Property Flipping - Can You Still Make Profits in 2021?
Flipping – also known as flip and fix – is the practice of buying a property below market value, doing a quick renovation then re-selling it again for a profit as soon as the renovations are complete. Investors don’t hold on to the property for long-term gain, instead preferring to sell it quickly, get the money in the bank and move on to the next investment opportunity.
Flipping has been around for as long as landlords have been buying properties and for many it has bought big profits. But is it still profitable in 2021?
Successful flipping is dependent on you doing your market research. Things to think about before buying: what are the current market trends, where are the best areas to buy at the right price, how much are homes currently selling for in the area you’re looking at, what are local estate agents saying about the market, is there a growing population or local investment in the area you’re looking to buy in? Answering all of these questions before investing in a property can mean the difference between success and failure when flipping properties.
It's also essential to do the sums and calculate the return on investment (ROI) on any potential property. How do you work that out? Estimate the final selling price after you’ve done the renovations, minus the cost of purchase and renovation costs and you’ll be left with your total profit.
Take a look at this example:
Purchase price: £300,000
Renovation costs: £50,000
Other costs: £25,000
Sale price: £450,000
To work out the ROI use the following formula: Profit ÷ total investment = ROI. So on the above figures, ROI would be 20%. Generally speaking, most property investors look for a minimum profit on costs value of 20%. Anything below that and it’s quite possibly not worth the time and effort. Flipping can be a risky process and landlords never quite know how much renovations may cost before starting the project, particularly if they come up against unseen issues with renovation work. By having a healthy margin of error factored in it’s less likely that things will go wrong.
As house prices continue to rise and the market remains buoyant, flipping may still be an attractive option for property developers as buyers are still buying houses. However, with house prices at an historic high, experts may argue that at some point the market will crash and demand will decrease. So currently it’s certainly a riskier option and may leave property investors holding a quickly depreciating asset.
With markets in a volatile state due to the Coronavirus pandemic and Brexit, it’s difficult to predict what might happen. But the fact is, neither of these potential threats can be ignored. It will be interesting to see what happens to the market in the months ahead and if prices start to decline. Chances are, only professional flippers will make money in a declining market.
The key to succeeding in the current market is to make sure you buy properties at below market value. So where do you start your search?
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