England and Wales are enjoying a 12-year high in the number of homes that are ‘flipped’. Flipping property is the term used for properties that are bought, renovated and sold within a short period by investors.
It is estimated that one in forty homes has undergone the process this year, with the highest proportion in Burnley, Lancashire, where the figure is around one in twelve. The actual number of ‘flipped’ properties is around 23,000.
Profits, too, have reached record levels, and are at their highest since 2007. Nationally, according to Hamptons International, the average profit from flipping property yields around £41,000, up over £10,000 since last year. With fewer flats on the market, most of the properties have been houses where greater profits are available.
The properties most likely to be flipped are in more affordable areas, such as the north east and north west of England.
Even in these lower value places, profits can be found. In Burnley, for example, 51 properties were purchased to be flipped and profit averaged around 44%, or £20,500. 80% of these properties were purchased for under £40,000, which kept them below the threshold for which 3% stamp duty would be payable.
Funds available to flip a property yourself?
Flipping a property involves more than deep cleaning and slapping on a new coat of paint. To successfully take profit from the sale of the property your purchase needs to be below market price.
There may be a number of reasons for a property being on the market for a low price. Properties may be cheaper if they have been empty for some time, need substantial work or are purchased at auction.
Do your homework and ensure that any outstanding issues related to the property are resolved before you purchase. A legal issue that drives down the price by deterring other buyers may prevent you from reselling.
Who will you sell to?
Your redeveloped property will only sell if you consider the type of person who is likely to buy it. Look at other properties in the street and neighbourhood to see who already lives there.
For instance, family homes are different from those designed for renters, and need to have school and transport links, as well as access to outdoor space. Older buyers might be more likely to opt for a well-appointed flat but may not appreciate everything that is desirable for modern young couples.
Make sure that other houses in the area have been bought by owner occupiers, rather than investors who are unlikely to pay as much.
Add value to the property
Tying up borrowed money in a property can be expensive, but low interest rates can make loans affordable with little investment outlay. You may be able to refinance the property once you have renovated it, or sell it on for a profit.
You could also increase the value of the property by extending the lease if it is leasehold or resolving a legal issue.
When choosing a building project and deciding how to renovate it, remember that you aren’t improving the property for your own use. Make a budget and stick to it, and remember that there are additional costs involved when it comes to selling the property.
If you plan to carry out the work yourself, make sure you have the skills, time and resolve to complete the project to a schedule.
The alternative is to employ contractors to do the work for you, but make sure you take everything into account – get quotations in writing including time limits, standards and costs. You may also need a project manager, if you don’t have the time or skills to manage the project yourself.
‘Stage’ the property
It is widely accepted that properties that have been ‘staged’, or furnished as if lived in, are much more likely to sell fast (and for a better price) than properties that are left empty.
Add furniture to the property and add a few ‘homely touches’ such as house plants or a well laid dining table. Keep your staging uncluttered and subtle – people aren’t judging your house contents when they look for a new home, they want to imagine living there and see that there’s space for a double bed.
There will, of course, be legal fees, estate agent fees and stamp duty but your projected ‘profit’ could soon be wiped out if you don’t consider the additional costs involved in selling property that is not your main home.
You need to allow for the costs of borrowing money and also a survey, particularly if you plan to carry out extensive refurbishment such as knocking down walls, or major electrical or plumbing work. You also will be liable for insurance, utility costs and council tax while you own the property and these costs will be higher the longer you own the property.
Building delays or difficulty in selling could significantly affect the profit you are able to take out of the flip.
Income tax will be payable on the profits of the sale, although you may choose to buy the property through a limited company. In this case, corporation tax could be less expensive than paying income tax, dependent on your circumstances.
Ultimately, making sure you pay the right price in the first place is the most important element of flipping property.