If you plan to flip a UK property with £60,000 to £70,000 of cash, read this before you instruct anyone. You could save months of searching and a slice of your capital.
Several months into a sourcing brief, I told two investors we should stop looking. They were organised and ready to buy. With their budget they couldn't reach the return they wanted, and I wasn't going to send them a weak deal and call it a good one.
The brief
Two investors asked me to find them a flip in the West Midlands. They had around £50,000 of cash and a plan to use bridging finance on properties under £100,000. They wanted quick sales and clear evidence of a profitable exit.
They came prepared, with a worked scenario that used a bridge and left a small budget for a light cosmetic refurbishment.
The first round of numbers
I spent the first few weeks searching at that price point and found nothing I could put in front of them. Most properties under £100,000 in the region came up leasehold or auction-led. Buyers pay less for leasehold flats with ground rent and service charges, and auction lots can sell above their guide price. I tested each one against the refurb cost and the resale evidence, and none of them stacked. I told the investors I would hold back until a deal stacked, and they agreed to give the search more time.
After that, I ran the numbers from the exit backwards. You make money on a flip when you buy below market and spend on works that lift the value. At £100,000 all-in, you can't afford to do both. At £150,000 to £170,000 all-in, you can, as this illustrative example shows:
| Item | Amount |
|---|---|
| Purchase | £123,000 |
| Stamp duty, including the 2% non-resident surcharge | £8,600 |
| Sourcing fee | £4,000 |
| Legals, survey, holding costs, contingency | £6,000 |
| Refurbishment | £25,000 |
| All-in cost | £166,600 |
| Resale | £196,000 |
| Selling costs | £4,000 |
| Profit before tax | £25,400 (15%) |
If you live outside the UK, you also pay capital gains tax on that profit when you sell, so ask your tax adviser to run your own figure.
The investors agreed to work to that budget, with a split between bridging debt and their own equity.
The budget that shrank
A few weeks on, the investors came back with a cash budget of £60,000, with room to stretch to £70,000 for the right deal. They wanted that £60,000 to cover the deposit, stamp duty, refurbishment, project management, fees, finance, holding costs, contingency and the sale.
I modelled it line by line. On an £80,000 purchase with bridging, they'd spend close to the whole £60,000 before the sale. For a 15 to 20% return, they'd need the house to sell for £131,000 to £134,000. A light refurb would have to add more than 60% to its value.
I tried £70,000 too. A £90,000 purchase with an £18,000 refurbishment needed a resale of £148,000 to £151,000. I see few deals with that much uplift inside a light refurb budget.
The break-even test you can run yourself
You can check any flip budget in two minutes. Add three figures together:
- The bridging loan you must repay
- The cash you put in
- Your selling costs, such as agent and legal fees
Add them up and you have the price the house must reach before you make a penny. On an £80,000 purchase with a £60,000 bridge, £60,000 of your cash and around £3,000 of selling costs, you need £123,000 to break even. Divide that by the purchase price to see the uplift your refurb must deliver: 54% in this case.
Check the sold prices for refurbished houses on the same street. If they sit below your break-even figure, walk away. If they sit a few thousand above it, you'll lose your margin the day a builder finds damp.
Recommending a pause
I wrote to both investors and recommended we pause the search. I gave them four ways forward: add capital, lower the target return, accept more project risk, or change strategy. I wanted to be clear with them at that stage and avoid presenting deals that missed their objectives.
They replied within days. They took the numbers on board and said they would rethink their approach. They also asked what returns a £60,000 to £70,000 budget could support.
My advice for that budget is BRRR. You buy with bridging, refurbish, then refinance onto a buy-to-let mortgage at the new value. You use the mortgage to clear the bridge and take back part of your capital, and you keep a let property that pays you rent. You earn from rent and from the equity you build, so a dip in resale prices hurts you less.
A good sourcer will tell you no
Turning away a client who is ready to buy can look like bad business. If I push a weak deal, I get one fee and you lose money. If I'm straight with you, you'll trust me with the next deal when your budget changes.
You carry the risk on a flip. If it overruns or sells low, the loss comes out of your pocket. I'd hate to be the person who found you the house that cost you £20,000.
These investors got it. I'll be ready when they come back with their new approach.
If you're investing from overseas
Overseas investors face two extra steps that can shrink a budget or delay a purchase.
- Set your budget after currency transfer fees. Decide whether your figure is the amount you send or the amount that lands in the UK. A £60,000 budget that loses a few thousand pounds to fees and exchange rates leaves you less for the refurb.
- Start your source-of-funds paperwork early. UK banks and solicitors ask for documented proof of where your money came from before they accept a large transfer. If you wait until you've found a property, you risk losing it while the checks run.
Our free Overseas Investor Guide explains the source-of-funds checks and the extra taxes overseas buyers pay, including the 2% non-resident stamp duty surcharge.
Lessons for investors setting a budget
- Fix your all-in figure before you start. List each cost from stamp duty to agent fees and check your budget covers them. These investors' cash budget changed twice during the search, and each change altered the deals I could show them.
- Match the strategy to the cash. Stamp duty, legals, bridging fees and selling costs take a bigger share of a small deal, so with less cash a BRRR or a buy-to-let can work where a flip falls short.
- Ask your sourcer for the maths. A good sourcer tells you when a brief fails and shows you the numbers behind that answer.
- Treat a pause as a result. These investors spent months waiting and lost no money. If I'd rushed them into a thin-margin flip, they could have lost £20,000 or more.
Check your budget before you commit
If you're planning a flip, BRRR or buy-to-let in the West Midlands, book a free 30-minute discovery call. Send me your cash figure and target return before the call, and I'll run the break-even test with you and tell you whether your brief works.
Book your call at calendly.com/lauraday142/30min, or email me at laura@stoneandwillowproperty.co.uk with the subject line "Budget call".
You can also download our free Overseas Investor Guide from the website. It covers the costs and compliance steps to plan for before you buy.
Laura Day, Founder, Stone & Willow Property Group
Figures in this article are illustrative and based on one client scenario. They are not financial or investment advice. Seek independent advice before investing.
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