So-called ‘house flipping’ is a route many choose to go down to make a profit on the properties they purchase. In fact, it’s one of the fastest ways to generate profit when it comes to property, but that’s assuming everything goes to plan. As with any venture like this, there are risks involved.
Here’s what you need to know.
What is house flipping?
The premise of house flipping involves buying a property and selling it shortly afterward to generate profit. Often, the homes will need renovating, however some people choose to simply sell a house on for more profit. If all goes well, you could be rewarded with a lump sum of profit in a short period.
You might also hear house flipping being referred to as buying a ‘fixer-upper’.
What are the benefits?
People who feel they have the right property knowledge often take house flipping on as a pastime. They’re constantly on the lookout for properties that could generate a sizeable profit and try to secure them at lower prices.
You need the money to make this initial investment, then before you know it, you could be creating a side hustle where profit from one property finances the next and so on. The profit potential can be substantial.
You can find properties within your budget by speaking to local agents and landlords, as well as at property auctions.
What are the drawbacks?
There’s no denying that this is a high-risk activity. The housing market can be hugely unpredictable at the best of times, which could influence how much your property sells for or even, whether it sells at all. It could be on the market for far longer than you initially anticipated.
Renovation costs can also accumulate over time and that goes without mentioning the unexpected costs you could be faced with. If something does go wrong, you may need to seek recourse through professional negligence proceedings.
Beyond this, some people question the moral side of house flipping when it’s taken to the extreme. Particularly during the cost of living crisis and a precarious property market, many might not want to exacerbate these issues.
However, some might decide to proceed with sensitivity and simply view it as giving a rundown property a second chance.
Is it profitable?
Many self-proclaimed ‘house flippers’ stick to the 70% rule. You ideally need to calculate the price you should be buying the property at using this as a guide. Then, consider the amount you’re likely to spend on renovations before you’re ready to sell.
To increase the likelihood of profit, you’ll need to look at properties below market value and take time to estimate potential costs as accurately as possible. The same goes for your selling costs, which include estate agent fees, legal fees and taxes. You should also observe the market carefully – it’s all about timing when it comes to property.
These factors will dictate whether you could profit from house flipping.
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