In April 2020, right in the heart of the first lockdown, we ran a guest piece from Harvey Raybould about whether or not house flipping was still a profitable strategy in 2020, which seemed to strike a chord with many investors who had been asking this self-same thing.
Once upon a time the idea of flipping a property – which involves buying a property at below market value, renovating it and then making a tidy profit by selling it at a higher price, all within a few months – was having its moment in the sun, regularly featuring in newspaper advice columns and episodes of Homes Under the Hammer.
Then the trend seemed to die down a bit as it became harder to flip properties well and the playing field became very crowded.
But now, according to specialist lender Together, property flipping is back on the rise. With property values growing by 13.2% in the 12 months to June 2021 alone, there has been a noticeable increase in property investment as people seek to make money from a typically safe asset like bricks and mortar.
This has involved people purchasing and ‘flipping’ homes to turn a profit and create a new income stream. The government’s stamp duty holiday, which applied to homes worth up to £500,000 until June 30 and £250,000 until yesterday, when the tax exemption finally ended, has also provided opportunities for property investors as it was on offer to all types of buyers.
However, Together has warned that there are complex financing and material supply issues which existing and would-be investors must consider before deciding to flip a property.
Scott Hendry, auction finance director at Together, below shares some tips for others considering getting stuck into the world of property flipping now and in the future.
Location, location, location
Choosing a location that is familiar could be beneficial, as you may possess more knowledge of growth potential of the area. If it is an ‘up and coming’ place, it will all play on the return of your investment.
Stick to your budget to the penny
Overspending can be a slippery slope, so sticking to the agreed budget is crucial. There also may be unexpected issues down the line which may need urgent fixing, which could make the investment simply unaffordable. Recently there’s also been some concern over shortages in construction materials, as prices of concrete, aluminium, steel and timber continues to rise1. Regardless of how much of the property you decide to renovate, it’s important you have a safety net in case these delays lead to surcharges and need for repairs down the line.
Do your research
There are a lot of resources that can help you along the way. For example, the Legal Pack contains documents relating to the property and is prepared by the seller’s conveyancer. Each copy is unique, so despite your experience, reading will facilitate your journey. Small prints are as important, if not more, as these are often the bits with surprises – such as covenants, restrictions and rights of access.
Know your strengths (and weaknesses)
When it comes to the process of buying and renovating a house, knowing your strengths and weaknesses can ensure that everything is completed at an optimum speed without the hefty price tag. A downfall is often, not overspending, but being over optimistic on work that you have time and skill for. This often leads to slowing down projects or even spending more due to mistakes. Ask your family and friends, they may be handier than you think when it comes to DIY tasks.
Flipping the unusual?
At Together, we’ve been providing specialist auction finance for over 16 years. We’ve seen all sorts of properties appear in the catalogue over this time and have an open mind about the circumstances when we’re happy to lend – whether it’s an unusual property, is in a state of disrepair or you’ve got a very tight deadline.
Here’s where a securing a bridging loan against the property for up to 12 months might be useful. This would allow you to complete the work they need to do and exit the short-term loan by selling the property – with investors expecting returns of up to 20% on the most successful renovations.