Flipping houses can be a great “side hustle” or even a full-time job, but it’s not easy.
Flipping property requires patience, a keen eye for value, and DIY skills if you want to save on renovation costs. Attributes that I sorely lack.
But don’t let that discourage you. Read on and learn about the basics to see if flipping houses may be a good option for you!
Table of contents:
What Is Flipping Property? The Basics!
“Flipping” a property is a simple concept. You buy a piece of property, usually at a below-market price, and then turn around and “flip” it by selling it for more than the market price making a profit in the process. This is also sometimes called:
- Fix & flip
Usually, but not always, you’ll be investing in a property that’s a bit shabby or run-down – for below-market price. Then, you make renovations, changes, and adjustments to the home to boost its value before you sell it.
Depending on the home, this can be as simple as a fresh coat of paint on the inside or outside, or as extensive as gutting the whole property and completely redoing the home.
Why Flip Property?
Flipping property has become insanely popular because it provides an opportunity to make quite a bit of cash in a short period of time (if done correctly). For example, if you buy a house for £120K, fix it up with a £20K investment, and sell it for £160K, you’ll make £20K in just a few months. Not too shabby.
This is, of course, a simplified example, and we’ll discuss the actual financial costs of flipping later. But the point still stands. If you learn how to flip properties, you can start stacking cash quickly.
Choosing the right Property to Flip
No real secret recipe, you can find a property in the usual places:
- Property auctions (this is particularly popular among professional flippers as it’s a good place to find a BMV property. However, if you’re new to auctions I recommend going in prepared i.e. do your research first so you know exactly how they work).
- Find empty or distressed properties and contact the owners directly.
- Looking online e.g. Rightmove, Zoopla etc.
- Check for leaflets and small ads in your local area.
However you source a property, ideally, you want to choose a property that will appeal to a lot of buyers – like a 3-bedroom detached home – but for one reason or another, is not highly desirable. Maybe it’s shabby, in an area that’s not yet very nice, or the vendor needs to get rid of it quickly to avoid repossession.
How to make money Flipping Property
As a rule, you’ll probably want to choose properties that offer a 20% return on investment (ROI), meaning that after you sell the home, you should make at least 20% more than you spent on buying and restoring the property.
This ensures that you have some “cushion” if you don’t calculate the expenses right, and you’ll have plenty of profit by the end of your flip. Note, too, that tax treatments are different depending on whether you flip a property personally, or create a corporation through which you flip homes.
If you undertake the project individually, your profits will be added to your other personal sources of income, which will usually lead to a higher tax bill. But if you form a corporation, you’ll be taxed at a standard corporate rate, separately from your other income.
This usually saves you money, so it’s a good idea to set up a corporation if you plan to flip homes regularly. A tax accountant can provide you with more information and tax advice about flipping homes.
How to Finance a Property Flip
Mortgages are generally not an option for flipping, as they are intended for homes that will be for long-term use. You may be penalized if you sell the property early, and lenders will likely refuse to work with you if they notice a pattern of multiple early home sales.
Most experienced/professional home flippers use cash to finance their properties, since this saves on lending fees and other costs. But this may not be possible if you’re just starting out and haven’t built up a pile of cash to spend on properties.
If you’re just starting out, “bridging loans” will usually be the best and common option. A bridge loan is essentially a short-term mortgage that lets you borrow up to 70% of the purchase price of the home. Sometimes, you can even borrow some more money to do repairs and refurbish the home.
You’ll pay some interest fees and other costs, but these usually will not eat into your profits too much.
The Financial Costs of Flipping – getting the numbers right
There are three main “levers” that determine how much you’ll make from your flip, as follows:
- Sale price – This is the price at which you buy the property. Buying properties that are distressed, run down, or in bad areas will help you save when buying the property – but can result in higher costs of refurbishment, or a lower sales price when you’re ready to flip the home.
- Costs – This includes all the fees of buying and selling the house, as well as restoring and renovating it. Many home flippers choose to reduce their costs by doing a lot of the repair work themselves. However, even if you don’t do a DIY renovation, you can make money as long as you keep the costs of your builders and contractors relatively low.
- Purchase price – This is the final price at which you can sell your property. Doing market research is important for setting an appropriate price that will sell quickly, but still provide you with a profit. Ideally, you should know how much you can sell the property for before you even buy it – as this will help guide you as you decide how much to invest in restoring and improving the property.
Do you think Flipping Houses is right for you? Dig deeper & do more research!
If learning about the basics of flipping hasn’t scared you off, flipping property may be a good way for you to make some extra income.
But before you go out and start making offers, we highly recommend that you do more research, take online courses about flipping, or even find a local mentor who has flipped homes before and can help you learn about the basics.
Investing in properties to flip can be expensive and a bit risky, and if you go in without the right skills, you could put yourself into a tough financial situation. So do your homework and make sure that flipping is right for you before you get started!
Many people learn the “concept” of flipping property and presume it’s a stroll in the park. Yes, the theory is relatively easy to grasp, but it’s critical to understand that finding the right property and selling it can be challenging, and getting it wrong could easily make profits disappear into thin air.
Quick & Final points to consider when Flipping Property
- In a strong market, flippers can make hundreds of thousands in months. The success of flipping is often dependent on the current state of the financial/property market.
- The basic principle of flipping is to buy a property, and convince someone to pay more for it in the shortest time possible.
- The most advanced flippers sell property between exchange and completion. Essentially, they only ever need to cough up a five per cent deposit. If they can buy a house for £1million and sell it to somebody else for £1.2million before completion, they quadruple their £50,000 outlay. Ingenious, right? No, not really.
- Trying to make a flip on a property that will most likely appeal to a niche market could cost you deeply. As said, try to flip properties that will appeal to the mass.
- Most properties that hold a potential flipping quality are found at auctions. Why? Because a lot of repossessed houses get sold at auctions. Mortgage lenders don’t have the time or patience to try and profit from selling properties- they just want their money back as quickly as possible. Additionally, people want quick sales at auctions, so they’re willing to accept low offers.
- Know your local market, so you can spot a good deal. Keep an eye on your local estate agents activity, the Lord knows they’re not the best trained monkeys. You could find a property which has been undervalued by a sleepy agent.
- Make no mistake, flipping can be considerably high risk. Like all risks, the more you lay down, the more you could potentially profit…or lose.
Are you looking into flipping properties, or an experienced flipper? If so, I’d love to hear your thoughts…
Disclaimer: I'm just a landlord blogger; I'm 100% not qualified to give legal or financial advice. I'm a doofus. Any information I share is my unqualified opinion, and should never be construed as professional legal or financial advice. You should definitely get advice from a qualified professional for any legal or financial matters. For more information, please read my full disclaimer.