Property flipping is the practice of buying, renovating, and reselling a property for profit. A pretty straightforward method that has become increasingly popular in the UK. With the ‘potential’ for significant returns, it can be an attractive idea. However, success with flipping requires careful planning, research, and execution or you could end up with a VERY costly mistake!
*Disclaimer – This material has been provided for informational purposes only and is not intended to provide legal advice. It is just a guide to help take you through the basics to get started, but there is nothing like doing your own research to cover yourself for any pitfalls. You should consult your own advisors before pursuing anything suggested.
So, What is ‘Property Flipping’?
Property flipping involves purchasing a property, often below market value because of the work required to bring it up to standard. You then improve it through renovations and/or refurbishments and selling it on at a higher price.
The goal being to generate a profit by adding value to the property in a relatively short period.
What are the Pros and Cons of Property Flipping?
Pros:
- There is a potential for high returns on investment.
- The opportunity to learn valuable skills in property and project management.
- The flexibility to work on projects at your own pace (although this could also be a con if you go too slowly as the need for regulated speed is important when flipping due to costs involved).
Cons:
- The big one – Financial risk, especially if the property doesn’t sell quickly.
- Costs for financing the project can run high (especially if using bridging).
- Unpredictable renovation costs and timelines.
- Legal and regulatory hurdles to navigate.
5 Key Steps to Property Flipping
I would say step 1 and 2 are the most important and researching can take ages, especially finding the right area, knowing the market for that area, etc., so make sure you do your due diligence before jumping in.
- Research Your Market
- Study property prices and trends in different areas.
- Identify locations with growth potential, such as areas undergoing regeneration or with new infrastructure projects.
- Understand the target buyer’s needs (e.g., families, young professionals).
- Set a Budget
- Include purchase price, renovation costs, legal fees, running cost fees and a contingency fund.
- Be realistic about your expected profit margins – making it look good on paper won’t give you a good outcome – don’t lie to yourself!
- Factor in taxes such as Stamp Duty and Capital Gains Tax (again, research what you need to pay, speak to an advisor about this).
- Find the Right Property
- Look for properties below market value or those needing improvement that you can make a profit on. Often properties are sold at near market value even though they need a lot of work, so knowing your area and the final values is paramount.
- Consider auctions, repossessions, or off-market deals but beware of added costs at auctions – I’ll cover this another time.
- Conduct a thorough inspection to identify potential issues. It’s a great idea to video yourself going around the rooms, get all the areas in and take notes, then you have something to refer back to.
- Plan the Renovation
- It’s always best to focus on high-impact areas like kitchens, bathrooms, and curb appeal, but that doesn’t mean you can scrimp on the other areas, just make these stand out.
- Stick to a budget-friendly yet quality design – can’t emphasis this enough. It needs to look good, but people being people will always make it their own and probably change loads you’ve done, so the old adage KISS – Keep It Simple, Stupid – is something to live by. Don’t make it personal, make it sellable.
- Hire reputable contractors and establish clear timelines – don’t just go with someone who knows someone who had some work done – reserch them, check their previous work and get a full quoted price (all bar unseen issues like damp, etc.), not an estimate as that will 100% grow.
- Sell the Property
- Stage the property to attract buyers. Staging alone can get you a sale if it’s done properly, so if you can, hire someone to do this for you, it pays dividends
- Price it competitively based on market analysis. This is where your research comes in, know the price before the agent gives it to you, don’t overvalue, know your minimum and sell it at a competitive price.
- Work with experienced estate agents to market the property effectively. Good photos and someone who actually markets your property is key. If you build your relationships with them, they will definitely work hard for you.
Common Pitfalls to Avoid
- Overestimating Profit: Always account for unforeseen costs and delays and make sure you know your final price, don’t oversell.
- Neglecting Due Diligence: I’ll say it again and again, research, research, research – know your local regulations, building controls and property conditions before you even take a property on.
- Underestimating Renovation Challenges: Be prepared for unexpected issues like structural damage or planning permissions.
- Ignoring the Market: Understand the demand and price range for similar properties in the area.
Final Tips for Beginners
- Start small: Choose a modest project for your first flip to minimise your risk.
- Build a reliable team: This is key, especially if you’re looking to do more. Collaborate with trustworthy contractors, estate agents and legal advisors as a minimum.
- Stay informed: Always keep up with market trends and changes in property regulations as it will kick you in the butt if you don’t (Liz Truss and what she did springs to mind!).
- Have an exit strategy: Plan for the best, but always have alternative options as a Plan B and C. If your property doesn’t sell, what will you do? Have the knowledge to know if you could, for instance, rent out the property or refinance it, especially important if it doesn’t sell quickly and you have bridging costs to consider.
Flipping properties can be a rewarding venture when approached with diligence and care. Hopefully this has helped you in some way and by following these steps to avoid common mistakes, you’ll be well on your way to mastering the art of property flipping.
Speak to us about how we can help you
If you feel that selling your property via an Assisted Sale would work for you, Hummingbird Developers would love to assist, so why not contact us today to see how!
