Property investment in the UK is big business and everyone wants a piece of the home owner pie. For good reason, too. Property has a good track record as an appreciating asset. The average house price grew by 10.9% in 2022. Demand remains strong with residential house sales in England alone increasing to 821,407 in 2021. So is now the right time to flip houses to make money and how would you do it? Let’s first explain what it means to flip a house, whether it’s right for you, and then the key ingredients that help people succeed.
What is house flipping?
House flipping refers to the process of purchasing a property with revenue-generating potential, revamping it, and then reselling quickly for profit. Investors search for good deals in auctions, real estate agents, and property websites for houses they can add value to for as little spend as possible.
Each person will approach this differently but a good flipper understands a few crucial things. First, how much a house should be worth in its area and what considerations make it more valuable. Next, before buying they’re able to estimate the after-repair value (ARV) of a house. Once they have a rough idea of how much a house could sell for after renovation, they can then multiply that amount by 70% (x0.7) and subtract it from the estimated cost of renovating the property. While this is only a general rule, the final amount gives an indication of the highest amount bidders should pay for the property. However, you could easily find yourself paying more in a competitive housing market and still be profitable.
- High income potential
- Enjoyable for hands-on people
- Be your own boss
- Market growth is quite stable
- Big financial risk
- Can be stressful
- Things rarely go to plan
- Time consuming
If you’re interested in DIY, interior design, and a risk taker with a keen eye for finding good deals, learning how to make money flipping houses in the UK might be your dream job. But, as with anything real estate, you’re going to need a windfall of cash or financing for a loan.
How to make more money flipping houses
What do you need to start?
- Money – Houses don’t come cheap. It’s much easier to buy property at a great price with liquid cash, but as long as you have a 10-20% (of house value) deposit and good credit score you’re pretty much set for a mortgage.
- Patience – Finding a good deal on the market can take months and rushing into buying a house can lead to a lot of wasted time flipping something that will make a loss.
- Time – The most profitable projects are houses that require work to increase their value so you need to be willing to give up plenty of hours for research, planning, paperwork, financing, and DIY.
- Skills – Any hands-on work you can do instead of hiring tradesmen is going to boost your chances of making money from flipping houses.
- Knowledge – What will have the biggest impact on success is consuming enough information to help you become an expert and avoid unecessary mistakes. So if you’re still interested, stick around for the practical tips in a moment.
There are three fundamental things to consider when buying and selling houses:
- Buying as low as possible below the market rate
- The potential to add value to the property
- The ability to sell the house at a higher market rate
To reinforce the obvious, the aim of the game is to buy low and sell high. To do this you need to find something that has potential but requires a modest amount of work. However, the less skilled you are as a builder, the more you’ll want to stay away from any structural work like roof replacements because it’s expensive.
After renovating your house, the increased value (if done right) should be substantially higher than the amount you spent on it. You want to be selling it at an amount which provides a 20-45% profit margin (revenue minus costs). And to achieve high numbers like this that make it worth your time, you must think diligently about costs, who your buyers are, their needs and wants, whether there is demand for the location, and if the house is well situated to appreciate in value overtime.
For example, a suburban house with 3 bedrooms is more likely to be bought as a family home if it’s near a good school, in a safe area, and child-friendly. The same property near a university is prime for student house sharing. With easy access to a big city and investment pumped into the surrounding area, local house prices are also likely to go up.
Now, let’s move on to some practical tips you can use to become a pro house flipper.
Specialise in a local area
There’s temptation to cast a wide net when searching for affordable houses to flip. But each region has its own set of criteria for determining house prices and this varies a lot. Switching location is like moving companies. You still have your skillset but it takes a while to relearn and find your bearings again. When you learn one locale really well, spotting the right house to pounce on quickly becomes intuitive because you’ve already done the research. You develop in-depth knowledge about which areas are up and coming, community reputations, good transport links, school catchment areas, the demographic, labour costs etc . This will make your ability to calculate estimations much quicker and more accurate to spot the perfect opportunity to make money.
Pick somewhere near you because you’ll need to make frequent visits to the property. You’ll save mountains of time and money on transportation that each project will feel way easier to manage.
Network with estate agents and contractors
Related to this is building up relationships with local property sellers and contractors. The world of property isn’t always fair and backdoor deals do happen. Sometimes when a bargain comes onto the market, estate agents might inform certain property investors first and even deter external bidders. I’ve even had to bypass estate agents myself in the past and contact the owner directly.
You also want building contractors who you can rely on to do a good job for a reasonable price. High quality tradesmen tend to be busy but if you build trust with them then they will make time to slot you into their schedule. Also, if you’re bringing them regular work and they enjoy working with you, they’re far more inclined to give you special rates.
Market research is key
You’ve heard it before. Location, location, location. Do your market research and educate yourself on everything that contributes to the increase AND decrease of a house’s value. That includes the points mentioned above and using trends, news and statistics to understand what’s in rising demand and provides an opportunity for growth. A lot of the time external changes like business investments creating more jobs in the area can have a knock-on effect on surrounding house prices. Ever-changing lifestyles also come into play. Many people now use smart home systems or value energy efficient EPC ratings in the midst of energy price hikes. Families likely need a convenient parking space for a large SUV.
Look for poor marketing
Houses are often packaged to look desirable to buyers. While this is what you should do to create demand and bidding wars, you don’t want to be on the receiving end and overpaying. Instead, pay attention to listed properties online that don’t have much information or many photos because others tend to skip them. The sellers may think no one is interested and reduce the price to get rid when actually it was just marketed bad. Learn to visualise the size and shape of a room just from reading dimensions without relying on pictures, which are often deceiving with wide angle shots.
Avoid structual damage
Major structural work will cost a lot to fix but and often won’t provide the same added value to a house because it’s not as noticeable. Buyers generally don’t want to deal with these problems and if they do can negotiate a lower price. So, in addition to getting a surveyor to look over potential purchases, watch out for the following signs of structural damage when you go for initial viewings first:
- Cracks in brickwork, plaster, and stonework could signal serious settlement issues but may also be superficial.
- Uneven floors could be a foundation issue
- Bulging or leaning walls
- Doors and windows stick
- Roof leaks or sagging roofs
If you’re able to spot these problems ahead of paying a professional then you can abandon house prospects and therefore skip that part to save money. When you see bad signs, raise it with the property owner or estate agent and you may get an admission of known issues.
Pay survey and solicitor fees
When cutting costs there is temptation to skip on house condtion checks and legal fees but that can be a fatal mistake. A £300-600 survey will help you dodge repairs that set you back tens of thousands of pounds. If you don’t use a Conveyance Solicitor or a Licensed Conveyor when buying and selling houses you might find yourself delaying or collapsing the transer of ownership. They handle contracts, movement of funds, land registry so you have peace of mind rather than getting caught in a legal battle over house townership.
Have a plan B
Things don’t always go to plan. You should plan all projects thoroughly but never be too rigid as to depend on everything working out that way. For example, if you can’t find a cash buyer then offering other financing for ownership or renting out the house may be an alternative option. Keep that in mind ahead of time so you don’t end up in a position where you’re paying to maintain an unwanted, unoccupied property.
How to add value to a house
When flipping houses you want to focus on marketability. Changing the perceived value of the property counts more than actual practical improvements you can’t see. Most people won’t desire or appreciate that a roof is new because they just assume it shouldn’t have problems in the first place. Whereas a well kept front yard creates an immediate good first impression that positively influences the rest of a house viewing so they’re more likely to buy. That’s not to say you shouldn’t do essential repair work like plumbing and electrical rewiring if needed. Potential buyers will have a survey done to detect problems so simply avoid taking on projects with too much hidden repair work unless you’re qualified to fix them yourself or bought the house at a much lower price to compensate.
There’s no set rule for what to renovate because value differs by area and demographic. Appeal to a wider audience rather than niche markets, figure out what they expect to already be done and what flaws they’ll excuse. Though, typically, the following things are highly desirable and will add value to a property:
- Update the kitchen as this is often a make or break room for buyers.
- Paint the walls and replace floors for an affordable way to transform the space.
- Add brightness to rooms with well placed lighting.
- Replace the bathroom as it’s a small area that can look great without breaking the bank.
- Spruce up the front of the property to help create a halo effect.
- Make the living room feel warm and cosy. People want to envision themselves living there.
- Make the house energy efficient as more people become more conscious of saving money and the environment.
Other expenses to consider when flipping houses
Besides the cost of renovating the house, there are some other fees beginners should take into account when planning project costs:
- Legal fees
- Stamp duty
- Estate Agent fees
- Survey fees
- Maintenance/Holding costs – e.g. insurance, utilities, council tax
- Capital gains/Income tax (or corporate tax if you want to trade as a company)
Now you have a solid foundation to get started flipping houses. It’s a rewarding way to make money when you put the work in. And most wealthy people will put investment into property so you’ll gain some valuable skills for the future in any case.