Flipping property is an integral part of an off-plan professional's arsenal
Hey guys,
I am often contacted by investors from all around the world and asked about flipping property or simply “selling before completion” a property they have bought off the plan. Now flipping properties is a massive benefit if used correctly, but it is never (that's right I said ‘never') a given that you can flip.
I also do not believe that flipping property is advisable during the end of a boom cycle even though many property experts (ha… salespeople!) will tell you that you can. In over two decades I have seen far too many investors become unstuck thinking they can flip.
Let's take a look at why flipping is harder than you may think:
Not too many banks actually allow assignable contracts in the UK anymore
It is a ridiculous display of poor performance by the banks but the reality is they simply don't allow it, so your market is limited to cash buyers, overseas investors and a very limited amount of lenders.
Owner Occupiers generally want to see the finished product
Most owner occupiers want to see the finished product and they won't buy your property until it is complete. So this generally means that your market is restricted to investors just like you.
Investors want to make money from the deal
Dealing with investors means they want to buy low so they can get a deal, they, in many cases, are more price conscious than owner occupiers who are driven more by emotions.
Investors have an inflated idea of what a property is worth and agents don't help this
The investor who is flipping the property will in many cases have spoken to an agent or gone on a property website and decided the price they want. This is more often than not, what the property is worth new to buy from the developer, and in many cases more. After all, estate agents always practice ‘sell up, manage down', where they give you the highest possible price and then manage your expectations down to reality.
So when you put an investor at one end with an inflated value of what a property is worth and an investor at the other (as the property is still off plan) who wants to make money, the two often don't meet.
Add to the mix an investor that thinks they know better
I often find that many investors think they know better than the market so they refuse to move on the price and think that its the agents problem. If they are lucky they get a buyer at the last minute which confirms they were right, When actually they were lucky… I have seen just as many people have to take a property through to completion because they didn't listen to reason and worse I have seen many more lose their deposit if they couldn't complete.
This final reason is the feedback I get from countless agents we deal with, unfortunately a lot of the time its from international investors who are being told by seminars and exhibitions a load of hob-nob about pricing and what they should sell for.
Another factor in flipping is that often Estate Agents are bombarded with requests to flip property by investors who are desperate to sell as they got mis-sold the costs associated with the purchase, even bought two on the guarantee that the selling agent would flip it for them. However when it comes time that agent is nowhere to be seen. Desperate people tend to act desperately rather than rationally.
Are your contracts assignable – find out before you buy
Flipping property also requires that the contracts must be assignable to another party and even with this you still may have to get permission to assign from the developer which means don't leave it until the last minute. Give it at least 3 to 6 months before or earlier.
Are you building wealth or making money?
All this being said, property flipping is a fantastic way to make money in the right market. However, the one point I will finish on is that if you flip, you are not building your portfolio and that will affect your long term wealth prospects. Flipping effectively means you are buying in one (cheaper) market selling into a higher market and then if you buy another property it is bought in that higher market. Consider the costs associated with flipping and buying into another market.
If your strategy is good then by all means flip but if you are just flipping to put money back in your bank then you should really consider what you property investment strategy is.
Call the team today on +44 (0)207 923 6100.
Live with passion and fun,
Brett Alegre-Wood
