Flipping Property: Essential Guide for UK Property Investors

By Georgia Galloway | Tuesday 31st January 2023 | 9 minute read

Flipping houses is a lucrative aspect of property investment, yet it requires an in-depth understanding of the housing market and good property selection skills. This post looks into the fundamentals of flipping homes to enable you to make wise choices.

We'll delve into how to identify potential properties for house flips at property auctions or through estate agents. You'll learn about factors that can influence house prices such as location, condition and potential planning issues.

Furthermore, we'll discuss how to estimate refurbishment costs accurately and calculate your potential profits from selling price after renovation. We’ll also touch on bridging finance options for funding your flip if cash invested is not enough.

Finally, you will gain insights into executing a successful house flip - from buying properties at a low price to carrying out necessary refurbishment work for a quick sale. Flipping houses can be more than simply buying low and selling high; it's about strategic planning and execution.

Image of a room split down the middle. On the left the room is in the process of being decorated with bear walls and exposed floor boards. On the right the room has been decorated with new flooring and clean, white paint.


Understanding the Basics of Flipping Houses

If you're new to property investment, flipping houses might seem daunting. The old adage of those who fail to prepare, prepare to fail couldn't be more true here. Up-skill quickly. With the right knowledge and strategies, it can be incredibly profitable.

What is House Flipping?

House flipping, also known as property flipping, is buying properties at a lower price, usually those in need of renovation, improving them, and then selling for profit. The key is to make desirable improvements that increase the property value without overspending on renovations.

The Profitability Factor

Profitability from flipping properties comes from two sources: capital appreciation and rental income. It's essential to understand these aspects to determine whether your flip will be a successful investment.

Risks Involved

No investment strategy is risk-free, including flipping properties. Risks include unexpected repair costs, changes in market conditions, and difficulties securing financing. When beginning this type of venture, be sure to thoroughly plan and consider all potential outcomes.

Finding Success In House Flipping

  • Educate Yourself: Knowledge about real estate markets and home improvement techniques are vital for success.
  • Create A Detailed Plan: Outline every step involved, so nothing catches you off guard.
  • Select Properties Wisely: Not every cheap property makes a good flip; understanding what makes a good buy is critical.
  • Budget Accurately: Overlooking even small expenses can eat into profits quickly; always account for unforeseen costs.
  • Sell Quickly: The longer you hold onto a flipped house without renting it out first means more carrying costs eating away at your profit margin.

Successful house flips require careful planning and sound financial management skills to minimise risks and maximise returns on investments made.


Identifying Potential Properties to Flip

First things first, you need to find a property that's worth flipping. Don't just settle for any cheap property; look for one that has the potential to be sold at a significantly higher price after some work and investment.

Finding Distressed Properties

One strategy that successful house flippers use is targeting distressed properties. These are homes that may need significant repairs or renovations but can be purchased at below-market prices. Uncovering distressed properties can be done through various means such as online real estate ads, bidding opportunities, and personal references.

Evaluating Location & Market Conditions

Location is key in determining whether a property is worth flipping. A home in an up-and-coming neighbourhood will likely fetch more than one located in a declining area, regardless of how much you invest in its renovation. Similarly, market conditions must also be considered - if houses aren't selling quickly or prices are falling, it could impact your ability to flip the property profitably.

Potential for Improvement

A good flip prospect should have clear potential for improvement - both aesthetically and functionally. This could mean anything from needing cosmetic updates like paint and flooring to requiring more substantial changes such as kitchen remodels or additional bedrooms.

Making Use of Property Inspections

To accurately assess the potential costs involved with improving the property before purchasing, it's crucial to carry out thorough inspections using professional services such as RICS certified surveyors. They will help identify any hidden issues which could inflate your renovation budget unexpectedly down the line.

In summary, to successfully identify properties ripe for flipping requires careful consideration of several factors including their purchase price relative to their potential resale value after improvements (factoring in all associated costs), location attractiveness, and current housing market conditions among others. By taking time upfront to conduct due diligence on prospective purchases, you'll increase your chances of achieving profitable flips consistently over time.

Key Takeaway: 

This section provides tips on how to identify potential properties for flipping, including targeting distressed properties and evaluating location and market conditions. It also emphasises the importance of assessing a property's potential for improvement through thorough inspections before making a purchase. Overall, careful consideration of these factors can increase the chances of achieving profitable flips consistently over time.


Estimating Costs & Calculating Profits

Flipping houses can be a profitable venture, but it's crucial to accurately estimate costs and calculate potential profits before diving in. The process involves more than just buying low and selling high - you'll need to factor in various expenses that may eat into your bottom line.

Estimating Renovation Costs

The cost of renovations is one of the most significant outlays when flipping a house. This includes everything from structural repairs to cosmetic upgrades like painting and flooring. You should get quotes from multiple contractors or use an online renovation cost estimator for a ballpark figure.

Factoring In Holding Costs

Holding costs are the outlay of money involved with having a house while it is being refurbished or for sale, including payments on loans, insurance premiums, energy bills and taxes. These are often overlooked by novice flippers but can significantly impact profitability if not accounted for properly.

Calculating Potential Profits

Our 2022 Property Flipping Survey showed that over 62% of the property flipped in the UK in the last two years made £10k-£75k profit but how do you exactly calculate your profit? 

To determine potential profits from flipping houses, subtract all estimated costs (purchase price + renovation costs + holding costs) from your projected sale price after renovations are complete. It's also wise to include a contingency budget for unexpected expenses which typically account for 10%-20% of total project cost.
For example:
Projected Sale Price: £250k
Total Estimated Cost: £200k (including contingency)
Potential Profit = Projected Sale Price - Total Estimated Cost = £50k Keep in mind this is just an estimation; actual profit will depend on the final sale price and actual incurred expenses.

Determining Property Value Post-Renovations

You must have realistic expectations about how much value your improvements will add to the property post-renovations. For this purpose, property comparables or 'comps' play an essential role.

Comps are recently sold properties similar in size, condition, and location to yours. You can find them via free online property valuation websites.

Remember, the key lies not only in accurate estimations but also efficient execution without compromising quality. This way, you increase the chances of securing higher sales prices, thereby maximising returns.


Key Takeaway: 

This section provides tips for flipping houses, including estimating renovation costs and factoring in holding costs. To calculate potential profits, subtract all estimated costs from the projected sale price after renovations are complete, and consider using free online property valuation websites to determine property value post-renovations. Remember that accurate estimations and efficient execution are key to maximising returns when flipping houses.


Can you get finance a property flip?

Yes, you can finance flipping property with a type of finance called a bridging loan.

A bridging loan is suitable for property flips because:

  1. It's asset based lending: This means the loan application's success is primarily determined by the property value being used as security - not affordability checks nor your creditworthiness.
  2. It's a short-term financial product: This means you only use the finance from the time of purchase through to sale and exit - which is when you repay the loan. Typically bridging loans last for less than 24 months.
  3. It's available on uninhabitable & unmortgageable properties: This allows you to buy an uninhabitable or unmortgageable property, which high street lenders such as banks would not lend against.
  4. It can fund the refurbishment & renovations: A bridging loan can be used to finance all aspects of the work required to bring the property back into service, from replacing a roof and structural alterations to simple light refurbishments such as replacing a bathroom or kitchen. 

Financing Property Flips with Bridging Loans

When flipping houses, securing financing is crucial. Traditional mortgages can be slow and cumbersome, but a bridging loan can save the day.

What are Bridging Loans?

Bridging loans are short-term finance options designed to 'bridge' the gap between an outgoing mortgage or sale and a new purchase or refinance transaction. They're typically used in property transactions when traditional funding isn't available or feasible due to time constraints.

The Benefits of Using Bridging Finance for House Flipping

Bridging finance offers several advantages over traditional lending methods:

  • Faster Access: Unlike conventional mortgages that can take weeks or even months, bridging loans can often be arranged within days, allowing you to act quickly on potential investments.
  • Cash Buyer Status: With a bridging loan, you essentially become a cash buyer which gives you stronger negotiating power and may help secure properties at lower prices.
  • No Monthly Payments: Most bridging lenders roll up interest until the end of term meaning there's no need for monthly payments during your flip project - ideal if funds are tight whilst refurbishing.

Selecting The Right Lender For Your Project

Picking the right lender is key as terms vary significantly from lender-to-lender. Do your research before making any commitments. A good starting point would be checking out our guide on how to choose a bridging loan provider.

A Word Of Caution...

While bridging finance is attractive for property flipping, it isn't without risks. As with any financial product, it's essential that investors fully understand all aspects including the conditions, repayment terms, interest, fees and other costs involved with bridging loans before proceeding. After all, we don't want our profits eaten away by unexpected fees.


5 Tips For Executing a Successful House Flip

Here are some steps to consider:

Renovating the Property

Start renovations as soon as possible. Plan carefully, prioritising necessary repairs over cosmetic improvements. Every day spent on renovations is a day where potential profit is being eroded by holding costs such as mortgage payments and utilities.

Selling Quickly

Once renovations are complete, it is imperative to act quickly and market the property competitively with a desirable price. Market aggressively and set an attractive price point for potential buyers. Use online platforms or enlist the help of estate agents who have extensive networks in their local markets.

Avoiding Common Pitfalls

Inexperienced flippers often fall into pitfalls - from underestimating renovation costs to overpricing their properties on sale. Learn from experienced flippers or enrol in property investment courses to avoid these mistakes.

Making Use of Bridging Loans & Finance Options

Bridging loans can provide much-needed funds for your flip project quickly, allowing you more flexibility than traditional mortgages offer while also enabling faster completion times due to fewer restrictions imposed by lenders. However, they come with higher interest rates compared with other types of finance options, so factor this into your cost calculations before proceeding.

In summary, successfully flipping houses requires careful planning from identifying suitable properties through financing options like bridging loans up until selling them off at profitable prices.

FAQs in Relation to Flipping Houses

What is the 70% rule in UK house flipping?

The 70% rule in UK house flipping states that an investor should pay no more than 70% of the After Repair Value (ARV) of a property minus repair costs.

Can you legally flip houses in the UK?

There's noting illegal about flipping houses in the UK providing you adhere to local planning regulations during the refurbishment, and if you intend to rent it out instead of selling adhere to all the safety legislation and EPC requirements that are a landlord's responsibility - oh, and of course pay all your taxes relating the flip be it Stamp Duty Land Tax (SDLT) or Capital Gains Tax if you sell. 

Is house flipping a good idea in the UK?

House flipping in the UK can be profitable if done correctly with thorough research, accurate cost and profit estimation, and appropriate financing such as bridging loans from credible sources like Finbri.

How can beginners flip a house in the UK?

Beginners should start by understanding the basics of real estate investing, identifying potential properties to flip, estimating costs and profits accurately, and securing appropriate financing such as bridging loans from credible sources.

What are the risks of illegal activities or unethical practices in UK house flipping?

Illegal activities or unethical practices in UK house flipping can lead to legal consequences, financial loss, and damage to reputation.

How do other countries' property markets affect UK house flipping?

While it's important to keep the focus on the UK, understanding other countries' property markets can provide valuable insights and strategies for UK house flipping.

What are some future market trends to consider in UK house flipping?

Speculating about future market trends can be risky, but keeping an eye on factors such as interest rates, economic growth, and demographic changes can help inform UK house flipping decisions.


Conclusion

Flipping houses can be a profitable investment strategy if done right, but it's important to understand the basics, identify potential properties, estimate costs and calculate profits before financing and executing a successful flip.

Consider using bridging loans to finance property flips, but make sure to have a solid plan in place before taking on any financial risk.

With careful planning and attention to detail, flipping houses can lead to significant returns on investment for UK property investors.

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