Thursday, 15 August 2019

Can flipping property still make money?

Remember all the TV shows that used to feature people buying a rundown property, doing it up and selling it on for massive profits? Well that is mostly a thing of the past, as the number of homes in England and Wales that have been sold more than once within a 12 month period (known as flipping) has fallen dramatically since its peak in 2004.

Last year 18,630 homes were flipped in England and Wales, which was some 69% less than the 60,430 homes that were flipped in 2004. And whereas in 2004 this meant 4.8% of homes sold had been flipped, last year this had fallen to just 2.1%. Even so, it means that last year saw £3.9 billion worth of property flipped, with the average seller doing so for £30,150 more than they paid for it (a 22% increase). This however was a much lower gain than the 32% average increase made in 2004.

All of this brings about a couple of important points. Firstly, that house price indexes don’t necessarily compare apples with apples. And secondly, that flipping property has become far less profitable.

It always struck me as odd when I used to watch Property Ladder that a property bought for £100,000 that was later sold for £150,000 had meant its price had increased by 50% according to the Land Registry data. Of course, that didn’t take into account the £30,000 spent on a refurbishment, which actually meant the property had increased by ‘only’ 15% (incidentally that’s about the annual rate of house price growth in the UK between 2000-2007). Maybe at least some of the house price growth we often refer to is simply down to the money being spent upgrading tired houses?

It’s said that flippers play an important role in the housing market by improving existing stock and bringing empty homes back into use. Consider also that it takes less money for a first-time buyer to buy a done-up home for £150,000, rather than buying the shell of a property for £100,000 and spending a further £30,000 on the improvement works (because mortgages are based on the purchase price, rather than having to use their own money on the refurbishment costs).

In the past year in Chichester there are only three properties that have been sold within 12 months of having previously done so. Only one of them is likely to have made a ‘profit’ when you factor in all the costs. When you consider the buying costs - solicitors fees, legal costs and stamp duty (including the 3% surcharge for additional homes) and selling costs - solicitors fees & estate agents fees, you’re likely to need a price increase of around 10% before any changes are made just to break even.

I recently highlighted the case of the three-bedroom house in Charles Avenue that was purchased at auction for a cracking £208,000. Problem is, with buying costs that’s likely to have been closer to £220,000 before getting the keys. That’s still a good price if it was held for the long-term, but it’s had a quick tart up and is now (after several price drops) sitting on the market unsold for £239,000 (with another £4,000 ready to spend on selling costs). That doesn’t leave much profit after the refurbishment costs to declare to the taxman!

Flippers tend to operate when house prices are rising to really maximise their profits, which is why the period between 2000-2007 was so fruitful. But with house prices stagnating and various tax changes, property is very much a long-term game in my opinion, rather than a way to make a quick buck.

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