Flipping: What Is It and What Does It Lead To?
Flipping is a term mostly used in the States to describe the process of buying a property, doing it up, and selling it on quickly. While it can be a term used for all types of assets, it’s commonly used in real estate, through buying distressed or foreclosed properties to sell on at a profit.
However, there are times that te term is used to describe illegal schemes or is used in a derogatory way for investments. In the UK, the term involves the British government and houses. Here’s a look at all you need to know about flipping and what it leads to.
Legal Flipping of Houses
Flipping in the real estate industry is extremely popular, but is sometimes considered as unethical or destructive socially. However, there are others who will say that it helps individuals out of ruin or to buy properties that would otherwise fall into disrepair.
The idea is that the a person will buy a house at a low amount. This can be for multiple reasons, whether though an auction, buying below profit because a seller wants a quick sell, or even from the bank at a low value due to foreclosure. A flipper will then make the necessary repairs and make other changes to help the property get back up to its value, before selling on at a profit – taking in the originally selling price and the cost of repairs into the value.
While the term flipping is used mostly in North America, the process is done in the United Kingdom and other parts of the world. In fact, there are TV shows that show the developers and the work that they put into their projects. In some cases, the properties will end up being rented out instead of sold on for profit for the longer-term benefits.
It can also be done with properties on a wholesale level, rather than just a personal level. Many wholesalers wil buy property from the seller and then resell to a third party. The wholesaler will often charge an “assignment fee,” which gives all the rights of the property to the new buyer.
Wholesaling is slightly different, in the sense that the wholesaler doesn’t have to actually buy the property—and many don’t even intend to. A contract usually has an “inspection period,” which allows the wholesaler to get out of the purchase should they not find a third-party in the end. There are complaints about this, as it can take properties temporarily off the market, increase the sale prices for the third parties, and put all but the wholesaler at risk.
Flipping of Other Assets
For the most part, the term is used when talking about housing, but that’s not the only type of asset that can be flipped. In fact, any type of asset can be used to “flip.” Car and product flipping are two popular ways to make a profit.
Both work in similar ways. Cars are popular for those with knowledge of vehicles, especially when it comes to the likes of classic cars. It’s possible for people to take it up as a hobby or for car dealers to get a license for the practice. It’s completely legal, as long as the vehicles are titled in the dealership or individual’s name. However, there are usually limitations to the amount of cars that can be flipped.
Product flipping comes to selling other items. They can be items bought on eBay, in the Dollar Store, or even at flea markets and garage sales. Individuals clean them or make repairs to them and then sell them on to others at a marked up price. This type of flipping comes with the lowest risk, which is why it’s the most popular.
When product flipping, less money is put into the business. People buy items for cents to then sell on for dollars. However, there are smaller profit margins, which is why flippers have to follow tricks and tips to get a profit.
Product flipping is popular with antiques. People will go to storage bin auctions to get access to some potentially valuable items. Of course, this can also be a risk, as it’s possible spend thousands of dollars on junk.
Second Home Flipping in the UK
The process of flipping houses in the American style does happen in the UK, but the term “flipping” means something different. It’s used to describe the UK Members of Parliament buying houses in London if their constituencies are outside. These MPs have access to a property closer to their home and closer to their work.
Either of the homes can be classed as a second home for tax advantages. The term “flipping” is given when an MP will continually switch between the two homes as their second homes. A second home can also be rented out for profit!
Effects of Flipping
Whether houses, cars or products, there are direct effects to everyone from the process of flipping. The effects are most seen on the housing, which is why flipping properties is considered unethical. Because of the sudden purchasing of houses, there’s a sudden boom for properties. However, the properties then increase in price, which can cause a house shortage for those who would have benefitted from buying at the lower rate.
The flippers have no intention of living in the properties, but solely to make a profit. This causes financial problems for many. The process has also been partially to blame for the financial crisis in 2008.
The process of flipping houses has also been linked to the gentrification in areas. Property values shift, which means the popular shifts. This has been mentioned a few times in Starz’s Vida. Of course, property and car flipping can also be a guise for something more serious and illegal.
Flipping houses, cars, and even products is all business. It’s something that people have done for centuries and will continue to do to make a profit.