House flipping is the common practice of buying dilapidating properties at low prices, renovating them, and re-selling at a higher price within a short duration, with the aim of making a reasonably good profit. Flipping is a property investment strategy that has been in existence for several years. Some people have even turned house ‘flipping’ into a full-time career, referred to as professional flippers.
Last year alone, in 2020, the number of homes flipped reached a twelve-year high. Looking at locations with properties frequently flipped in England, Burnley in Lancashire tops the list. According to Hamptons International estate agents research, data from the Lands Registry indicates that 2.5 percent of all homes sold within the same year (2020) underwent purchase and resale within twelve months. In Burnley, figures were significantly higher, with flipped properties being 8.3 percent of all properties sold. Such high figures were last seen in 2008.
Knowledgeable real estate developers typically take advantage of a base cost value of 20 percent when evaluating their ventures. It is difficult to estimate renovation costs accurately, so using 20 percent as an average profit margin gives you room for error and still ensures you make profits. The twenty percent gap factors in anything that could go against prior plans, for example, an increase of renovation costs or other factors that may prohibit the sale within the desired duration.
Factors Affecting the House Market
In 2019, a Prime Minister’s resignation and two unexploited Brexit deadlines saw buyer confidence dwindle, and house prices fall, with an awakening occurring towards the general elections of December 2019. After that, the coronavirus pandemic happened, bringing about a significant impact on the UK economy, with many people spending more cautiously.
For many, waiting until global markets stabilize is the preference though a bold few will proceed with purchases. However, the lockdown restrictions made it difficult for buyers and sellers to converge and transact sales.
The housing market then experienced a boom towards the end of 2020, despite the covid-19 pandemic that brought the industry to a complete standstill for weeks. In July 2020, after Chancellor Rishi Sunak introduced a stamp duty holiday on properties worth a maximum of GBP500,000, it propelled the property boom.
Since statistics started in 2007, the total disparity between purchasing and selling rates for flipped properties has been at its highest level, at GBP40,995 on the national scale. In comparison to the average yield recorded in 2019, this is higher by more than GBP10,000.
The Flipping Strategy
A flip is categorized as successful if it occurs within the same calendar year. For instance, if you purchase a property in March 2021, renovate it and sell it off by December 2021. Nevertheless, the flipping strategy entails the shortest duration possible. If you can achieve this in fewer months, the better and the more profit you get to make by year-end.
Merchants more predominantly practice flipping in the north-west and north-east of England to gain accelerated benefit in regions with more economically priced properties. About 80% of flipped homes in Burnley, most of which were terraced dwellings, have been acquired for less than GBP40,000, which is the amount at which owners typically have to pay a 3% stamp duty surcharge, and below the general tax threshold.
Closely following Burnley with a frequency of flipping properties was County Durham, then Rutland in the east midlands, with Middlesbrough achieving the fourth position, and fifth was Stockton-on-Tees. In the top ten list, Wales was only represented by Merthyr Tydfil in the eighth position. Darlington and Walsall followed closely. There was not a single flipping location in southern England to appear on the top ten list in the last two years. Properties in this area are higher priced.
Whether flipping would be lucrative for you right now is entirely dependent on you and the factors to be considered. Pricing for renovation materials may also be a tad bit pricy at the moment due to restrictive movement. Also, consider that the UK government is zooming in to those wanting to move into new homes. Therefore, this may substantially impact the property market and the turn-around time for your flipped properties. However, there’s always a silver lining on every cloud; it’s just up to you to find it.