While other investors prefer a more long-term strategy to get the most out of their acquisitions, flipping real estate is a tried-and-true investing strategy that works for some investors. The founder and CEO of Market Financial Solutions, Paresh Raja, lists some benefits, drawbacks, and factors.
Thanks to programmes like Homes Under the Hammer or Flipping Fast, real estate flipping has become a mainstay of British television. Though entertaining, these programmes don’t often accurately represent the sector and just give a cursory overview.
Buying, remodelling, and selling a property quickly is much more difficult due to rising interest rates and inflation. Nevertheless, between March 2020 and late 2021, it is predicted that 19,000 houses were flipped, bringing in an average profit of £48,190.
There is no doubt that investors may make much money in the flipping market. Still, there are important factors that investors must consider if they want to minimise risks and maximise returns.
Factors To Consider Before Flipping Property
What are the most important things for investors to consider before starting a flip project, given the advantages and disadvantages of doing so?
First and foremost, investors need to be informed of the trends influencing today’s real estate market because these trends will affect the features and specifications of their flipped property.
As an illustration, 63% of would-be homebuyers say they want their next residence to be environmentally friendly.
Therefore, adding environmentally friendly features will satisfy demand as climate change becomes a more crucial concern and retain its worth despite any green legislation that may be put in place in the coming years.
Second, the classic adage “location, location, location” is crucial when flipping a house. For instance, buying a building in a neighbourhood where prices are going down or staying the same could significantly negatively influence the profitability of a flipping project.
If they want to obtain the highest return on their investment, investors must understand which regions of the nation are experiencing the fastest price growth.
Last but not least, investors must choose whether they will rent out or sell their finished flipping project. There are undoubtedly benefits and drawbacks to each choice.
The benefits of selling include a quicker return on investment and less property management work; nevertheless, the profitability of the sale may be impacted by capital gains and other sales taxes.
As a result, those who opt to rent need to manage their homes (or employ an agent), but they could gain from a stable income and an asset that might increase in value over time, provided that it is not left empty for extended periods.
How To Finance A Flipping Project
Any entrance into the real estate investment business requires financial solutions that best meet the needs of the investors due to the wide range of scenarios that can arise.
Investors should look for lenders who can give them the most excellent flexibility and quickness when flipping properties to locate one that can best accommodate their unique circumstances and the market’s competitive nature.
One common starting point for flipping projects is an auction house with a 28-day payment deadline. But many high street and traditional lenders take months to approve mortgage or home improvement loan applications, which could jeopardise purchasing a perfect flipping property.
Investors can avoid missing out on their aim by using the services of a specialist or bridging loan lender, many of whom can review applications and deliver loans in a matter of days.
Obtaining financing for an undervalued or abandoned property can be challenging since high street lenders frequently have tight guidelines and requirements that must be followed.
Instead, lenders who underwrite from the beginning of the application process and evaluate applications individually will be better positioned to take a flipped property’s future worth or income into account, enabling them to offer loans that conventional lenders might decline.
The UK is currently experiencing a housing affordability and shortage crisis. Therefore, flipping houses can aid in resolving this issue and increase the nation’s housing supply. Still, investors must have the backing of their lenders and carefully analyse the different factors that might make or break a flipping property.
