What Is Property Flipping? Pros And Cons Of Flipping Houses

With the right planning, expertise and market conditions in your favour, property flipping can be very rewarding.

But there are also substantial risks so if you make the wrong moves or aren’t sure what you’re doing, property flipping could lead to a loss.

I explain all you need to know about house flipping, the financing options and the risks to watch out for in this comprehensive guide.

Key takeaways: Property flipping

• Flipping is the process of buying a property with the intention of renovating it and selling it for a profit.
• The goal is to purchase a property, make improvements or renovations to increase its value and then sell it for a higher price.
• Do your due diligence to understand your options and find the right investment opportunities for the target market.
• Many mortgage lenders won’t lend to a buyer looking to flip a property. Aside from a cash purchase or investment funding, the other common option is a bridging loan.
• Investors should factor in costs associated with both the purchase and eventual sale, such as renovation costs and taxes, in the initial budget.

What is property flipping?

Property flipping means that an investor buys a property with high profit potential, improves it – for example, by renovating or refurbishing – and then sells it quickly. 

The investor does not usually keep the property for long-term rental or investment. Instead, they complete the process in a short period.

For example, an investor may buy a house or flat in need of refurbishment, renovate it and sell it for a higher price within just six months. 

People sometimes use other terms to describe this process, such as ‘buying to flip’ or ‘renovating to sell’ and so on. 

There is also ‘buy, refurbish, refinance’ which is slightly different, as the end-result may involve letting out the refurbished property rather than selling it. Similarly, property flipping is not quite the same thing as a buy-to-let strategy.

How do you flip a property?

#1 Set a budget and secure financing

Property flippers often use the 70% rule i.e. trying to avoid paying more than 70% of the property’s after-repair value (ARV), minus the renovation costs.

Work out how much you can spend on the purchase and renovation based on the 70% rule. Secure funding through savings, loans, or investors – more on this in the next section.

#2 Research the market

Do your homework and due diligence. Analyse local property values and trends, taking the time to get to know your target area if you don’t already.

This helps you to identify areas with strong demand and high resale potential.

#3 Find the right property

Look for undervalued or distressed properties that may need some work, but have good potential for improvement. Finding properties sold at auction or repossessions can lead to good options for flipping.

Negotiate the best possible purchase price. Estate agents can help identify good investment opportunities and assist with negotiations.

#4 Make an offer and complete the purchase

Once you find a suitable property, make a formal offer and finalise your financing. Use a conveyancer or solicitor to handle all the necessary legal paperwork.

Among other things they will carry out property searches and find out what restrictive covenants are on the property, if any. Learn more about what can hold up the exchange of contracts.

#5 Plan and manage renovations

Renovation planning is essential to determine the scope of work and costs involved. This should include structural, electrical, plumbing and cosmetic repairs.

Hire reliable contractors and project managers to carry out the work efficiently and within budget. Monitor progress regularly and adjust your plans if needed.

#6 Market and sell the property

Once renovations are complete, list the property for sale and market it well. Negotiate offers and aim to sell quickly at the best possible price.

Staging the property can help make it more appealing to potential buyers. Highlight the recent renovations you have made and the potential of the property to draw in buyers.

#7 Complete the sale

Once you have found a buyer, finalise the sale. Make sure you follow all legal advice and have a solicitor review every document before you sign.

Throughout the process, keep accurate records of every cost and receipt so you can precisely determine your profits and return on investment (ROI).

#8 Calculate your profits

To calculate your profits after flipping a house, subtract your total costs from the amount you sell the property for. Also, calculate your ROI to understand how successful your project was.

Consider all your expenses – such as purchase price, renovation costs, legal fees, taxes and agent fees – then add them up carefully. Next, subtract these total costs from your sale price to find your net profit.

Read more about buying a house to renovate in this dedicated guide.

Budgeting for property flipping

Budgeting

Plan your budget thoroughly before you begin. Start by estimating your purchase price and then assess all likely costs, including:

• Purchase price: The amount you pay for the property.
• Renovation costs: Structural, electrical, plumbing, and cosmetic repairs. Always get detailed surveys to avoid hidden surprises.
• Contingency fund: Set aside 10-20% of your renovation budget for unexpected expenses.
• Carrying costs: Utilities, insurance, council tax and loan interest while you own the property.
• Legal and professional fees: Solicitors, estate agents and broker fees.
• Survey and valuation fees: Essential for understanding the property’s condition and value.
• Stamp Duty Land Tax (SDLT): Payable on property purchases above a certain threshold.
• Sales costs: Estate agent fees, marketing and conveyancing when selling.
• Other taxes: These can include income tax, Capital Gains Tax (CGT) or corporation tax.

Financing

Many mortgage lenders won’t lend to a buyer looking to flip a property because they stipulate that you must own it for at least six months before selling.

Also, there are early repayment penalties on a mortgage and the property may not be in a liveable condition when purchased, further deterring lenders.

Cash purchases are often the simplest way to fund a property flip because they avoid lending requirements. Aside from a cash purchase, as well as using private or investment funding, the other common option is a bridging or bridge loan.

Bridging loans provide quick access to capital, arranged within days or weeks and are ideal for buying and renovating properties you plan to sell quickly, borrowed against the property’s value.

Bridging loans typically require a deposit of at least 20–25% and have higher interest rates, but no early repayment charges, so you can pay off the loan as soon as you sell.

For when you eventually sell the property, budget for taxes on your profits – these could include income tax, CGT or corporation tax. Find out more about buying property through a limited company or trust.

House flipping: Pros

For successful investors, property flipping can provide several potential benefits including:

• Potential for high ROI: Well-executed flips can produce strong returns. A survey from Finbri quoted in Property Reporter found that 75% out of 1,000 investors made £10,000+ profit from property flipping in 2022.
• Quick profits: You could earn a lump sum quickly, often within a few months, as opposed to long-term investments that may take years to mature.
• Improving housing stock: Property flippers contribute to improving the quality and availability of housing by renovating and modernising properties, which can benefit both buyers and local areas.
• Historically strong market: The UK property market has typically shown steady growth. High demand for renovated homes means buyers are often willing to pay a premium for properties that are ready to move into straight away.
• Creativity: Property flipping gives you the opportunity to be creative with interior design and renovations, transforming outdated or distressed properties into desirable homes. This can be both personally satisfying and financially rewarding.
• Flexibility and scalability: Investors can choose the scale of their projects – from minor cosmetic updates (micro-flipping) to extensive renovations – depending on their budget, expertise, and goals.
• Reinvestment opportunities: You could also reinvest profits from successful flips into larger or more ambitious projects, growing your portfolio and expertise.

For further reading, take a look at my London property investment guide.

House flipping: Cons

Potential risks include:

• • Overpaying for a property: Overestimating the resale value and/or underestimating the refurbishment costs could lead to significant losses.
  • Unexpected renovation problems: Finding a structural defect or hidden issue during refurbishment could inflate your expenses.
  • Market fluctuations: Economic downturns, interest rate changes or a dip in property prices can eat into your profit margins or result in a loss.
  • High upfront costs: Flipping houses requires substantial upfront capital to cover purchase and renovation costs. You need to explore other financing options beyond traditional mortgages for property flipping.

• Stress and time demands: With tight deadlines, many suppliers to manage and the pressure to keep projects within budget, the fast pace, workload and potential stress is not for everyone.

It’s crucial to assess the renovation needs and costs reasonably accurately to set realistic profit expectations.

Of course, flipping houses requires strict adherence to relevant property laws, building regulations and planning permissions. Find out, for example – do you need planning permission for a loft conversion?

Final thoughts: Dos and don’ts of property flipping

Do:

• Seek financial advice first: During the project, keep track of all secondary costs such as legal fees, tradesmen, estate agents – and taxes like CGT, SDLT and income tax.
• Put contingency funds in place: Set aside extra money e.g. 10-15% of your renovation budget to cover unexpected bills or delays.
• Know your target market: Research the local market to understand who your buyers are and what they want, ensuring your project matches demand. Decide from the outset whether you are flipping for a buyer or a renter, as each requires different priorities.
• Promote your hard work: Make sure your property is well advertised and promoted through online agents, trade magazines, and social media to attract the right buyers

Don’t:

• Take on an overly-ambitious first property flip: Resist properties requiring excessive refurbishment plans when it’s your first one.
• Over-renovate: Big, unnecessary upgrades can raise costs, lower desirability and delay your return.
• Let your personal taste dominate your decisions: Don’t let personal preferences dictate design choices; focus on what appeals to the majority of buyers in your target market. Don’t over-renovate.
• Set unrealistic expectations: Set ambitious but achievable goals; check historic price data to set a realistic sale price and avoid overvaluing your property.

House flipping involves identifying a property that has potential for a profitable flip and making the necessary repairs and renovations. Done well, flipping houses can be a good way to make money in the property market.

To succeed in flipping a house, you need to have the right valuation, a solid understanding of the housing market and access to the necessary skills for home renovation.

I hope you found this article informative. For other detailed guides, take a look through the Fine Living blog, with popular articles including – do I need a HMO licence for three tenants?

Here at Fine Living, we have property experience throughout London and stay up-to-date with the very latest market data. We study trends, migration patterns, local borough updates and new property development news.

We can share the information that investors need to property flip with confidence. For more information, please don’t hesitate to get in touch.

 

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