeking finance to flip a property.
Some 19,000 homes were flipped during the pandemic according to Hamptons. With three-quarters of those having sold for more than they were bought for, investors on average made a profit of £48,190.
So what sort of property makes a good flip? Research is increasingly key, as locations become ever more micro. Understanding the demographic of an area is also important, as consumer demands are constantly evolving.
What people want from a home has also been impacted by the pandemic. With 70% of workers recently polled by the BBC revealing they would never return to the office at the same rate as before the pandemic, it is now kitchen, bathrooms and living areas, rather than bedrooms, that offer the best scope to add value to a property.
Recent research by Hamptons International suggests the North West of England and specifically Burnley was the hot spot for flippers, with low buy-in costs and auction properties being marketed as low as £20,000. Typically, we are seeing two or three bedroom houses having the widest appeal in the North West.
Perhaps the biggest challenge for flippers today is the unprecedented supply chain issues, which is contributing to record inflation. According to the British Institute of Kitchen, Bedroom and Bathroom Installation, the lead time for new kitchens and bathrooms have increased by 400%. Cement prices are up 40% year on year. A shortage of skilled workers is also causing wage inflation, with bricklayers charging 33% more than before the pandemic. The situation is unlikely to improve, with over a third of sole traders set to retire during the next decade.
This matters. Whilst many inexperienced flippers overestimate their skill set and ability to refurb the property themselves, the majority realise that using professionals is the way forward. At Glenhawk we urge people to use the ‘70% rule’, whereby all the costs including repair, labour and adviser fees should not be more than 70% of the anticipated value of the home.
With house prices forecast to continue their upward trajectory coupled with changing working habits widening the pool of desirable locations for homeowners, on paper flipping looks set to offer attractive returns for investors. On the other hand, with the end of the stamp duty holiday, supply chain issues, a well-publicised skills shortage, inflation no longer just transitory and the threat of looming interest rates, the outlook is just that little bit muddled.
*Jamie Pritchard is head of sales at Glenhawk