Put simply, flipping is the process of buying a property and quickly selling it at a higher cost than originally payed.
It is also called fix and flip, trading or buy to sell.
There must be a reason to justify the higher sale price, therefore most flip deals involve refurbishing the property. You can also raise the value of the property by:
Extending the lease
Resolving a legal issue
Purchasing a great deal initially
Why should I invest in a flip deal?
Flipping is a great way to make a large sum of cash quickly in one go. With BTL you may make steady income each month from rent and one lump sum in the future when you decide to sell. But with flip deals you can make this lump sum all at once quickly (depending on how long renovations take).
Finding a suitable property to flip
Finding the right property to flip is generally the hardest part of this process. To find potential opportunities you can look at:
Finding properties that look empty and contacting the owner
You also need to bare other factors in mind such as:
You want property in the area to be moving quickly. Its also desirable that properties in the area are selling to owner occupiers. Owner occupiers will pay more if a bidding war arose due to getting emotionally attached to the property.
Is it the correct type of property?
Ideally you want a property that will appeal to many different buyer demographics. This is because you want it to sell quickly. You want people to start a bidding war over the property to increase the price as much as possible. E.g. a 3 bed semi detached home would appeal to both first time buyers but also second time buyers who require more space.
Is it the right situation?
You need to ensure the property requires works. If you buy a property in mint condition, there will be no uplift. You should also look for properties where the vendor has necessity to sell for whatever reason.
Property of the deceased are also a great opportunity for flip deals as beneficiaries are often keen to get rid of properties quickly.
You can use a mortgage for a flip, but you are not meant to. Lenders will have given you money on the basis that you hold the property long term and rent it out.
Cash is the best way to finance a flip as its a quick and easy way of financing the project.
Bridging is another suitable way of financing a flip deal. Bridging is a short-term mortgage where you can borrow up to 70% the cost of the project.
You can hire a main contractor to run the project. The main contractor will hire subcontractors as required. You can also hire contractors individually and manage the project yourself.
You need to get the refurbishment spec right, so do not buy materials which are too cheap or too expensive.
If you decide to manage the project yourself, you will need to plan out each stage and ensure the development happens in order. If you have hired a project manager, you will need to agree a schedule with them.
Ensure you continually check in with the builders and make sure they are on track to finish within the set time frame.
Selling the property
Make sure you stage the property for viewings. Staging the property refers to making the home appear ‘lived in’. You can hire furniture from companies or buy our own which you will take to properties for this purpose. An empty house makes it harder for potential buyers to visualise living in. This ‘lived in’ feel contributes significantly to offers.
Before you buy the property, you should have an idea of how much you want to sell it for once all works have been completed. It is recommended that you do some more research at the end of the works when the time comes to sell in case the market has changed.
It is also recommended to go for the bottom of the range in your prices to gain lots of interest but also to unearth potential buyers who may bid each other up consequentially raising the price.