How to assess a property flip

A property flip is simple to describe and easy to get wrong: buy, improve, sell for more than it cost you. The margin lives or dies on the assessment you make before you buy. This is how to run the numbers properly, with the North West market in mind.

Start from the end value

Work backwards from what the finished property will sell for, not forwards from the asking price. Use recently sold prices for comparable properties on the same or nearby streets, in a finished condition similar to what you plan to deliver. Be conservative: the market you sell into may not be the market you buy in.

Count every cost

• Purchase costs: stamp duty, including any additional-property surcharge, plus legal fees, survey and searches
• Finance: arrangement fees, interest for the whole project period and any exit fees
• Refurbishment: labour, materials, professional fees and a contingency of at least ten percent
• Holding costs: council tax, utilities, insurance and any service charge while you own it
• Selling costs: agent fees, legal fees and the cost of the property sitting empty while it sells

Price the time

Every month the project runs costs money in finance and holding costs, and delays the next deal. Set a realistic programme for the works and the sale, then ask what happens to the margin if it takes three months longer. If the answer is uncomfortable, the deal is too tight.

Choose the right kind of work

The best flips add value that buyers will pay for: layout, kitchens, bathrooms, light and storage. Structural work, damp and roofing need fixing but rarely add more than they cost. In much of the North West, well-presented family homes and modernised terraces in good commuter locations sell quickly; over-specified finishes in the wrong street do not.

Have a fallback

Before you buy, know what you would do if the property did not sell at the price you expected. Could it be let at a rent that covers the finance? Could it be refinanced and held? A flip with a credible fallback is a far safer project than one with a single exit.