Property flipping UK is rising in popularity, but is it considered a good investment strategy?
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, compared to the passive income you would receive from a long-term investment with little to no involvement.
Searching for a property to meet the needs of your project and budget can be difficult, but property flipping does make it possible to gain a large sum of money in a shorter time frame than 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, properties are purchased below market value (BMV), and buyers will then plan an efficient method to renovate the property to 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 is not entirely considered an investment because the profit you receive is earned, even when outsourcing building works, you are most likely going to be the one managing the project day-to-day. Flipping a house is time-consuming, which is why it is considered an active income rather than a passive one.
It’s not necessarily a negative route to explore. Still, it should be considered a business rather than an investment plan since most of your time will be invested in the flipping project 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 earned on investments that continues to increase with little to no work involved.
Active income – money earned in exchange for performed work. 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, and if you own the property for less than a year, you will be required to pay a capital gains tax rate based on your earned income.
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, mainly because when the building is complete, the market most likely will have moved, and prices will have risen again.
As long as you are looking to invest in upcoming locations with help from dedicated research, rents and cash flow are expected to rise with inflation. The longer you keep a rental property, the more equity will grow, and 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 expected to increase year-on-year for the foreseeable future and 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.