Bridging loans become vital resource for property flipping

By David Nicholson | Friday 30th September 2022 | 4 minute read

For thousands of UK investors, property flipping has become an exceptionally profitable business. 

Before and after of a property being refurbished

According to a new survey, almost two-thirds of recent property flippers made profits of between £10,000 and £75,000, compared with just 1 per cent who made a loss. 

While half of investors financed their flips through savings and around a third took out traditional mortgages, bridging loans were used by a significant and rising percentage, the survey found.

Speed and flexibility

“For many people, bridging loans offer the best solution when they’re buying to sell,” says Stephen Clark at bridging finance company Finbri. “They can be arranged more quickly than mortgages and provide more flexibility in lending terms.”

As banks have withdrawn mortgage offers following recent volatility in UK interest rates, bridging finance has emerged as an even more appealing alternative for property flippers.

The survey found that, despite market conditions, 63 per cent of respondents remain committed to the sector and think this is a good time to invest.   

Good time to invest

“Despite soaring property prices, talk of crashes and general uncertainty, with 63 per cent of flippers in the UK saying that they believe now is a good time to invest in the property market, combined with increasing searches on Google, it’s great to see this sentiment and property flippers clearly see opportunities ahead for healthy profits to be made,” adds Clark.

The August 2022 survey of questioned 1,000 people who had flipped UK property in the past two years. It revealed that the great majority of flips (68 per cent) took less than six months to complete, from purchase to sale, and that a quarter of transactions took place in London – ahead of other regions. The wider Southeast region and the Midlands both proved popular with property flippers.

So what kinds of improvements should people make to their properties, if they want to follow suit? 

Kitchens and bathrooms

New kitchens formed the most popular refurbishment choices, followed by bathrooms and general redecoration, while many opted to add extensions (20 per cent), loft conversions (17 per cent) and garages (13 per cent).

Apartments in residential blocks were a clear favourite for property flippers, chosen by almost 45 per cent of respondents, with terraced homes (32 per cent) in second place. Semi-detached homes (26 per cent), apartments above shops or commercial units (18 per cent) and detached properties (14 per cent) were all suitable for trading, the survey found.

On average, property flippers most commonly spent between £11,000 and £25,000 on refurbishments, readying their properties for sale. Around 22 per cent spent more – up to £50,000 - and 22 per cent spent less than £10,000, presumably relying on a fast-rising market to deliver a profit, rather than doing up their properties.

Google searches up

In July and August 2022, Google reported that 32,000 searches for ‘flipping houses’, compared with just 18,000 in the same period for 2021, a rise of 77 per cent. Clearly, there is an increasing appetite for the activity, as a wider cross section of the UK population recognises its potential. 

In more challenging times, with rising prices less certain, does property flipping retain its allure? For many investors, the answer is yes. Distressed sales and repossessions may become more prevalent, with homes coming up at auctions which are ideal for flipping. 

Once again, bridging loans can be the key to unlocking such deals, where speed is of the essence and agreements can be reached in hours or days rather than weeks or months.

Significant data

As Stephen Clark at Finbri concluded: “This survey provides statistically significant data about property flipping over the last two years from the consumers’ viewpoint, providing insight into the current property market from experienced property investors and first-timers.”

It demonstrates that, for a large and growing percentage of the UK population, property investment remains central to their investment strategies and that flipping homes plays a major role for many.

6 principles for successful property flipping:

1. Apply the 70 per cent rule

This is a helpful way to calculate whether property flipping will be profitable. Work out the ‘After repair value’ (AVR) of the property – i.e. what you believe you could sell it for, once you’ve done some work. Multiply this by 70 per cent, then subtract the likely cost of the work and other fees, such as borrowing costs. The resulting figure is the maximum you should pay for the property.

2. Research the local market

Study the sale price of similar properties in the area, so that you get a realistic estimate of what you’ll be able to achieve. Talk to local agents about the state of the market: are there any new developments (good or bad) that may affect the price of property in future?

3. Decide on your own role

Some investors will be happy to redecorate properties themselves. Others are experienced carpenters or plumbers. If you’re not one of these, you’ll either need to hire individual tradespeople and oversee their work, or hire a contractor who will look after the whole project. There are cost implications with each decision.

4. Work out your tax liabilities

Both buying and selling property generally attracts tax: stamp duty when buying and capital gains, or corporation tax if you’re operating as a business, when you sell. Take advice on the most tax efficient way to structure your transaction. 

5. Allow for contingencies

It’s worth keeping 10 per cent of the budget in reserve in case conditions change. For example, materials such as timber or steel may become more expensive, or similar properties may come onto the market at a reduced price, in competition with yours. Interest rate changes may also make an impact on your budget.

6. Treat flipping with respect

TV shows may present property flipping as a casual, easy-to-achieve pastime. Experienced property investors know that this is rarely the case. You have to devote time and resources, understand the market and be patient. 

For those who persevere, the rewards from property flipping can be substantial.

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