In times of buoyant property markets the subject of flipping is something which emerges time and time again. This is simply the action of acquiring a property, possibly making minimal improvements and then selling it on very quickly. There is no real way to tell how many flipping transactions are carried out each and every year but there is no doubt it is popular when markets are riding high.
Some people believe that flipping should be outlawed from the UK property market as it is simply a means of creating a profit at the expense of long-term investors.
Is there any risk?
Those who are calling for flipping to be heavily regulated and possibly outlawed are not always as vocal when markets are struggling and those attempting to flip properties rack up significant losses. The idea that flipping is a relatively risk-free pastime is not correct because as soon as you agree to buy a property you are taking a risk. Can you find a buyer? Will you be able to do your improvements within budget? Will you be able to bank a profit at the end of the day?
The simple fact is that there are significant risks for those looking to flip property so when considering the introduction of regulations limiting the upside surely there must be assistance on the downside?
Mispricing
Whether markets are moving quickly or static there are many instances of mispricing because at the end of the day a property is only worth what somebody is willing to pay for it. Those who chase the UK market with the intention of creating short-term gains by flipping properties are very knowledgeable, do their research and are very quickly able to spot mispricing opportunities.
If you think of the UK property market as an information exchange, we have a myriad of views going into the market which then creates a fair market price. The ability to spot a mispriced property, or a price which has not been changed to reflect recent market adjustments, is no different to spotting a share on the stock market which is perhaps undervalued.
Liquidity
Over the last few years we have seen much criticism of those looking to flip properties as well as shorter term and overseas investors. It is ironic that much of this criticism only emerges when markets are doing well with critics not so vocal when liquidity is an issue during difficult periods. Whether we like it or not, short-term investors, overseas investors and those looking to flip properties for a short-term gain add liquidity to the UK property market. At the end of the day, how many people actually buying a property today will be living there tomorrow?
Conclusion
It is ironic to see criticism of the UK property market and the array of short-term investment strategies in use today. Critics are never as vocal when markets are struggling and property flippers and short-term investors are losing money. However, once the market rises those who have often supported the market during troubled times can be the target of unfair criticism.