House Flipping in the UK Property Market: How to Make a Profit

Purchasing a property that needs repair and refurbishment, with a plan to do it up and sell it on for a profit, is commonly known as house flipping.

Done well, it can be a way to make a sizeable profit, but you will need to combine skills in negotiation, property refurbishment, and project management to maximise your return on investment.

But how do you fund a house flipping project? What must a reasonable budget account for? And what steps should you take to give yourself the best chance of making a profit?

At Clifton Private Finance, we have the expertise you need to undertake a house flipping project with confidence.

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Table of Contents

The Basics of Flipping Houses

The core idea for house flipping is deceptively simple:

• Buy a house at below market value, in need of renovation, typically an auction purchase
• Renovate the house to a standard that meets local demand
• Sell the house at an improved market value for a sizeable return on investment

Of course, if it were as simple as these three stages suggest, everyone would be flipping houses.

The truth is, making a worthwhile profit on house flipping is harder than it seems and requires careful planning and expertise at multiple levels. It can be a high-pressure venture, with real risks involved.

For example, when you finish the renovation phase and want to sell the property, you may face difficult market conditions, which could impact the potential sale price.

How to Fund the House Flipping Process

Getting a bargain property at below market value requires you to be a cash buyer. This is because mortgages are a poor fit for house flipping.

Designed as a long-term loan that is repaid over many years, mortgages have several restrictions and a lengthy underwriting process that doesn’t match well with the fast-paced environment of property auctions and private property deals.

Typically, flipping houses requires a different type of funding, most often comprising a combination of personal funds and bridging finance.

Your Personal Investment

You will need a reasonable level of personal capital to invest in any house flipping endeavour, though this may not need to be represented by direct cash in the bank. 

Many investors build capital through personal channels that include: 

• Savings
• Liquidation of other assets or shares
• Loans and investments from friends and family 

This cash is then combined with existing property-based equity from your residential home or other secondary properties to provide the overall investment.

Bridging Finance

A bridging loan is an exit-based loan used for short-term property projects, providing the remaining funds needed to buy and renovate a property.

It is called a ‘bridge’ because it bridges the gap between your property purchase and its sale. Bridging finance is fast and flexible, without the restrictions that make mortgages unsuitable for property flips.

Bridging loans are leveraged against equity held in any existing houses and the value of the newly purchased property.

In some cases, the existing equity may be sufficient to fund the project without the need for any other investment capital, but a successful house flipping venture still requires you to factor borrowing costs and interest rates into the plan from the start.

How to Budget for Property Flipping 

A well-considered budget is vital to ensure a successful and profitable house flipping project, and many investors compare the project cost against the after-repair value (ARV), often using the 70% rule as a sense check.

This rule says that you should only invest in a house flipping opportunity if the buying price, plus the cost of renovation work, is 70% or less of the home’s projected sale price.

For example, if you project that the property will have a sale value of £250,000, you should aim to spend no more than £175,000 on the entire project.

You will need to consider the following when developing your financial plan:

• The cost of purchase: Beyond the purchase price itself, you will need to consider Stamp Duty Land Tax (SDLT) or the equivalent land taxes in Scotland or Wales, plus the legal fees for contracts and conveyancing.
• Surveys and reports: When you are buying for renovation, a low-cost homebuyers’ survey may not prove to be detailed enough. Plan for a comprehensive survey that delves into the finer details of the property - this initial outlay can save thousands later.
• The renovation costs: Refurbishment costs are a significant portion of the overall budget (second only to the purchase itself), so focus here is essential. Securing reliable contractors that you have used before or have a good reputation with is important, as is listening to their advice. Don’t forget other costs, such as waste removal and landscaping - our guide to renovation budgets may help.
• Running and holding costs: Once you have the building, there will be associated costs while the renovations take place. Electricity, council tax, water, and insurance will all impact your budget both for the redevelopment and while you market the property.
• Sales fees: You will need to evaluate local estate agents and account for their fees. As you are looking for a rapid sale, explore the efficiency of different estate agents and allocate money for their costs accordingly.
• Property taxes: Capital Gains Tax (CGT) will have an impact and must be planned for. VAT may also be relevant, especially if you are structured as a flipping business and are able to offset the cost of VAT in your outgoings.
• Contingency: Even with the best planning in the world, there needs to be room for movement. Build in a contingency of between 10% and 20% to deal with unexpected situations.
• Financing costs: It is important that you calculate your budget with interest and loan fees in mind.

Track your spending daily as part of the ongoing project management to keep costs under control.

Making Profit in 6 Steps: How to Flip a House Successfully

There are several stages where research and expertise are key to increasing the profit you can generate from house flipping. Throughout the process, poor planning and inaccurate projections increase risk and may lead to reduced returns or even losses.

A comprehensive plan is, therefore, essential.

1. Conduct Research to Find the Right Property

Not all properties or locations are equal. And property flipping requires a keen eye for value-adding potential, as well as local market knowledge.

Similar properties in separate areas may be valued very differently, and successful house flipping requires a solid understanding of the housing market, including local property valuation and market trends.

This is because market forces in some towns and cities will influence demand and resale timing, while patience is needed in others.

The type of property that buyers are looking for, and the most attractive characteristics they will appreciate, also vary by location. This understanding can inform your renovation plan to ensure you're presenting an in-demand asset to the market.

With local variance in mind, the best properties for house flipping are typically:

• In a high-demand location, likely to sell quickly once refurbished
• In poor condition, but without significant structural damage, requiring cosmetic renovation rather than major rebuilding
• Free from any major legal requirements or title complications
• Close to transport links and other amenities (schools, shops)
• Available at the right price relative to local market value

2. Plan the Renovation

With a property in mind, it’s possible to develop a detailed plan for renovating it.

When house flipping, it’s important to view the property as an investment opportunity and not be swayed by personal taste or preferences. Focus on the factors that add value and improve the chance of a profitable return, rather than those you may prioritise if you were planning to live there.

• Identify the work required, separating structural or systems issues from cosmetic changes and estimating likely repair costs as accurately as possible
• Prioritise essential fixes and improvements that lift property value most efficiently
• Obtain preliminary quotes from reliable tradespeople and building contractors
• Determine a timescale for the work, and the order in which things should be done
• Calculate an overall budget to account for the costs (material, labour)
• Set a realistic final market value for the property once renovations are complete

3. Buy the Property Below Market Value

While it is possible to buy a viable house to flip from estate agents as standard, many bargains are to be found at auction, and the profit is often made on the buy side by securing the best price.

With bridging finance in place, you are able to move quickly like a cash buyer and can take advantage of the opportunities auction properties represent.

When buying at auction, it is important that:

• You have done due diligence on the property: Auction properties may move quickly, but you should still arrange a survey and confirm the property is as expected before making a bid, aiming to buy below market value because overpaying can destroy potential profits before work begins. Reputable auctioneers have thorough paperwork and arrangements to meet this requirement.
• You have confident financial backing: While the full bridging loan cannot be in place before the property is secured, our comprehensive pre-approval arrangement will ensure the finance is approved in principle before you move to auction.
• You do not bid beyond your budget: Auctions can be exciting, and it is all too easy to push yourself past your planned limit in the moment. Set a hard line and stick to it, as this discipline helps you secure the best possible price and protect your profit margins; there will always be other opportunities if you miss out on your first choice.
• You budget for the other costs involved: Auction properties are subject to the same legal requirements as traditional property purchases. Ensure you have the funds available for stamp duty and legal fees, so you understand the true purchase cost when judging a deal.

Once your bid is won, you will need to pay the appropriate deposit and fees before finalising the bridging loan and completing the property purchase.

4. Proceed with the Planned Renovations

You are now in the position to make the repairs and refurbishments needed to add value to the home and bring it to a modern standard. 

Sticking to your budget as much as possible is important, but property renovations are complex and unexpected issues often arise.

A portion of your budget (typically 10-15%) should be put aside to meet these unforeseen expenses, and you may have to explore additional financing if the planned funds run short before the renovation process is complete.

5. Sell the Property

Once the renovation stage is finished, you can sell the property to potential buyers.

Speed is crucial at this stage, because the longer the property remains unsold, the more costs rise, and the more profit is reduced, so it’s vital that sufficient budget remains to cover:

• Ongoing bridging finance interest or mortgage payments while the home is unsold
• Holding costs such as council tax, insurance, and utility bills

While maximising profit does mean setting the highest viable selling price, it is important to adjust to the house prices in the local property market and balance ongoing holding costs against the allure of greater potential profit.

In a hot or warm market, good presentation and marketing may help you secure a higher price.

For example, working with a real estate agent and using simple home staging with furniture and decor can help support the best possible sale outcome, and staging may even increase the sale price by up to 10%.

In other cases, where you introduce the property for sale in a colder market, discounting the price slightly to expedite a sale is sometimes the right decision.

6. Exit the Bridging Finance and Calculate Profit

When the house is sold, and all appropriate fees and property taxes are paid, the balance of the bridging finance can be repaid in full and the financing settled. The amount remaining from the flipped property represents your gross proceeds.

Evaluating the true return on your investment, however, requires a thorough financial assessment. Consider the following when calculating a final net profit and determining the success of the flipping process:

• Stamp duty and any other purchase costs
• Legal fees for both purchase and sale
• Bridging finance interest and fee
• Renovation budget overruns and unexpected works
• Estate agent and marketing fees from selling the house
• Holding costs, including council tax, utilities, insurance, and any security arrangements

Even if these costs are estimated carefully, changing market conditions can still affect the final result.

It is also worthwhile to consider the time you have personally put into the project and the value of that time, and the opportunity cost of the venture, which can be thought of as the money you could have made doing other things while your finances, time, and resources were tied up in the house flipping.

It is not unusual, once everything is properly considered, for a first house flipping project to return little real profit.

However, the experience gained can be extremely valuable, making a significant difference when flipping houses in the future.

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5 Risks to Mitigate When Flipping Houses

Flipping houses is not easy, and it's far from a guaranteed win - even if your selling price is higher than your purchase price. There are several factors that can eat into profit margins and reduce how much money you take away from the project.

Here are five of the biggest and most common risks that you will need to mitigate if you decide to flip a house.

1. Renovation Costs

It's surprisingly common to encounter hidden structural faults during the renovation phase. These can include:

• Subsidence
• Dampness and rotting timber
• Wiring and plumbing issues

The need to resolve such issues can cause your material costs to increase sharply, and can have a devastating impact on ill-prepared budgets.

This is why it's advised to get a thorough inspection of the property before completing the purchase.

You should also set aside 10-15% of your projected costs as a contingency budget to account for the unexpected.

If serious unexpected issues arise and you need additional development finance, it may be possible to refinance the project.

2. Property Market Fluctuations

When you decide to flip a house, a lot of factors are in your control. But there are some that you have very little to no influence on. This includes the state of the broader property market when selling property:

• Changes in mortgage interest rates
• Local drops in house prices
• Seasonal market activity slumps
• Proposed regulatory or tax changes

These external factors can cause your holding costs to rise and even force you to lower your asking price. This is why so many investors stick to the 70% rule and try not to price too unrealistically from the outset.

3. Over-Improving the Property

It sounds counterintuitive, but many investors fail by trying to do too good a job when flipping houses.

It's easy to get drawn into spending big on high-end finishes and custom features. But if these don't align with local buyer demand, you're simply reducing your profit margin.

For the most part, it's recommended to:

• Use durable materials
• Decorate with neutral colours
• Avoid hyper-specific customisations

4. Regulatory or Permit Delays

The cost of planning permission is rising across the UK, but it's not just the price that you need to account for. You also need to factor in the time it takes to process applications.

If you proceed with unpermitted work or fail to secure the correct planning permission from the local authority, this can cause:

• Stop-work orders
• Sizeable fines
• Delayed sales

5. Overlooking Costs, Fees, and Taxes

If it's your first time trying to flip a house, it's easy to fully focus on the property purchase and renovation costs and not turn your attention to the fees and taxes you may need to pay. All of which can cut into the money you make when you sell.

For example, you should always factor the following into any potential profit calculations:

• Tax liabilities (income tax or capital gains tax on profit)
• Stamp Duty
• Estate agent fees and marketing costs
• Finance fees and interest rates (if you're taking out a loan to fund the project)

House Flipping vs. Renting Out

House flipping is a short-term investment strategy, designed around the property sale as an exit for the bridging finance and to provide a profitable return on your investment.

However, some investors may prefer the idea of holding onto the right property as a long-term investment, where the aim is to generate rental income over time.

This is a legitimate strategy that is formalised in the repeatable BRRRR method (Buy, Refurb, Rent, Refinance, Repeat), a structure for house renovation and rental that can grow a sizeable property portfolio.

Bridging finance is used in a very similar way for rental-based refurbishments and BRRRR as it does for house flipping, but instead of using the proceeds from the sale to pay off and exit the bridging loan, a buy-to-let mortgage is obtained to settle the bridging finance and turn the short-term loan into a long-term solution.

It is important that you properly represent your exit strategy to the lender when you are applying for bridging finance.

While it’s possible to change strategy midway through your house flipping project, a late change to your exit strategy may cause complications and incur additional fees.

Flip a House with Support from Clifton Private Finance

Successfully flipping houses requires appropriate financing, timing, and execution to mitigate the risks, and a dependable partner who understands the process is essential.

At Clifton Private Finance, we regularly work with clients who flip houses, providing them access to the full network of UK banks and lenders to obtain the right bridging finance for the project.

Together, we can explore your options, compare products, and find the most suitable lender to match your circumstances.

Our team will support you throughout the house flipping process, from your initial questions to when you sell the property. Our team of expert bridging specialists offer:

• Access to the full market of specialist UK bridging finance lenders
• A comprehensive analysis of your project budget and needs to match you to the right bridging finance loan
• A detailed pre-approval process that will provide the confidence you need to move forward with a property purchase
• Fast application to ensure you don’t miss out on time-sensitive opportunities
• Support for future needs, including mid-project refinancing, negotiation, or long-term mortgaging if required, as changing market conditions may require refinancing or an alternative exit

Book a consultation with Clifton Private Finance to confidently move forward with your house flipping plans.