Pros and cons of flipping a property

I am covering tricky topics as they come along and as economic circumstances change for the worse even in Harrogate.

Certain things seem inevitable as the downside effects of high interest (mortgage) rates plus inflation along with the high cost of living depress property demand/house prices and rents as we head into 2023.

So here is a serious question we are still being asked.

What are the pros and cons of flipping property in Harrogate – where we have all lived in and enjoyed in a strong/robust and rising property marketplace for many years?

Flipping of course is the process of buying a property and selling it on quickly for a profit bearing in mind that almost all flips are carried on properties which will require significant renovation to add value.

So here are the basics:

  • Finding the property and buying at the right price – talk to your Estate Agent (I recommend Myrings). Search for properties listed as being in poor condition in good areas. Look for properties with a high square footage to low bedroom ratio Additional bedrooms have a big positive impact on the selling price . Please bear in mind the Auction option if you don’t need a mortgage – but again talk to your Agent.
  • Finance – not all Investors are cash buyers and most will need a good Mortgage deal. Talk to a good independent – whole of market – Mortgage Broker (I recommend Andrew Vickers from Dragonfly Financial Services Ltd) bearing in mind that some Lenders are reluctant to lend on any properties which are not in a habitable condition, most have early repayment penalties and others may have a minimum six-month ownership requirement.  
  • Purchase price – as a general rule most of the profit is based on buying at the right price – do lots of research and don’t pay too much.

Take 70 % of the full ARV (After Repair Value) of the property and subtract the full costs of renovation. This is the maximum you should pay to purchase.

  • Renovations, Timeline and Carrying Costs – you must know what specification/final finish is required and what it will cost to obtain the optimum/maximum selling price from your target Buyers.

Repair, Building and Decorating / Gardening costs can be considerable but there are all sorts of other additional costs to take into account to include:

  • Finance
  • Stamp Duty
  • Solicitors Fees
  • Estate Agent fees when selling
  • Capital Gains Tax
  • Survey Fee
  • Building Insurance
  • Utility Bills
  • Council Tax

Sadly it’s the Building & Tradesmen side of things which are a considerable uncertainty in Harrogate.

Competing to buy your property in a town full of professional as well as amateur property developers is the least of your worries.

Good local builders are so busy here you may have to wait 6 months if very major works are required. Good tradesmen are equally and often over–committed. Realistic waiting times (carrying costs) and contingency funds have to be included in your budget.

  • Tax  – if you flip as an individual it maybe considered as a trading activity and liable for Income tax on any profit. There may also be Capital Gains tax on any profit. If you buy, renovate and flip as a company you will be liable for Corporation tax on any profit or on money withdrawn. 

Just bear in mind that investing in property is not a fascinating hobby like stamp collecting, it’s a serious business. Talk to your Accountant. 

In Summary – property investment is a ‘high wire’ act. The rewards can be very quick and very considerable but so are the risks. The “safety net” of high demand and a steady rising market in the Teflon town is still here but so is the possibility of the unexpected as per serious renovation problems, times and costs.

If you are a Harrogate homeowner, or involved in the local property market in any way then please contact us for a free no obligation chat about the above and the property services we provide in Residential Sales & Lettings.

Charles.

Charles

About Charles

This blog follows the residential Sales and Lettings market in Harrogate, Knaresborough and surrounding villages.You will find information, analysis and guidance here along with news about Harrogate. I’m Charles Myring working in the Myrings Estate Agents Ltd business alongside my son Simon , daughter Gemma and dedicated sales teams. If you're thinking of Selling / Buying / Letting / Renting property locally Myrings would be happy to assist.