Flip or Refinance? How I Choose a Property Exit
August 30, 2021
Should you flip a property or refinance it and keep it? I don’t think there is one answer that works for every project. I’d compare what a sale would actually leave me with against the income, equity, borrowing and ongoing work involved in holding it.
In my August 2021 video, I explained why I had generally kept the properties I’d improved rather than selling them straight away. That wasn’t because I objected to flipping. I said I would sell if the circumstances and figures made it the better decision.
The starting point was how value had been added. A project that produces an attractive sale margin doesn’t necessarily make an attractive rental, and a good long-term rental doesn’t automatically need a large refurbishment to be worthwhile.
You can watch my original discussion of flipping versus refinancing for the examples behind my approach.
First establish whether the work creates value
I discussed several ways to improve a property’s position: refreshing its appearance, changing the layout, changing its use and adding floor space. They are different activities with different costs and dependencies.
A new kitchen, bathroom and decoration may make a tired house much more appealing. But the financial question is whether the finished value exceeds the purchase price and full cost of delivering that improvement by enough to justify the work and risk.
In the markets I was considering in 2021, I said straightforward cosmetic opportunities were difficult to find at prices that worked for me. That was a market observation at the time, not a claim that cosmetic refurbishment can never be profitable.
I’d check current comparables and quotations on each project. The fact that a television programme makes an improvement look straightforward doesn’t tell me whether the same work creates a useful margin at the price I’m being asked to pay.
A better layout can matter more than an expensive finish
One example in the video involved moving a bathroom to create another bedroom. The idea was to make better use of existing space rather than assume an extension was always necessary.
I also described a project where moving a bathroom downstairs helped create three bedrooms upstairs and another downstairs for a smaller HMO. That was an example from my experience, not a recommendation to move every bathroom into the same position.
The local market and intended use matter. Another bedroom may improve value or rent, but only if the resulting rooms and facilities work properly. A cramped or inconvenient home isn’t automatically worth more because the floor plan has another bedroom label.
I’d compare the expected benefit with the complete cost, including plumbing, electrical work, finishes, professional input and any permissions. My article on refurbishment mistakes explains why spending on a building isn’t the same as creating recoverable value.
Changing the use creates a different business
Turning a family house into an HMO or using accommodation for shorter stays changes how the property operates. It can increase income, but it also changes the work, costs and rules that need to be considered.
The original video discussed those possibilities in the context of 2021. I wouldn’t rely on its simplified planning comments for a current purchase. Licensing, planning, safety, mortgage and insurance requirements need checking for the exact location and intended use.
I also wouldn’t assume higher income guarantees a higher lender valuation. The way a lender assesses the property is an important dependency if refinancing is the planned exit from short-term finance.
Before buying, I’d want a workable route to the intended use and a realistic fallback. A project doesn’t become safer merely because it has two labels, such as “HMO” and “serviced accommodation”, if neither route has been properly assessed.
Adding space needs the right local values
I described extensions and loft or basement work as another way to add value. The important comparison was the cost of creating the space against what that space was likely to be worth in the local market.
In a lower-priced area, substantial building work can cost a large proportion of the entire property’s value. That can make the margin difficult, even where the finished home is clearly better than the original one.
Conversely, a location with higher values may support a larger uplift, but that isn’t a guarantee. Design, quality, demand, planning and the price paid at the start still affect the outcome.
The construction rates mentioned in the 2021 video are historical. I’d obtain current project-specific estimates and include contingency rather than use an old price per square metre as a quotation. The original principle remains useful: know what the market is likely to pay for the improvement before assuming the spend is justified.
My extension example showed why rent matters
I discussed an extension opportunity on a property in Erith. I estimated that spending around £40,000 could add roughly £40,000–£50,000 to the value, but increase rent by only about £100 a month.
At £100 a month, the additional gross rent is £1,200 a year. £40,000 divided by £1,200 is around thirty-three years before allowing for extra costs or the time value of money. That simple comparison helped explain why the work didn’t appeal to me as a rental-income decision.
I said we had obtained planning permission, so the point wasn’t simply that the extension was impossible. It was that being able to build something didn’t make it the best use of capital for the strategy I intended to follow.
If I were preparing to sell, the assessment might be different. I’d still need to establish the likely net sale benefit. For a property I intended to keep, the limited extra rent made the investment much less compelling.
A projected development margin needs checking carefully
The video also included a much larger proposed extension to my family home. I discussed a current value around £800,000, spending around £500,000 and an anticipated end value around £2.2 million.
Those rounded inputs imply £900,000 between the projected end value and the stated starting value plus works, before other costs. The spoken discussion also mentioned a different rough margin, so I wouldn’t present it as a reconciled final profit calculation.
More importantly, it was a proposal at the time. The video didn’t establish the eventual cost, completion or sale result. A forecast belongs in the decision-making process, but it shouldn’t be turned into a completed success story.
It also illustrated a personal complication: a family may want to live in the improved home even where a purely commercial calculation suggests selling. I’d acknowledge that choice rather than pretend the financial answer is the only thing that matters.
What selling would actually leave you with
For a flip, I’d start with a supportable sale price and subtract the purchase, works, finance, transaction and selling costs. I’d then get the relevant tax treatment confirmed before describing the remainder as money available for the next project.
A sale can release capital and end the responsibility for operating that property. It can also take longer than expected, particularly if a buyer’s finance or chain causes delays. Holding costs continue while the sale is being completed.
The government’s guidance on tax when selling property is a starting point, but a development or trading activity may have a different treatment from selling a long-term investment. I’d have an accountant assess the actual circumstances.
I wouldn’t compare a gross flip margin with a rental return after expenses and call that a fair comparison. The costs and tax need to be treated consistently enough that the two options answer the same practical question.
What refinancing and holding would leave you with
For the hold option, I’d calculate the new borrowing available, the amount needed to repay existing finance and fees, and the cash that would remain tied up after the refinance.
Then I’d assess the ongoing rent against operating costs and the new mortgage commitment. A large cash release can look attractive while leaving a thin monthly surplus because the debt has increased.
Refinance proceeds are borrowed money, not sale profit. The property and its risks remain with me, along with responsibility for the loan. That can be worthwhile, but the distinction needs to remain clear.
My buy-to-let mortgage guide explains why the loan amount depends on more than the value I hope the building has. Rental cover, lender criteria and the property’s characteristics all affect the available route.
Use today’s position when comparing the options
An important point in the video was that I shouldn’t assess the rental only against the price I originally paid. If I could sell it for significantly more now, the capital available from a sale is part of the decision to keep it.
At the same time, replacing it with another property has costs. Selling and buying again can involve fees, taxes, finance and time without rental income. A slightly better advertised return elsewhere may disappear once those costs are included.
I’d therefore compare the realistic alternatives rather than an existing property’s detailed costs with another deal’s optimistic headline. The question is what the available money could actually achieve after completing the necessary transactions.
I also want to understand the work involved. Holding a stable rental and starting another refurbishment project are different commitments, even if a spreadsheet makes their expected returns appear similar.
Plan for a weaker exit before starting the work
A sale price and a refinance valuation can differ, and neither is guaranteed by the amount spent on the project. I’d test a lower figure for both, along with a longer timetable and higher costs.
If the sale is delayed, can I continue to fund the property? If refinancing releases less than planned, can I leave the additional cash invested? If the rental option requires permissions or works, have those been established rather than assumed?
My property investment planning approach is about making those dependencies visible. An alternative exit only helps if it is genuinely available and affordable when the first plan disappoints.
Our buy-to-let deal calculator can help illustrate the rental and refinancing side of that comparison. I’d enter my own costs, allow for voids and stress-test the interest rate. Released equity is additional borrowing, and the calculator’s pre-tax illustration doesn’t replace a separate calculation of selling costs and tax.
Choose the exit that fits the completed investment
I had generally chosen to hold because the rental return was acceptable, buying another property took time and refinancing allowed me to retain the asset while using some capital elsewhere. That explained my history in the video; it wasn’t a rule against selling.
I’d still compare both routes on a new project. If you’d like to discuss the figures and strategy for your next investment, book a free 30-minute call, explore the Starter Club or find out about Done For You.