Property investment in the UK can reap massive rewards, and there are a number of different methods to achieve optimum gains. Many buyers play the long game: invest in a property and benefit from monthly rental yields by letting it out to tenants, before selling it in five, ten or more years once house prices have risen.
But for others, ‘flipping’ property is a more enticing alternative. This normally involves buying a property that needs work, refurbishing it, and then quickly selling it on for a profit. Securing the property at a reasonable price is key here, and some investors can make hefty returns using this method.
However, with great reward often comes great risk. Nothing is guaranteed, even in today’s robust housing market conditions, so investors should always exercise caution before signing on the dotted line.
Pros: Buying to refurbish can be lucrative
The most recent research from Hamptons International shows that around 19,000 properties were bought and then resold less than a year later since the start of the pandemic; which is an indicator of how many investors ‘flipped’ their properties.
It also found that the average profit for investors who did this was £48,190. This is certainly an appealing figure for investors considering this method. While this doesn’t take into account the money spent on refurbishing, it indicates the sort of returns investors can expect.
UK house prices have continued to climb over the course of the pandemic, and opinions are mixed as to when this acceleration may finally plateau. Most agree, though, that certain areas in the UK are set for continued price increases, so these locations are a good place to start when looking for natural capital appreciation. For example, JLL predicts that Manchester will see property prices rise by an average of 4.7% per year over the next five years.
For those investors with time on their hands, doing much of the renovation work yourself can further enhance the profit at the end of it. And there are certain jobs that don’t cost much, but are known to enhance a property’s value, such as improving the front garden and aspect of the house. Updating sockets and switches is also a relatively cheap but effective way of transforming and modernising a property.
Cons: There are some pitfalls involved
One of the most standout points that might make some investors hold back from buying a property to refurbish right now is the cost of renovation. Over the past 18 months, building supplies and materials have become more difficult to obtain, and have risen in price as a result. The shortage of HGV drivers has exacerbated this situation.
What’s more, thousands of homeowners whose lives have been turned around as a result of the pandemic are making big changes to their homes to make them work better for them. As a result, securing tradespeople can be more challenging right now.
Furthermore, it’s easy for novices to underestimate how long refurbishment projects will take, meaning that capital is tied up, potentially exacerbated by expensive bridging loans.
When buying to refurbish, it is vital that the numbers make sense, and that the property can be sold at the end for more than the cost of purchasing and renovating it. There are other factors to consider, too, such as stamp duty, legal fees and mortgage costs. This is where investment analysis is crucial.
For those investors who come to sell and find that they are unable to achieve a high enough price to merit their output, the best option is often to hold onto the property until prices rise. Investors who are able to do so could run it as a buy-to-let rental, making money through monthly yields, before selling on at a later date. However, this won’t be an option for everyone, so investors need a good plan in place for if the sale price does not meet expectations.
Some may opt to hand the whole process to an expert, and this is where companies such as our partner Sandstone come in. They offer a one-stop service: buying, refurbishing and letting on behalf of clients, with the experience of having thousands of deals successfully completed.
Understanding the numbers and what you can achieve will help you plan. Get started today and register for BellPepper for free. Enjoy access to our exclusive Location Spy and a targeted snapshot of the area you are considering, or upgrade to Investor for your personalised BellPepper Investor Score on the property you are considering.