Profitable House Flipping in the UK

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The practice of house flipping, which involves buying and quickly selling properties for profit, has experienced a notable decline in recent years. This decline is primarily attributed to a slowdown in house price growth. Research conducted by Hamptons International, an estate agent, reveals that the peak of house flipping was in 2004 when 60,340 homes were flipped in England and Wales. However, this number plummeted to 18,630 by 2018, marking a substantial 69% decrease in house flipping activity. In 2004, 4.8% of all homes sold were flipped, but by 2018, this had decreased to just 2.1%.

House flipping was most popular during a period of robust house price growth, from 2000 to 2007, where house prices saw an average increase of 13%. This significant appreciation in property values fueled the trend of house flipping. However, the property market dynamics shifted after the 2008 financial crisis and the uncertainties related to the 2016 Brexit vote. In 2019, UK house prices saw only a modest average increase of 1.4%, with some regions even experiencing price declines. As a result, flipping property has become riskier compared to its previous heyday.

What is “House Flipping”?

House flipping involves more than simple buying and selling; it’s about acquiring properties at a low cost and selling them for a higher price. However, not every property is suitable for quick profits, making it a specialized market.

Flipping centers around swift transactions and fast returns on investment. It’s not about waiting for the market or location to change gradually, which can lead to long-term profits.

To excel in house flipping, you need to spot properties with room for improvement, whether in terms of structure, essential features, or cosmetic enhancements. It’s not just about addressing problems; it’s about enhancing the property’s value through renovations.

Why should I consider house flipping?

Property flipping can be a profitable endeavor, whether you’re looking for a side hustle or a full-time career change. It entails renovating a property and selling it at a profit.

You can tackle it as a one-time project, using your savings or an inheritance to acquire an undervalued property and realize a return on investment by selling it at a higher price after making improvements.

In some cases, personal circumstances align with property flipping. For example, if you expect to reside in an area briefly, you could purchase a run-down property, live in it during the renovation process, and sell it when you relocate.

How to make a profit in house flipping:

In the property market, turning a profit, especially with the current modest price increases, hinges on renovation. It’s essential to purchase below market value, such as repossessions or auction deals. Estate agents may also offer properties for quick sale due to divorce or repossession, often at a reduced price.

Keep in mind the significant fees involved. Stamp duty applies to properties over £125,000, with an additional 3% if you already own a property. Anticipate extra expenses like legal and survey fees, along with at least 1% plus VAT in estate agents’ fees when selling.

For those lacking upfront cash, it’s crucial to factor in financing costs and ongoing expenses like council tax, utilities, and insurance, which can add approximately £20,000 to the renovation costs, affecting your profit margin.

Property flipping example

Purchase price	£250,000
General Costs (Refurbishment etc)	£30,000
Buying/selling costs	£15,000
Selling price	£350,000
Profit	£55,000

Financing property flipping

If your intention is not to reside in the property or rent it out, traditional residential or buy-to-let mortgages won’t be suitable. These mortgages are tailored for longer-term and habitable properties, rather than quick flips.

For property flipping, it’s advisable to explore short-term financing options like a bridging loan or a buy-to-sell mortgage. These options offer a faster arrangement but typically come with higher interest rates. You’ll still be required to provide a 20% deposit and cover loan fees, which can be funded through savings or home equity. You have the flexibility to choose between making monthly interest payments or including them in the loan, to be settled when you sell the property.

To make an informed decision, it’s wise to consult with an independent mortgage adviser or compare bridging rates online for guidance on the most suitable options for your situation.

How to choose the property

Selecting the right property at the correct price is crucial for profitability. Look for properties with potential for improvement, but be cautious of major issues that can be expensive to fix. A building survey is a prudent step.

Examine local house price data, but remember that trends can vary within regions and cities. Consult estate agents for localized insights on areas likely to appreciate in value and what buyers seek.

Research areas undergoing investment, as they may be on the rise. Utilize resources like Zoopla for property value estimates and details like bedrooms and bathrooms. In many cases, a two- or three-bedroom house holds broader appeal and potential for value appreciation than a flat.

Consider proximity to transportation, amenities, crime rates, and nearby schools, especially if targeting families. Prioritize buyers seeking move-in-ready homes over investors looking for bargains.

What kind of property is suitable for flipping?

When flipping a property, selling quickly and profitably is key. Opt for properties with broad appeal, avoiding niche options like small flats or trendy lofts. Look for homes that can attract a wide demographic, potentially sparking bidding wars.

Consider three or four-bedroom semi-detached houses, appealing to families or young couples looking to move up the property ladder. Such properties often have the potential for rapid value appreciation.

Larger houses can deteriorate and improve quickly, resulting in more significant price swings. Smaller properties offer less dramatic but potentially less risky returns, suiting those new to flipping.

Factor in all costs when determining how lucrative your opportunity is

When calculating potential profits, consider all costs involved, as they can significantly impact your returns. Beyond refurbishment expenses, these additional costs include:

Legal fees
Estate agent fees
Broker fees for finance
Stamp duty
Survey fees (especially detailed surveys for extensive renovations)
Holding costs (insurance, utilities, council tax, etc.)
Tax (corporation tax for property flips through a limited company)

Let’s revisit the example:

Purchase cost: £150,000
Refurbishment costs: £20,000
Buying/selling costs: £15,000
Selling price: £200,000
Profit: £15,000

This project remains viable, but you can see how margins can change quickly. Delayed sales can increase holding costs and potentially lead to lower offers, impacting profit.

For financing, experienced developers might use cash and a bridging loan, as traditional mortgages are unsuitable due to their long-term nature and lengthy processing times. Bridging loans, while carrying higher interest rates, are ideal for flipping because of their short-term nature. Typically, you’d borrow a portion of the money (around 65-75%) and fund the rest with cash.