Wednesday, 8 July 2015

Why Are There So Few 'Flipping' Good Property Deals In Sunderland?

A well established tactic for making short term gains from property investment is to buy a property then sell it on at a profit a short time later - a process known as 'Flipping'

I've been looking into recent sold prices in Sunderland and I was quite surprised by just how few 'Flip' successes there look to have been in Sunderland in recent years


When looking for 'Flips' you'd typically expect one sale to be followed by another within 6 - 18 months of the initial transaction, depending on the timescale to complete any improvement work required (and sometimes if there is a mortgage the lender may have penalties for cashing in or remortgaging in within 6 or 12 months)

So why have there been so few Flips in Sunderland?

Sunderland has seen pretty much static house price growth in recent years, and at £137,650 the average sold price in Sunderland is still much lower than at the peak in 2008 when it was £180,210

This will make it harder to profitably Flip a property, certainly compared to doing so in the Southeast where it is possible to make significant profits simply from the increase in value accrued during the few short months of the buying (and/or renovation) process!

In a market like Sunderland that's not enjoying double digit house price growth the secret to profitable Flipping will be to buy well (typically a run down or dated property, or a distressed sale) and building in capital growth that beats the normal sluggish organic growth rates through the improvement works, or at the very least brings the property back to the 'normal' market value

It may be that with relatively low valued properties in Sunderland, there just isn't the same scope for negotiating a big enough discount to fund the improvement works and then make a worthwhile profit 

As an example, assuming a £70,000 purchase price, a healthy £15,000 budget for renovations and a final sale price of £100,000 leaves £15,000 profit? Or does it?

Naive investors often forget to factor in transaction costs (assumed to be 10% of the final sale price when buying and selling) and the holding costs (interim mortgage payments, insurances, loan interest etc) that can easily eat into the profit and mean investors can actually lose money!

This may suggest that to profitably Flip a property in Sunderland investors, may need to look at higher value properties (where they are likely to make larger returns), which may make funding such a venture prohibitive or less attractive than other investment options

It may also be that given Sunderland allows investors to get better-than-average monthly Yields, the majority of investors consider it better to get 6% - 8% Gross Yield over the medium to long term (and get a bit of capital growth into the bargain) rather a than make a one-off 10%-15% from a short term but risky Flip
Unfortunately what we see in Sunderland is lots of 'Flops' - this is the opposite of a Flip where a property is sold at a much lower price than the previous transaction - Flatlining house prices don't help this but many Flops are distressed sales where personal circumstances, rather than market forces, dictate the sale and the sale price



But today's Flop could turn into a future Flip - if the most recent sale was significantly below the prevailing market price

It may be possible to make short term profits from Flipping in Sunderland but the value of getting local expert advice can't be underestimated to ensure you buy the right property, in the right area, for the right price, along with carrying out detailed analysis of the likely returns and factor in all costs involved

If you'd like to have a chat about anything contained in this post or any aspect of the Sunderland property market give me a call on 0191 567 8577 or email neil.whitfield@belvoirlettings.com




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