What is house ‘flipping’ and how does it work?
Updated: May 21, 2020
On a very basic level, flipping a property is whereby you purchase a property for as cheap as possible, refurbish it if required, and sell it on to make a profit.
This is a very popular strategy amongst property investors and although it does not create a monthly income stream like rental property investments do, it allows you to create lump sums of money from the profits created from the sale.
There may be some instances where you don’t have to do anything to the property. The vendor might need to sell the property at a discount for a variety of reasons. You can then sell it on and make a profit.
The more common scenario is purchasing the investment property for a discount, adding value by way of refurbishment and selling it on to make a profit. The margins here are much higher than not carrying out any works to the property. This is also known as ‘flipping’.
The end buyer of a fully refurbished property is usually owner-occupier and not another property investor. This is often because they aren’t investors or builders and do not want to and do not have the time to do all the work themselves. They are happy to pay in order for the house to be ready to move straight into.
The key mistake that many property investors often make is buying the property for a price that is too high in the first place for them to be able to make any profit. You must know and be confident with your calculations and have done your due diligence beforehand so you know exactly what the cost of the refurbishment will be and what you can expect to sell it for at the end of the process.
When working on a flip property, you must consider your potential buyer and their needs and requirements from the house. What kind of things do they want? A garden, off-road parking and an en-suite master bedroom may all be on the wish list but if it’s in a high-crime neighbourhood then that might not be the best project for you to choose.
If you are going to flip a three-bed semi-detached house and are aiming to attract first time or second time buyers, then amenities and infrastructure are going to be just as important as the actual property itself.
It is important to review normal everyday considerations such as how close are the local schools? Is there good transport links? Is it right by the side of a busy road or motorway and there is no off-road parking for visitors and extra cars? Location is very important and key when trying to sell the property.
Like any property investment, a house that is in a less desirable area will often take longer to sell that a house in a much more sought-after postcode.
The design and character of the house is also a key consideration. Many investors might think they must rip the entire property out and replace everything, however, some key features can often be reused. You might be able to reuse old units and repaint them. You might also be able to keep the flooring if it fits in with your plans and saves you money if you don't have to lay brand new carpet throughout the house.
You might also consider leaving things such as the front drive, garden or gates. However, the appeal of the house and how it looks in images in Rightmove and Zoopla is just as important as all the other factors when it comes to selling the property.
Buyers want the house to look appealing from the moment they set eyes on it and if it looks run down outside, it will put people off bothering to step inside, regardless of how nice it looks inside.