Flipping Properties

The resurgence of the property market has seen the return of the practice of “flipping” properties. Flipping property is the process of buying a property and selling the property within a short period of time for a profit.

The property market in London has seen the biggest resurgence in property flipping particularly with the expensive new developments and off-plan purchases, where the property investor purchases a flat or house in an upmarket development before it is built and then sells the property on either immediately on completion or during its construction. Huge profits are being made by property investors who are able to invest in the multi-million pound apartments in central London and the like. Many of these property investors are from overseas, Russian oligarchs and Chinese millionaires are examples. There is a trend for the apartments and development to be advertised abroad in for example, China, Malaysia or Hong Kong before they are advertised within the UK with the apartments being snapped up off-plan to either sell on or as buy to lets. By the time the development is completed all the apartments are sold before any UK based buyer is able to view them. The advantage of buying properties off-plan is that the investors only have to find the 10% deposit provided they are able to sell the property before it is complete; and in developments such as the Battersea Power Station (where studio flats £800,000 off-plan and one-bedroom apartments for over £1 million) potential buyers are queueing up.

Flipping does not only apply to the high-end market the property auctions are crammed with optimistic property investors aiming to flip properties for fast returns.

What are the main things to look out for when seeking to flip a property?

Off-plan

  • If looking to purchase off-plan, make sure that the completion date is sufficiently far enough ahead to enable you to sell the property on and not be stuck in the situation whereby you are unable to complete and lose your 10% deposit. An anticipated completion date of 1 to 2 years is desirable.
  • If buying off-plan aim for the higher end developments which are guaranteed to increase in value.
  • Check with the developer that they will allow you to resell the property before completion (some developers are known not to allow this).
  • Stick to the larger well-known developers to avoid being left with a half-built property when the developer goes into liquidation taking your deposit monies with them.

Generally

  • Choose the area in which you are purchasing carefully. Study the trends of house purchases within the area over the previous 2 to 5 years to check whether there is a rising trend; although no guarantee, this will go some way to protecting you from being saddled with a property which has in fact reduced in value
  • Look out for towns where there is heavy investment in infrastructure or by big business-property prices are likely to be rising so you will have to move fast to get “in on the ground floor”.
  • Do not go for towns where house prices have already been rising for some time and where has prices may have peaked (a well-known example of this is London where the general trend of house price rises is slowing down.
  • Aim to buy properties that require a certain amount of modernising/renovating but, importantly, do not have any major structural issues. An unattractive looking house can be snapped up at a lower purchase price than a well-maintained newly painted house. However any renovations/refurbishment that you may need to carry out will eat into both your time and your profit margin.
  • Aim for a minimum of 20% profit. Many property investors aim to purchase below the stamp duty threshold (of £125,000) to increase their profit margin.
  • When the refurbishing a property remember that you are refurbishing it to sell on do not spend more than is necessary; keep the refurbished neutral and any new fittings (such as kitchens and bathrooms) as functional as possible.
  • When refurbishing a property either do as much of the work as you can yourself or employ builders that you know and have a long-term relationship with-you will not have the time to chase after absent builders or haggle over the price of labour.
  • Although most of properties suitable for flipping can be found at auction, simply because they are usually sold at below market value, some property investors do well by leafleting houses within the area they are targeting.
  • Be prepared to either not make a profit at all or to even lose money on some properties.

Can the Resurgence of Flipping Continue?

There are signs that the number of properties being flipped is slowing. It is becoming less easy to purchase properties at a low enough price to make a significant profit this is even the case with property auctions. The tightening of the lending criteria not only makes it more difficult for the property investor to obtain the finance necessary for the flipping operation but it has also made it more difficult for people to purchase property. The fact that mortgage finance is more difficult to come by resulting in fewer potential buyers means that it is taking longer to sell the property.

A successful flipping operation relies on being able to purchase a property at the lowest price possible and to resell in the shortest period possible for the highest purchase price possible. The current trends in the UK property market of a shortage of housing and a dearth of mortgages is not conducive to a successful flipping operation.

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