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Flipping homes was coming back but has stopped due to rising mortgage interest rates and falling house prices.
Flippers buy and renovate a property before putting the home back on the market to sell at a profit within a short time.
To run a successful flipping business, investors need building and budgeting skills - and a fair dose of luck.
New investors can quickly lose money by underestimating their skills and the time and money needed to complete a project.
Research by estate agents Hamptons reveals 26,340 homes were bought and sold within the year to April 2023. This is the highest number since the global final crisis in 2007, accounting for 2.3 per cent of all sales.
To reach the market heights in 2007, flippers must redouble their activity as the strategy involved more than 52,000 sales making up 3.7 per cent of all homes sold.
The report from Hamptons explains that the recent stamp duty holiday triggered the flipping bonanza even though investors paid a three per cent surcharge. The data reveals 44 per cent of flipped homes were bought during the holiday.
The firm also says strong house price growth helped flippers capitalise on their profits. Last year, buyers made an average gain of 27 per cent or £42,800 on flipping a home.
However, flipping opportunities decrease as house prices fall and building costs increase.
Investors in the Northeast had the most flipping transactions, although flippers in London made the most money thanks to higher property prices.
Region | % homes sold within 12 months | £ difference between purchase & sale price | % difference between purchase & sale price |
North East | 3.80% | £26,230 | 36% |
West Midlands | 2.70% | £34,580 | 24% |
North West | 2.60% | £36,620 | 31% |
East Midlands | 2.50% | £33,800 | 24% |
Yorkshire and The Humber | 2.50% | £33,350 | 28% |
Wales | 2.30% | £42,310 | 39% |
South West | 2.00% | £49,990 | 21% |
East | 1.80% | £43,150 | 30% |
South East | 1.60% | £46,380 | 19% |
London | 1.60% | £93,730 | 21% |
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England & Wales | 2.30% | £42,800 | 27% |
Source: Hamptons
House flippers should know that HM Revenue & Customs taxes their transactions differently from buy-to-let.
Flipping is considered a business, not an investment, and is taxed like a self-employed builder or construction company.
In short, that means flippers pay income tax or corporation tax but no capital gains tax on their profits.
For this reason, many flippers incorporate an SPV or ‘special purpose vehicle’ to shield their flipping profits from HMRC.
The SPV handles the finances of a single property, paying corporation tax on any profits. Flippers can then withdraw their share of the profits as payroll or dividends.
Flipping entails:
Flipping is viable in all housing markets, but the number of opportunities decreases when house prices fall as there is no longer such a large margin for profit.
Trading as a company often protects flippers from paying higher rates of tax as individuals due to the significant gains that can be made on some properties. These gains push flippers into higher tax brackets, whereas money can be left in a company to avoid higher taxes.
The long-running BBC TV series Homes Under The Hammer is an excellent place to start for newbie flippers. The program follows developers who have bought run-down properties at auction. Watching can highlight the development pitfalls and offers some ideas for refurbishing a property for profit.
Funding a development project is not always straightforward, as banks and building societies often decline property mortgage applications. Most developers raise money by taking a loan against their homes, going into partnership or accessing bridging finance.