How To Flip A Property
Flipping houses in the UK has become a fairly popular method of property investment. In a recent survey by the finance brokerage firm FinBri, nearly 75% of investors who had flipped a property made more than £10,000 in profits. Those who didn’t make that much, though, weren’t excluded from some profits, as 92% of the investors in the study had made some overall profit on the deal. If you’re considering a property flip soon, how do you even begin, though? What steps should you take to ensure your venture is a successful one? Is property flipping worth your time? Are there flipped law guidelines of which you should be aware? This guide can help you sort through all of your questions.
Understanding the Practice of Flipping Houses
To understand how to begin flipping properties, it may help to learn more about the terminology involved, particularly the meaning of flipping. What is flipping houses, exactly? The idea of flipping a property just refers to buying and quickly reselling a property at a higher price. The real goal here is to buy the property at the lowest possible price, then do some quick renovations, and sell it at a much higher price so you can make a profit. Your potential profits here are calculated just as they are in any other investment. To find the gross profit, you subtract the purchase price you paid for the property initially and any costs you had involved with the repairs of the property. There are taxes involved. Many people set up a limited company and work through that business as they flip properties. In those situations, you pay corporation taxes. If you chose not to go that route, though, you pay individual taxes on each profit you make. Fortunately, however, you won’t pay one key tax. If you are flipping houses, you avoid the capital gains tax UK investors typically have to pay because HMRC doesn’t consider property flipping a kind of investment.
Flipping Property In The UK – How it Works
If you’re convinced this is a venture you’d like to try, where do you begin? It all starts with research. Because your profits in a house flip rely on what you end up spending, it’s best to know as much as possible about the location of some homes you’re considering and how much homes typically sell for in that area. The basic tenant of house flipping is to make more than you sell, and that can only be done in areas where homes often go for a good price. If you purchase a home in an area whether the prices haven’t moved in months or they’re going down, you’re going to lose money. The most successful investors who flip houses focus on areas where price growth is happening, as those are the spaces where you’ll see the biggest return on investment. In 2022, one study found that the top three locations in the UK were Manchester, Nottingham, and Liverpool, but there are locations likely even closer to you that offers the potential of flipping a house successfully.
To ensure you’re finding those areas where the numbers might align to produce a fairly high-profit level, you’ll want to keep an eye on sites like Rightmove. You may also want to connect with local estate agents as part of your property team. More than anything, work to identify areas that might prove profitable for you. If you find spaces with good transport links, good schools, and great green spaces, you’re likely to almost always find a winner. The other factor to keep in mind is any potential planning issues that may affect the value of the property.
Once you find the right property, you’ll need to get your financing in place. Naturally, cash is the best way to invest in a property-flipping venture. Keep in mind, however, that your cash will be tied into the property until you can sell it, so think about whether you may need that liquid asset before you can complete the sale of the property. If you’re wondering how to flip houses with no money in the UK, the next best option is to take out a loan.
While many believe buy-to-let mortgages are a good option, the reality is that they are only created for those who want to let the property, not flip it to make a bit of money. Instead, if you’re looking for financing on a property, you may want to use a tool like a bridging loan. These are essentially short-term mortgages. They were created to help you pay for the property initially, and then make a bit of money on it when you sell it later. It’s important to understand that they can be a bit pricier than a traditional loan, so expect a higher-than-average interest rate. You’ll also see some extensive fees with this type of loan option. Finally, know that these are secured borrowing tools, so you have to put some kind of an asset up against them (like property). Most bridging loans are only available for about 75% of the loan-to-value ratio.
When you take out a bridging loan, you’ll choose from a closed loan – one which has a fixed repayment date – and an open loan, one that must be paid off over the course of a year. To obtain either, you’ll need to show that you will have a way to repay it fairly quickly.
The best way to obtain a bridging loan is to work with a broker who specialises in these kinds of loans. They can look at your specific situation and match you with a lender who can help.
Once you’ve purchased the property, it’s time to begin creating your improvement strategy. You need to start with an understanding of exactly who your target audience might be for the property once you’ve finished it. Your best bet is to look back at the research you did before you bought the property to better understand who might be attracted to it. For example, if the property is near good schools, you may want to target your efforts around property features that would appeal to families like a back garden where children can play or plenty of bedroom space.
The next step is to develop a budget for the project. It’s tempting to go as low as possible, but remember that the goal is to sell the home for as much as possible, and if the fixtures and fittings look cheap or the construction work looks shoddy, you’re going to reduce your ability to list at a higher price. Spend too much on the renovation work, however, and you find yourself in the same boat – with a greatly reduced profit. It may help to consult a few other people who have had several successful flips in the past at this stage until you better understand the market.
Once you know what needs to be done to the home to make it an attractive purchase and exactly what it’s going to cost you, the next step is to decide what you can handle on your own. Be aware of your limitations. There may be features you’re good at handling, and you’ll want to tackle those on your own to save money. There may also be some features that will require specialist help like the electrics or the plumbing. In those situations, you’ll want to bring in experienced tradespeople to make the most of your investment.
You’ll also want to consider project management at this stage of the game. You don’t have to oversee the entire project on your own, choosing contractors at each turn. Instead, you can hire a single contractor to oversee the entire operation. It may be more expensive, but if you’re not sure you have a lot of time to devote to your investment, it may be the most realistic option for your situation.
Finally, decide on the schedule for the venture. Remember that the goal is to pay the bridging loan back as soon as possible, so be clear about the timeline with your contractors. Even if you work with a project manager, keep a close eye on things so small problems don’t become serious timeline issues at a later date.
The final step in the process is to sell after you make your flip.
A Note About Building Your Team
You’ll need many people on your side as you work to flip the home you’ve purchased. You’ll need to work with an estate agent or an auction house to initially purchase the property. You’ll probably need to work with a lender or a broker to finance the purchase of the property. You’re likely to need at least a contractor or two along the way (if not an entire team to help you handle the toughest parts of the job). You’ll need some help selling the property too. Even if you don’t use an estate agent, you’ll certainly need the help of a conveyancing solicitor to close the sale.
It may be useful to begin building your team well before you ever actually make your first flip. Knowing whom to turn to the moment you find the right property to meet your needs can be incredibly useful, as it can speed up your timeline from the initial purchase through the end of the sale.
You can typically begin to build your team for flipping a house by networking with others who flip properties at various investor events and through online forums. As you do this, vet each professional carefully. You’ll want to know exactly who you’re working with so you don’t get scammed by a contractor who doesn’t know what they’re doing or an estate agent who just can’t move the property.
How To Make the Sale After You Flip a House
After you’ve finished the difficult work of renovating or property flipping in the UK, the next step in the process is to sell the home, so you’ll want to do some staging to make this as effective as possible. Often you can rent furniture inexpensively to help make the house you’ve just renovated look like a home so you can better convince buyers that it’s a great space for them. Statistics indicate that empty homes are far harder to sell than those with furniture in them because it’s tough for buyers to imagine themselves in that space, so while renting furniture may be an extra expense, it’s likely one you should take on.
Once you have the home ready, you can either list it with an estate agent or try to sell it on your own. Keep in mind that while an estate agent may ultimately cost more than handling the sale of the property on your own, it will mean that you don’t have to handle any of your marketing or showings, so balance the need for extra time with the cost of an estate agent.
Price the home you’ve bought well, be prepared to negotiate, and you’ll sell the home you’ve just flipped!