A few years ago, ‘flipping’ – the process of buying a property cheaply, renovating it, and then selling it on at a profit – made property investors a lot of money. Newspaper articles were written about it and television programs were made about it, but is property flipping still a viable way to make a living?
Property flipping was incredibly popular fifteen to twenty years ago. It wasn’t just professional property investors profiting from the practice, amateur first-time investors were also keen to give it a go and often did quite well from it.
The property market has changed significantly in recent years, however, and that has had a big impact on the viability of property flipping as a career.
After the recession in 2007, mortgage lenders became significantly more strict. Gone were the days of being able to borrow 95% and 100% mortgages, and investors were required to undergo far more stringent affordability checks. With finance not so readily available, more would-be property investors have found it harder to make the figures stack up.
Property purchase price
Another factor that has had a big impact on the profitability of property flipping has been the recent rise in house prices. Even properties requiring significant work have been in high demand. This impacts would-be property flippers in a couple of ways. Firstly, with ever-increasing house prices, a property that requires renovation is all that many people can afford. More buyers, especially first-time buyers, are having to be willing to take on a project property in order to be able to get a foot on the property ladder. This means property investors are finding it more challenging to find a ‘bargain’ before the property is snapped up by a buyer who wants to live in the property. Another challenge for property developers is the ceiling price for an area. With even ‘project’ properties selling for record-high figures, it can be tricky for a developer to make a decent profit once the property is refurbished.
Building materials and trades
Brexit and the global pandemic have had a big impact on building materials, both in terms of cost and availability. There is also a shortage of tradespeople to carry out renovation work, with many reputable tradespeople booked up for as much as a year in advance.
Part of the formula for a successful property flip is the speed at which you can renovate a property. Every month you keep hold of the property you incur more costs, and the longer you hold the property, the greater the risk in terms of the resale market. If tradespeople and materials are not readily available, at a competitive cost, you could end up making a significant loss when you come to sell.
Currently, the resale market is strong. Properties are in short supply and high demand. But if property industry commentators are right, that could be short-lived. Predictions are rife that the end of the stamp duty holiday and furlough schemes will bring widespread unemployment in the months ahead. If that happens, the market will become flooded with properties and homeowners looking for a quick sale. Whilst this will be good news for investors looking for more properties to buy, it will be bad news for those who bought at the height of the market and are looking for a profitable resale.
Ultimately, the days of making a quick profit with an easy property flip are most likely behind us. There is still the occasional bargain to be had, but wisdom is key and it’s certainly not a business model without significant risk. The key is to know your market, have trust tradespeople lined up, and keen your eye firmly focused on your margins.