Flipping a house can be incredibly rewarding after putting in the time and resources. However, to succeed, you'll need to do more than renovate. It requires a detailed plan, an understanding of the housing market, valuation, and renovation skills.
Use this article to help break down the steps of house flipping, whether you’re a first-timer or an experienced investor.
Understanding the House Flipping Process
Flipping is buying and renovating a property to increase its value before selling it for a profit. It consists of identifying a house with the potential for a profitable flip, securing the necessary financing and legal requirements, purchasing the house, and making the necessary renovations and repairs. Key improvements could include upgrading the central heating system or installing a new kitchen.
After the work is completed, the house is put back on the market so that it can be sold and a profit made quickly. It’s important not to rush into the flipping process. You must do some market research to understand what houses can sell for in the area and the amount of profit you could make. A home in an undesirable area may not sell enough to justify flipping it, but an up-and-coming area may be worth the repair and carrying costs.
Financing Your House Flip
Several financing options are available for house flipping to help you with the purchase and renovations. Secured loans use a property you own as security, so it can be repossessed if you don’t keep up with repayments. While risky, they can be a good option to fund some of the projects, depending on how much you can borrow.
Unsecured loans are usually much smaller, so they may only be worthwhile if the required amount is small. A bridging loan, or “buy-to-sell mortgage,” is also secured against a property you own. These loans should cover the purchase of the property and the renovations. Keep in mind that the amount you can borrow in these loans is based on your background and specific provider, so it’s not guaranteed you’ll get the amount you want.
You could also finance the flip with your savings, but they’ll have to be reasonably large, so this might not be a good option if it’s your first time. Whatever option you choose, you’ll need to create a detailed budget beforehand. List the initial purchase cost and renovation expenses and account for delays.
Selecting the Right Property
When choosing your house, consider its condition and the renovation required. If you have a low budget or a small loan and the property requires major work in every room, it may drain profits or even result in a loss.
Research recent and upcoming housing developments and regeneration projects in the area to gain insight into the local market. A high number of successful development projects generally indicates the area is improving and has the potential for a high resale value. Look for areas with good transport links and sought-after amenities like supermarkets and petrol stations that could boost property prices.
Legal and Regulatory Requirements
Flipping hoses in the UK requires adhering to local property laws, building regulations, and planning permissions. Depending on the kind of renovation you plan to undertake, you may need approval from the local council. Listed properties in conservation areas will face firmer restrictions on the type of work that can be done.
If you don’t secure the proper permission or break building codes, you could face fines and even need to reverse completed work. Also, remember that capital gains tax could apply to your profits, so consult with solicitors and tax professionals to ensure legal compliance and protect your investment.