Flipping property- and why we don’t necessarily encourage it

Flipping property is something that many investors are keen to try and for some this practice forms the basis of their investment strategy. Whilst flipping can be beneficial to make money in the short term, it is volatile and never a guaranteed method of making a profit. We view investment property as a long term

Flipping property- and why we don’t necessarily encourage it

Flipping property is something that many investors are keen to try and for some this practice forms the basis of their investment strategy. Whilst flipping can be beneficial to make money in the short term, it is volatile and never a guaranteed method of making a profit. We view investment property as a long term project in which you create wealth through various Buy-To-Lets instead of chasing a quick buck. Here, I will answer some commonly asked questions regarding flipping and explain why it isn’t always the easiest thing to do.

What is flipping property?

Buying an off-plan property and selling it before it’s completed is known as ‘flipping’. Once the buyer has exchanged on the deal, they are in possession of the contract and are able to re-assign this to another buyer. Many investors attempt this in order to sell their bought property on at a higher price than what they paid initially.

Most banks won’t lend on assignable contracts.

Banks are extremely cautious on providing mortgages for flipped property so many don’t lend for them. Because of this, your market is limited to predominantly cash buyers which can be a tricky sell. A painstakingly long search for a lender that will take a chance on your property is the only alternative, and one that can often be fruitless should no lender touch it.

Residential buyers will shy away from you.

Would you buy a property to live in that isn’t built yet? Most wouldn’t, so anyone buying a property to live in themselves will likely want the property completed before they buy. This further limits your potential buyers to investors who will need a huge lump sum to buy your unit.

Savvy investors will see through the inflated price

In order to make money from flipping, the buyer will naturally sell at a higher price than the one they paid. The problem is that because of the short term nature of flipping, the price of the property likely hasn’t increased all that much to justify an inflated price. Investors who do their due diligence and research prices in the area will realise this and refuse to pay a premium for your property.

Stick or twist?

A common issue for buyers looking to flip is when they choose to do so. Waiting a while will likely see a higher price in which you can sell for, but this can be risky if no one will actually buy your property before completion. A good rule of thumb is to always make sure you have enough funds should the worst case scenario happen in which you need to complete. Not doing so will result in your deposit lost and egg on your face.

Inflexible on pricing

A lot of investors refuse to move on the price they have set on their property and blame the agent if it doesn’t sell. Property exhibitions and seminars can encourage flipping and put in an investor’s head to sell strictly at the price they say. It’s rare that one person can go against market prices in this way, and if your property doesn’t sell, you are in a position where you have to think about completion.

How much money can you really make from flipping and is it worth it?

Buying a property with the intention to flip essentially puts you on a timer in which you need to sell before completion. It is advised you start marketing fairly soon after exchange- the downside is that you won’t be able to sell at a huge profit so soon after buying. For example, let’s say you’ve bought an off-plan property due for completion in 1 years’ time worth £200,000. You will probably want to start marketing your unit in 3 to 6 months after exchange, but realistically your property will not have risen in price enough during this time to sell on at a big profit. It often pays better to hold onto a property until well after completion when you can justify selling at a much higher price according to market prices.

Decide your strategy early on

Many have reported on flipping proving beneficial for some investors and it isn’t always disastrous. However, you need to decide if this method fulfils your property investment goals. Do you want to build a property portfolio for long term wealth? Or do you want to flip several properties creating a small profit each time at a greater risk? We always advise clients to purchase a property in an up-and-coming area, rent it out over a period of time, and sell on years later when capital growth has occurred. Flipping contradicts this strategy so decide what your aims are and what you want to get out of property before you invest.

 

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