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- House flipping can still be profitable in the current UK market, but success depends on thorough research, accurate renovation cost estimates, and strategic decision-making.
- Factors affecting profitability include rising interest rates and the cost of living crisis, which can impact property demand and make flipping more challenging.
House flipping, a popular property investment strategy, has captured the imagination of many, especially those looking to make their mark in the world of real estate. With the recent shifts in interest rates and the evolving property market landscape, it’s natural for aspiring investors to wonder: Is house flipping still a profitable endeavour in the current UK market? In this article, we’ll delve into the world of house flipping, shedding light on its profitability and uncovering essential insights for beginner property investors.
Is It Worth Flipping Houses in the UK?
Before we delve into the nitty-gritty, let’s address the elephant in the room – is house flipping still a profitable option in today’s market? The answer is a resounding yes, but with a caveat. Just like any property investment strategy, success hinges on diligent research, accurate renovation cost estimations, and strategic decision-making. It’s crucial to grasp the potential of the property you’re eyeing, understand its location’s dynamics, and gauge the costs involved in refurbishing it.
This may all sound quite confusing and complex but it’s really quite simple. We’ll touch on researching a property investment throughout this article but we’d also recommend the below three guides for anyone wanting to learn how to research a property step-by-step:
1) Step-by-step property due diligence guide
2) Choosing the best locations for property investment
3) The 4 best property investment tools
For quicker insights, we’d recommend our buy to let deal analyser and house flip analysis tool.
Factors Affecting House Flipping Profitability
There are many factors which come into play when it comes to the profitability of a house flip but from our experienced eyes, the two major culprits that are making them tougher in today’s market are:
1. Interest Rates and Mortgage Costs
The winds of change have swept through the realm of interest rates, leading to mortgage costs scaling heights not seen in decades. This upward trajectory, with mortgage rates ranging between 5.5% and 7%, has ushered in a period of re-evaluation for many property investors. As these rates trickle down, they intersect with the broader cost of living crisis, creating a ripple effect that dampens the allure of new property acquisitions. The outcome? A cooler property market where buyers are increasingly reluctant to pay market value. This translates into longer selling times and a more challenging environment for house flippers.
2. Cost of Living Crisis and Property Demand
As touched on above, the cost of living crisis casts a substantial shadow over consumer spending, narrowing purchasing power and altering property demand dynamics. As wallets tighten, the willingness to pay market value for properties dwindles. This change has ushered in a trend of discounted property sales, presenting both opportunities and challenges for house flippers. While a more budget-conscious market can yield bargains for investors and home buyers alike, it’s not great news for house flippers trying to work out their properties end value as it’s unlikely that they will achieve full market value.
Example of Profitable House Flip
To illustrate that house flipping is a good way to make money in property, let’s take a look at a recent success story. In our guide on how to flip houses, we provided a property flip example – a two bed terraced property in Bolton.
Flipping that property would have resulted in an impressive ROI of 34.88% and would have taken around 9 months to complete (annualised, this would have yielded a return of 46.50% which I think you’d agree is just a bit better than the 9% the S&P 500 can yield).
Utilising tools like the house flip analyser (which allows us to quickly and easily work out whether a flip would be worthwhile), we calculated our possible return on investment, highlighting the tangible gains that can be achieved through rigorous analysis and well-executed strategies. This example serves as a beacon of hope for aspiring house flippers, showcasing that house flips are still 100% worth it just as long as you do your research and pick only the best deals (I know that I sound like a broken record but it’s true!)
The Key to Successful Investments
Risks Faced by House Flippers
There are a couple of risks that house flippers should be aware of before committing themselves and their money to anything – they are:
1. Difficulty in Selling the Property
One of the foremost challenges facing house flippers is the potential difficulty in selling a property. This can most often be attributed to an undesirable location or misjudged renovation pricing. This pitfall can be avoided through accurate market analysis and strategic pricing, highlighting the importance of a well-informed strategy
Top Tip – If you’re unsure on how to accurately price up a flip, try reaching out to a trusted local builder and offer them £50 to price up the renovation for you. It’s easy money for them and it helps you understand how to price up renovations and what to look out for – a valuable skill for any flipper to have.
2. ROI Challenges
Another hurdle lies in achieving the desired Return on Investment (ROI). Miscalculated research or overestimation can lead to you falling short of your calculated ROI. To steer clear of this setback, it’s crucial to understand the ceiling prices in that postcode (the maximum value of a certain type of property – for example, a two bed in postcode XYZ has a max value of £150k at this moment in time and no matter how fancy you make it, it can only have a maximum value of £150k), be able to secure properties below market value, and stay attuned to the ever-fluctuating property landscape.
Top Tip – To learn how to work out the ceiling price of a certain postcode, head over to our guide on what is property flipping – it’s under the subtitle what is the ceiling price for the local area?
Key Considerations for Successful House Flipping
1. Selecting the Right Flips
Picky is the new power word in property flipping. Opting for flips that offer exceptional value below market rates forms the cornerstone of a successful strategy. This approach not only enhances profit margins but also mitigates the risks associated with lacklustre property choices.
2. Thorough Research and Estimation
Research is your secret weapon in the house flipping arsenal. Diligently study property locations, keep a finger on market trends, and gauge demand dynamics. A cardinal rule: always overestimate refurbishment costs to cushion against unforeseen challenges. Establishing a contingency fund of 15-20% can be your safety net when the unexpected arises. For example, if I priced my renovation up for £15,000, I would add another £3,000 on top of that as a 20% contingency fund just to be safe (trust me, it’s always used up).
3. Professional Surveying
Consider obtaining a RICS structural survey before sealing the deal. This proactive measure helps unearth potential issues, minimising the chances of unforeseen expenses and delays that could dent your profits.
Final Thoughts: The Everlasting Worth of Property Investing
Amidst the twists and turns of the property market, one truth remains unshaken – house flipping in the UK is a worthwhile pursuit. The road might be laden with challenges, but the potential for substantial gains persists. Remember, patience is your ally, so take your time and only seize the right opportunity – think with your wallet and your head, not your heart – The property might look nice but if the numbers aren’t great, ignore it.
As we wrap up our exploration, it’s evident that house flipping in the UK is a nuanced endeavour, where profitability dances in harmony with due diligence. While the terrain may have evolved, the potential for substantial gains remains within reach. The key lies in informed decision-making, meticulous research via property analysis tools, and the ability to adapt to the ever-changing landscape.
For beginner property investors, the journey of house flipping holds promises of both challenges and triumphs. As you set forth on this path, armed with newfound knowledge, remember that the pursuit of profitable house flipping is an art that can yield impressive returns when approached with patience, strategy, and unwavering determination.
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Victor Sterling
Hi, my name’s Victor - I’ve been investing in property for three years now, with my preferred strategies being buy-to-let, BRR and house flips. My goal with Amateur Landlord is simple - to provide beginners with easy-to-follow resources that simply weren’t around when I started, and to offer these for free and without ads.