How to invest in flipping houses banner with house in need of upgrading behind it

Categories: bridging loans | guides | property investment guides | bridging loan guides

Flipping houses has become an increasingly popular way to make money in the property market. Essentially, flipping a house involves buying a property, renovating it, and then quickly selling it for a profit. While it can be a great way to make a profit, it is important to approach it carefully and with a solid plan to ensure this is the outcome.

In this guide, we will explore what flipping houses involves, how you can fund a project with a bridging loan and give you tips on how to succeed.

What is involved with flipping houses?

Flipping houses involves buying a property that is in need of repair, renovating it to increase its value, and then selling it for a profit. This process can be quick, with some investors aiming to complete the whole process within a few months.

Finding the right property

When flipping a house, finding the right property is key. You want to look for a property that is in a good location and has potential to be popular with prospective buyers, once renovated.

The property should be priced low enough to leave room for renovation costs and still allow for a profit margin.

Look for properties that have potential for improvement.

Those that require cosmetic updates will be simpler to upgrade and are likely to take less time to turn round,. You can use what is referred to as a light refurbishment bridging loan to do this work.

Properties that need more significant structural work would need a heavy refurbishment bridging loan.

If you were demolishing the property and rebuilding, then development finance would be more appropriate.

The margin between the price you have to pay to buy a property and what you can expect to generate from its sale will vary. Cost of labour and materials, the local property market, level of competition when you are buying property and demand from buyers once the project is complete will all influence your project.

Crunching the numbers

Before purchasing a property to flip it, it is important to calculate the potential profit. Start by estimating the cost of renovations and then subtract that from the estimated sale price. This will give you an idea of the potential profit margin.

Be sure to take into account all costs associated with the purchase and sale of the property such as legal fees, estate agent fees, and stamp duty.

Renovations and upgrades

Renovations and upgrades are the core of flipping houses. The goal is to increase the value of the property through strategic improvements.

However, it is important to balance the cost of renovations with the potential profit. You want to focus on renovations that will give the biggest return on investment. For example, updating a kitchen or bathroom, or adding a bedroom can add significant value to a property.

Working with a team

Flipping houses involves a team effort. You may need to work with contractors, architects, estate agents and a bridging loan broker to get the job done.

An estate agent can help you assess the value the property could reach after your renovations are complete.

If you are making structural changes, you may need an architect or structural engineer to help you.

Contractors can give you an estimate of costs for your planned renovations. On medium to large projects, it is sensible to have an amount for contingency. This is in case costs exceed the plan, should something unexpected arise whilst the renovations are being done.

A bridging loan broker can help you raise funds to buy a property, if you do not have the full amount in cash.

It is important to build relationships with reliable professionals who can help you achieve your goals. Make sure to communicate your vision clearly to your team and have a solid plan in place.

Bridging loans for flipping property

You may not have all the money, in cash, to buy a property to flip. If this is the case, then a bridging loan is a suitable product to use.

A bridging loan is only intended to be used over a short period of time, between 3-12 months (sometimes up to 18 months). Bridging loans are secured against the property you are buying, or another property you own.

A bridging loan does not require a property to be fit for someone to live in, but a mortgage would. As a result, bridging loans are more expensive than mortgages. This is because there is more risk to a lender to secure a loan against a house that cannot be lived in, than if the house is in a fit state to be occupied.

When you take out a bridging loan for flipping property, you must be confident you can repay it in full when you sell your property on. To be successful, the best outcome for you is to make a decent profit after you have deducted your costs.

Having established that your project should make you a return on investment, you can speak to a bridging loan broker to arrange a loan.

A broker will find you a bridging loan suited to your wants and needs. You will need to let them know you are flipping property and not intending to keep the property to live in or rent out.

If you change your mind and choose to keep a property you originally intended to flip, a broker can also help you secure long term finance.

Flipping property vs. long-term investing

Flipping houses is not the only way to make money in the property market. Long-term investing, where you buy and hold a property for rental income and capital growth is a viable option.

While flipping property can offer a quicker return on investment, long-term investing can offer a more stable and greater income stream over time. It is important to consider your goals and financial situation before deciding on a strategy.

Risks and challenges

Flipping houses can be a lucrative venture, but it also comes with risks and challenges. The property market can be unpredictable, and renovations can go over budget or take longer than expected. Property values can also go down as well as up. It is important to be prepared for unexpected challenges.

To make money from renting property, you generally need to be prepared to invest over several years in order to make significant amounts of money from it.

This is because the profits you make can ebb and flow depending on mortgage interest costs.

If you do not have a mortgage and own a property outright, then the income you make will depend on the rent you can charge and any costs you incur (e.g. maintenance costs).

Flipping houses – a summary of the process

Flipping houses can be an exciting and profitable way to invest in the property market. However, it is important to approach it carefully. Finding the right property, crunching the numbers, and working with a team of professionals are all important aspects of flipping houses.

Whether you choose to flip property or focus on long-term investing, it is important to consider your goals and financial situation before deciding on a strategy. With careful planning and execution, flipping houses can be a successful investment.