What makes a property flip different from other strategies
A property flip - buy, refurbish, sell - is fundamentally different from a BRRRR or long-term BTL investment in one important way: the exit is a sale, not a refinance. This changes the finance structure, the tax treatment, and the profit calculation.
The timeline is shorter and the return is crystallised upfront rather than built over years of rental income. For investors who want returns in 6-18 months rather than long-term rental income, flipping is the appropriate strategy. The returns on a well-executed flip can be 15-30% of the purchase price - but so can the losses on a poorly executed one.
The bridging finance for a flip is structured to cover the purchase and refurbishment period, with the exit being the sale proceeds. The interest cost must be built into the profit calculation - it is not negligible on a 12-month bridge.
The profit calculation every flipper must model
Before committing to a flip, model the following:
- Purchase costs: Purchase price + stamp duty (3% additional property surcharge for investors) + legal fees (circa £1,500-£2,500) + survey (circa £500-£1,000) + broker fee.
- Holding costs: Bridging interest (purchase price x monthly rate x number of months) + monitoring surveyor (for refurb facilities) + buildings insurance + council tax.
- Refurbishment costs: Full schedule of works, contingency of minimum 15%.
- Sale costs: Estate agent fee (circa 1-2%) + legal fees + Energy Performance Certificate.
- Total cost = all of the above added together.
- Net profit = Sale price minus total cost.
- Return on capital = Net profit divided by cash deployed.
Light, medium, and heavy refurbishment - what changes
Light refurbishment - decoration, flooring, kitchen and bathroom upgrades - takes 4-8 weeks and costs £15,000-£40,000 on a typical terraced house. Standard bridging lenders are comfortable with light refurbishment; some include works costs in the same facility as the purchase.
Medium refurbishment - rewiring, replumbing, structural repairs, extensions - takes 8-16 weeks and costs £40,000-£100,000. Specialist refurbishment bridging with tranche release and monitoring surveyor is more appropriate.
Heavy refurbishment - full structural rebuilding, change of use, commercial conversion - takes 4-18 months and costs £100,000-£500,000+. Development finance rather than bridging is the appropriate product, with a full development appraisal required by the lender.
The scope of works determines not just the product but the lender, the rate, and the monitoring requirements. Accurate scoping before the bridge is drawn is essential.
Stamp duty and tax - the numbers that change the return
Stamp duty for property investors adds 3% to every purchase price (the additional property surcharge). On a £200,000 purchase this is £6,000 - a significant cost that must be in the flip model. Properties below £300,000 in the main SDLT bands attract the highest proportional stamp duty cost.
Corporation tax vs income tax: Flipping properties through a limited company means profits are taxed as corporation tax (currently 25% for companies with profits over £250,000) rather than income tax. For higher-rate taxpayers, this can significantly improve the net return on a flip. For occasional flippers, the costs of the company structure may outweigh the tax advantage.
Capital gains tax vs income tax: HMRC may treat serial property flipping as a trade, taxing profits as income rather than capital gains. This is a material difference - income tax rates are higher than CGT rates for most investors. Professional tax advice before beginning a flipping programme is strongly recommended.
The most common reasons flips go wrong
Overpaying for the purchase: The entire profit calculation depends on buying at the right price. Paying full market value and expecting refurbishment to create profit requires a larger uplift than most properties can deliver.
Underestimating refurbishment costs: Builder quotes often exclude contingency items that appear during works - structural issues uncovered, services in worse condition than expected, specification changes. Budget 15-20% contingency.
Overestimating the sale price: GDV estimates based on optimistic comparables rather than actual sold prices. RICS-comparable sold prices - not asking prices - are the correct reference.
Running out of bridge term: If the property has not sold when the bridge expires, the lender can demand repayment. Bridging extensions cost money and require lender consent. Build a realistic sale timeline into the bridge term from the outset.
Ignoring the holding costs: 12 months of bridging interest at 0.65% per month on £150,000 is £11,700. This must be in the profit calculation from day one.