"Flipping and refurbishing property can be lucrative investments that may also bring otherwise uninhabitable properties across the country back into the fold"
Property flipping has gained awareness and popularity since the rise in popular television programmes such as George Clarke's Flipping Fast. Many people are becoming more familiar with the idea that they can significantly profit from such projects.
What is flipping a property?
Property flipping typically refers to the purchasing and quick reselling of a property for an additional profit margin. The fundamental purpose is to buy the property at the lowest price possible, refurbish or renovate the property and sell the property at a higher price to make a profit.
This concept is known as 'flipping' and is commonly used mainly by developers to make a quick profit. However, the property flipping process can also be used to enter the buy-to-let market, which results in a short-term loss but generates a long-term income plus a likely increase in the capital asset.
Finbri surveyed over 1,000 investors and found that over 75% of those who had flipped a property recently had made over £10,000 in profit, and over 92% made an overall profit.
Location is critical when it comes to flipping. For example, purchasing a property in an area where prices are decreasing or stagnant could significantly impact the profitability of a project.
Stephen Clark, from Finbri bridging finance, comments: “Knowledge of the location nuances of the property market is key. Successful investors focus on areas in the UK experiencing the fastest price growth to earn the best return on investment.”
Based on the number of houses sold, the average number of home improvement stores per square mile for each location (showing access to nearby renovation resources) and the increase in property value & the likelihood of returning a profit, a 2022 study by Best Heating found that the top 3 locations to flip were in Manchester, Nottingham and Liverpool between 2020-2021.
In Manchester, 20,499 properties were sold, with the average value added through renovation being £19,000 and an average house price increase in the last 5 years of 26%. In Nottingham, 12,187 properties were sold, with the average value added being £18,000 and an average house price increase in the last 5 years of 37%. In Liverpool, 17,115 properties were sold, with the average value added being £20,000 and an average house price increase in the last 5 years of 12%.
How much does an average flip cost?
While renovation costs heavily depend on the property's condition and how much work needs to be completed, developers and investors will have to budget for the refurbishment.
Finbri’s survey discovered that 40.96% of people budgeted between £11K-£25K for renovation work, with 23.98% of people budgeting less than £10k, closely followed by 22.88% of people budgeting £26k-£50k.
The more spent on renovating a property, the higher the sale cost is required to maximise the profit on a flip, so developers and investors need to practise sensible budgeting to succeed.
What types of property are most commonly flipped?
Choosing a property for flipping can be down to several factors, including a budget, the current state of a property and how much it’s likely to cost to renovate.
Finbri’s survey also discovered that apartments/flats in residential blocks (44.86%) were the most common to flip, followed by terraced properties (32.27%) and then semi-detached properties (26.87%).
What is the most common renovation for a property flip?
The vast majority of property flips will need renovations, but the extent will depend on the type of property and its condition.
New kitchens are the most common, with 69.35% of people completing this renovation. An infographic completed in late 2021 showed that a new kitchen could at 5.5% to the value of a property. Bathroom renovations were completed by 62.64% of developers, adding 4-6% to the value of a property. Redecoration was completed by 35.86% of developers and investors, potentially adding 3.1% of value to a property.
Why is property flipping attractive to investors?
Despite growing difficulties for landlords and arguably the Government's attempts to reduce their number in the UK, there are a number of factors that have contributed to the increased popularity of property investment, for some, including:
The potential for high rental returns - Tenant demand has climbed 20% over the last year, while rental home availability has fallen 9% overall. While rental yields are increasing on average by 2.3% annually and 40% of landlords say they anticipate raising rents if interest rates rise further.
The potential for capital appreciation - Long-term trends shows that the value of buy-to-let properties has a tendency to rise faster than inflation, giving investors the chance to benefit from a sale. Property prices are expected to decline by 5% in 2023, and with many homeowners finding it difficult to get a mortgage and the number of foreclosures rising, the rise in the number of properties available on the market will present an excellent opportunity for investors to diversify their real estate holdings. Prices are predicted to rise by 2% in 2024 and 4% in 2026.
Final thoughts
With interest rates expected to reach 4.25% by August 2023, developers and investors have several months to purchase properties and flip before the rates begin to further increase. Investors and developers will have to remain observant of the budget and budget accordingly in order to ensure a healthy profit.
Stephen concludes: "In the current housing crisis facing the UK, there is an ongoing high demand for new homes - be it new ground-up developments or converting existing properties into dwellings. Flipping and refurbishing property can be lucrative investments that may also bring otherwise uninhabitable properties across the country back into the fold.
"Since most high-street banks will not offer to fund acquisition or renovation of dilapidated buildings, bridging loans can be an alternative source of finance for the renovation work and bring more vital housing to the population."
