- 2 December 2020
- Posted by: mikey0809
- Category: Mortgage
Why doing up houses can be a flipping good idea… but as prices soar, experts warn the market may overheat
For 17 years, the BBC’s Homes Under The Hammer has followed the travails of aspiring property developers, who buy unloved homes at auction before turning them into swish, lucrative real estate.
And while it might be a stretch to suggest daytime television is responsible for fuelling a housing trend, new figures show that so-called ‘home flipping’ has hit a 12-year high.
The art of ‘flipping’ is defined as buying, renovating and selling a property within 12 months. And it is a relatively quick way to make good cash.
The average profit this year is £40,955, a 26 per cent return, up from profits of £29,685 at 21 per cent in 2019, according to Hamptons International.
But anyone hoping for a quick flip in today’s market will be met with long delays as conveyancers and surveyors struggle to cope with unprecedented demand.
So is now the right time to get involved? And does it work?
John Howard, who has bought and sold more than 3,500 properties in the UK, thinks it might be better to wait. He says buyers are currently paying top prices on the basis that the market will continue to grow.
‘I don’t think that will happen,’ he says. ‘My advice is let everyone else buy this year. Be patient. Doing one good deal is better than ten bad ones. The worst thing that can happen is you will still have your money next year.’
A rule of thumb for flippers is to aim for a minimum profit of 20 per cent. This is because plenty can go wrong, including underestimating renovation costs and short-term dips in the market.
For example, one might hope to buy a property at £200,000 and sell it at £300,000, factoring in costs of £50,000.
‘The more difficult and distressed it is, the less competition I have,’ he adds. ‘But to do that you need to know what you’re doing. The simple refurb and sell is what everyone else is looking for.’
Deborah Marshall says flipping houses has become an ‘obsession’ after she first started renovating rundown properties ten years ago.
The 47-year-old flipped her fifth property in ten years last week — a three-bedroom home in Cottingham, East Yorkshire.
She bought it with her husband Paul, 44, for £209,000 in November last year, but sold it for £300,000 – a £40,000 profit – via Purplebricks after spending £50,000 on renovation, fees and tax.
The property was a probate purchase and was badly run down, Deborah says. The couple restored its old features, including original panelling in the hallway and staircase, and fitted a new kitchen and bathroom.
Deborah used to work as a carer and is now studying to be a podiatrist, while Paul is a professional joiner. The couple do most of the work themselves and live in the homes while they are renovated.
They reinvest profits from one project into the next.
Deborah says that ‘the hardest thing about it’ is living on a building site. While working on their previous project, she had to use an outdoor sink during winter to wash the dishes, with no hot water.
They have lived in houses for months without heating. Deborah adds: ‘People don’t appreciate what you go through. They just see the final product and think “Wow that’s brilliant”, but it’s a real hard slog.
‘When you come in from work, you start work again. It’s not for the faint-hearted. But if you love it, you get better at it.
‘It’s a massive hobby, and as much as it is tiring, it’s completely enjoyable because it’s the end result that’s the buzz.’
Former DJ Mike Smith entered the property business in 2013, primarily as a lettings agent. This year he carried out his first ‘back-to-brick’ renovation in which he stripped out a property and started from scratch.
Mike bought a three-storey home in Sneinton, Nottingham, for £95,000 in January last year. He had to repair a hole in the roof, the electrics and plumbing before he could begin the redesign.
Having spent around £80,000 fixing up the property, he put it up for auction and is now selling it as a buy-to-let for £250,000, with completion due on December 18.
Mike, 37, says the key to success is buying at the right price.
Nottingham is a growth area – average house prices have jumped by almost 10 per cent in the past 12 months to £226,877, according to Zoopla – and he believes the property was worth £25,000 more than he bought it for even in its sorry state.
‘It was on for £150,000 but a number of deals fell through and the vendor wanted shot of it,’ he adds. ‘It was pretty much derelict when I bought it. Some people will see a hole in the roof and see it as a risk. I saw it as an opportunity.’
Mike is one of many who believes flippers won’t be perturbed by market uncertainty if the price is right.
So far this year, 2.5 per cent of homes sold in England and Wales have been flipped, which could equate to 23,000 transactions by the end of 2020, says Hamptons.
The estate agency says the spike in profits has been helped by a shift from flats to houses.
Just 5 per cent of flipped homes bought and sold since the market reopened in May were flats, down from 20 per cent in 2019.
Average house prices have also soared by 6.5 per cent since last year, according to Nationwide, as the stamp duty holiday fuels demand. Second-home buyers still have to pay a surcharge of 3 per cent.
The market is a mix of full-time developers, part-time hobbyists and cash home-buying firms that snap up dishevelled, cut-price properties.
The latter, who have been accused of preying on vulnerable homeowners, can give flippers a bad name. But property expert Henry Pryor says investing time and money into improving the nation’s housing stock is ‘demonstrably a good thing’.
He adds: ‘If you’re making £10,000 on a property, for a professional developer it’s probably not worth doing.
‘A flipper is someone who has bought a rundown property and had probably as much fun as they’ve made profit in renovating it. This is almost a British holiday. It’s as popular as golf, football or fishing.’
It’s happening in Burnley more than anywhere else. The Lancashire town was named the flipping capital of England and Wales for the sixth year running.
Around 8 per cent of homes sold there are flipped, of which 81 per cent were bought for £40,000 or less, under the threshold at which stamp duty is payable.
The North-East and North-West see high proportions of homes flipped because of lower house prices. It has been two years since anywhere in southern England made it into the top ten.
Colin Haslam, manager of Bridgfords estate agents in Burnley, says there is no sign of a slowdown. He adds that the town has benefited from council rules requiring that homes have to be up to scratch when sold, which has filtered out ‘cowboy’ investors.
‘The housing stock has definitely improved,’ he adds.
‘These aren’t speculators pushing up prices. I don’t see negative feedback because a town like Burnley needs investment.’