Binoculars housing market prediction

Another sign that property investment is top long-term asset

Fewer people are “flipping” property as profits from doing up a house and selling it on quickly shrink, but it’s an opportunity for investors to consider their long-term goals.

Flipping property, where you buy at a low price before selling shortly afterwards for a profit, was once a hugely popular way of making money, made more mainstream through television programmes like Homes Under The Hammer. It can be particularly effective when buying a “doer-upper” that requires renovation, but also works for some property investors who buy off-plan at a low price and then sell just before completion for a higher price.

However, new research by Hamptons International shows that, while it’s been a successful business for some, the boom has been relatively short-lived. According to the estate agency, the number of homes being flipped last year was 69% lower than it was in 2004 – calculated by looking at properties that were bought and sold in the same year.

Of all the homes in England bought and sold last year, only 2.1% of them (18,630) were bought and sold within the year, compared to 4.8% in 2004, when flipping was at its peak.

Smaller returns

Gains from doing this have also fallen from 34% in 2004 to 22% last year, although this still equates to £30,150 made by each “flipper” on average in 2018, which is a decent profit.

Aneisha Beveridge, head of research at Hamptons, says: “Flippers play an important role in the housing market by improving existing housing stock and bringing empty homes back into use. Yet the number of flipped homes has fallen considerably since its heyday in the early 2000s.

“Flippers tend to operate when house prices are rising, to really maximise their profits. Between 2000 and 2007 house prices were rising at an average annual rate of 13%, so there were plenty of opportunities for flippers to make profits.”

“But following the financial crash price growth has slowed, and this combined with tax changes has meant that generally it’s harder for flippers to make as much of a return as before.”

Looking further ahead

People have been profiting from property investment in the UK for many years. While it can generate a steady income through rental returns, as house prices inflate money can also be made through capital appreciation on sale of the property. It’s a hugely popular way of saving for retirement as bricks and mortar makes for a solid investment, with much less volatility than many other investment vehicles.

Like any asset, values can go up as well as down. Flipping property, while lucrative for some, has the potential to be a much more risky strategy, as you will be open to short-term house price fluctuations that can happen over the course of the year. To succeed, you must buy just before prices go up in that particular area, combined with being able to carry out any work that needs to be done on the property at an optimum cost to turn a profit – and then you need to find a buyer.

By contrast, those who invest for a number of years are much more likely to see steady inflation, especially as more investment and regeneration comes to an area, while also enjoying a steady income stream from letting a property out.

The theory of the 18-year property cycle supports this strategy further – read our article on why this could be the best way of viewing property investment.

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