What is Property Flipping? A Beginner's Guide to Buying and Selling for Profit
You've seen the TV shows: a dated property is bought, transformed with a stunning renovation, and sold just a few months later for a significant profit. This is property flipping, and it's one of the most exciting and potentially lucrative strategies in real estate.
But how does it actually work in the UK market? What are the real costs, and how do you find a suitable property in the first place? This guide will walk you through the entire process. We'll explain the core principles of flipping, how to finance a project, and the key steps you need to follow to successfully buy, renovate, and sell a property for a profit.
What You'll Learn
1. The Absolute Basics: What is Property Flipping in Simple Terms?
What is Property Flipping?
Property flipping is a strategy where an investor buys a property with the intention of selling it for a profit in a short period of time, rather than holding it to rent out. The profit is typically generated by buying a property below its full market potential and adding value to it.
How Does Flipping Make Money?
Profit is made from the difference between the total cost of the project and the final sale price. The value is usually added in one of two ways:
- • Forced Appreciation (Renovation): This is the most common method. You buy a property that is dated, distressed, or poorly configured and improve it through refurbishment. A modern kitchen, new bathroom, and improved layout can dramatically increase the property's value.
- • Market Appreciation: This is where the value of the property increases naturally due to a rising market during the time you own it. While this can provide a boost, a successful flip should never rely on market appreciation alone—it's too unpredictable.
Simple Example: A Value-Add Flip
• You buy a dated 3-bed terrace in Hartlepool for £90,000.
• You spend £20,000 on a full refurbishment (new kitchen, bathroom, decorating).
• You spend another £10,000 on other costs (stamp duty, legal fees, selling fees).
• Your total investment is £120,000.
• After 6 months, you sell the fully modernised house for £145,000.
• Your pre-tax profit is £25,000.
2. The Golden Rule: How to Calculate a Flip's Potential Profit
The most critical skill in flipping is getting your numbers right before you buy. Overpaying or underestimating costs can wipe out your entire profit. Many experienced flippers use the "70% Rule" as a rough guide.
The 70% Rule Explained
The rule suggests that an investor should pay no more than 70% of the After Repair Value (ARV) of a property, minus the cost of the repairs.
Formula:
(ARV × 0.7) - Refurbishment Costs = Maximum Purchase Price
ARV (After Repair Value): This is the price you believe the property will be worth after you've fully renovated it. You determine this by looking at the recent sold prices of similar, fully modernised properties on the same street or in the immediate area.
Example using the 70% Rule:
• You find a property you believe will be worth £150,000 (the ARV) once it's renovated.
• You get quotes and estimate the refurbishment will cost £25,000.
• Calculation: (£150,000 × 0.7) - £25,000 = £80,000
According to this rule, the maximum price you should offer for the property is £80,000. The remaining 30% of the ARV is your buffer to cover your financing costs, buying/selling fees, and your final profit.
3. Your 6-Step Guide on How to Flip a Property
Arrange Your Finance
Flipping requires a specific type of funding (more on this below). You need to have your finance agreed in principle before you can seriously start looking for a property.
Find the Right Property
This is the most important step. You are looking for the "worst house on the best street." It needs to have the potential for significant improvement and be in a location with strong buyer demand. A local property sourcer who understands the market can be invaluable here, often finding deals before they hit the open market.
Do Your Due Diligence
Once you find a property, you must calculate your numbers meticulously. Get builders to quote for the work, check the sold prices of neighbouring properties to confirm your ARV, and account for all buying and selling costs.
Purchase the Property
The buying process is the same as any other property purchase, involving solicitors and surveyors. Using a fast, efficient team is crucial to minimise delays.
Renovate Efficiently
The renovation is a race against time. Every month the project takes, your financing costs increase. A good project manager and a reliable team of tradespeople are essential to delivering a quality finish on time and on budget.
Sell for a Profit
As soon as the renovation is complete, get the property on the market with a good local estate agent. Price it realistically based on your ARV research to achieve a quick sale.
4. Thinking Like a Pro: Financing, Tax, and Finding Deals
Financing a Flip: Bridging Loans & Buy-to-Sell Mortgages
You cannot use a standard residential mortgage for a property you intend to flip. Many properties needing renovation are also "unmortgageable" in their current state. The two most common financing options are:
- • Bridging Loans: This is the most popular option. It's a short-term loan (typically 3-12 months) designed to "bridge" the gap between buying and selling. They can be arranged very quickly but have higher interest rates and fees.
- • Cash: If you are a cash buyer, you are in the strongest position. This allows you to move quickly and negotiate harder on the purchase price.
How is Property Flipping Taxed in the UK?
This is a critical point that beginners often overlook. The profit from a property flip is generally treated as Income, not a Capital Gain.
- • Income Tax: If you are a sole trader, your profit will be added to your other earnings for the year and taxed at your personal income tax rate (20%, 40%, or 45%).
- • Corporation Tax: Many professional flippers operate through a limited company. The profit is then subject to Corporation Tax, which is often more tax-efficient.
Important: The tax rules are complex. You must get professional advice from an accountant before starting a flipping project.
5. A Balanced View: What are the Pros and Cons of Flipping?
✅ The Pros
Lump Sum Profits
Can provide a large, single payout in a relatively short space of time.
Tangible Results
You can see the direct results of your efforts in the transformed property.
Active Strategy
It's a hands-on, engaging process for those who enjoy design and project management.
❌ The Cons
High Risk
If your numbers are wrong or the market turns, you can lose money.
Unforeseen Costs
Renovations can uncover unexpected problems (e.g., damp, structural issues) that destroy your budget.
Tax Implications
The profit is taxed as income, which can result in a significant tax bill.
Market Dependent
A slow sales market can leave you paying high financing costs for months, eroding your profit.
Conclusion
So, what is property flipping? It is an active investment strategy that involves buying a property, adding value through renovation, and selling it for a profit.
When the numbers are calculated correctly and the project is managed efficiently, it can be a highly rewarding and profitable venture. However, it is not a get-rich-quick scheme. It requires careful research, a solid team, and a deep understanding of all the associated costs and risks.
Ready to Find Your First Flip Project?
Finding a property with the right potential at the right price is the key to a successful flip. While we prepare for our full operational launch, register your interest to be the first to hear about below-market-value and renovation opportunities across Teesside and the North East.