Property Flipping UK: Is it Considered a Good Investment Strategy?
This article was updated on Thu 1 Feb 2024
UK property flipping is on the decline, so is it still considered a good investment strategy?
Property flipping UK wide reached its highest point in the noughties during 2007 with 52,950 properties sold. These properties were bought, converted with refurbishment and quickly sold. Flipping would go on to account for 3.7 percent of the property market in that year. Sadly however, going from 2009 the amount of properties going through the flipping process are an average of 2% in the market each year. This typically represents 26,000 homes, a decline virtually half of its peak.
Property flipping is purchasing a property to sell quickly for a profit, but there are some considerations to take into account before diving into the market. Making a profit on a flipped property requires work, often including making improvements to the home, not like the passive income you can receive from a long-term investment with little to no involvement.
Searching for a property to meet your projects needs and budget can be difficult. Property flipping can make it possible to gain a large sum of money in a shorter time frame. This when comparing with a traditional buy-to-let. However, there are risks associated with flipping every investor should be wary of.
Flipping is not technically considered ‘investing’
When flipping, you purchase below market value (BMV), and plan an efficient method to renovate the property. Doing so at the highest standard possible to increase its value. Properties are mostly discovered at auctions and the more run-down, the better deal you will get.
While the possibility of a substantial profit is high, flipping isn’t really an investment because the profit you receive is from an earning. You may be outsourcing building works, but you’ll most likely be the one managing the project day-to-day. Flipping a house is time-consuming, which is why we consider it an active income rather than a passive one.
It’s not necessarily a negative route to explore. Still, you should consider it a business rather than an investment plan. We say this because you’ll be investing most of your time in the flipping rather than investing money and seeing an effortless return.
Passive vs. Active Income
The key difference between buying and keeping properties, and buying then flipping properties, is that buy and hold offers a passive income while flipping provides an active income.
Passive income – money you earn on investments that continues to increase with little to no work on your part.
Active income – money you in exchange for work you’ve put in. From a salary to profits from flipping houses. Regardless of who puts the construction work in, you are responsible for actively engaging in the process.
What to consider when flipping:
Inconsistency in income: Those looking to flip properties instead of a day job need to consider whether they have a higher income, as they will only gain an active profit when actively working on flipping projects.
Taxes: Flipping requires extra costs from buying and selling. If you own the property for less than a year, it requires you to pay a capital gains tax rate based on your the income it creates.
Investing in long-term properties:
While property flipping offers an instant and irresistible reward, long-term investments provide smaller, more regular streams of income, regardless of whether you decide to rent it out or sell it in the future. With off-plan developments and new build properties, you will always be making money. When the building is complete, the market is likely to look different, and prices will be higher.
As long as you are looking to invest in upcoming locations, and and you’re dedicating time to research, rents and cash flow is likely to rise with inflation. The longer you keep a rental property, the more equity will grow. If you decide to sell, later on, you can usually enjoy an impressive return.
Invest with Knight Knox
Deciding between these two strategies will depend entirely on your financial situation and future objectives. We recommend a long-term investment strategy, which provides the most promising outcome and returns. Flipping properties work best for short-term capital gains or periods where the stock market is low or limited.
With house prices and rents expecting an increase year-on-year for the foreseeable future with demand for the property showing no signs of slowing down, now is the perfect year to expand your UK buy-to-let portfolio. Get in touch with us today to learn more about better solutions to property flipping UK.
