Here is a mistake that costs flippers thousands. They look at the profit on a deal and forget to subtract every cost. The result is a profit figure that looks good on paper but disappears when the deal is done.
Net profit is what is left after you subtract everything: purchase price, stamp duty, legal fees, survey costs, refurbishment, project management, finance costs, estate agent fees, solicitor fees for the sale, and any holding costs while the property sits empty.
Let us run a real flip scenario. You buy a two-bed terrace in Portsmouth for £150,000. Stamp duty costs £5,000 on a second home. Legal fees £1,500. Survey £500. Refurbishment £30,000. Bridging finance interest over six months, say £4,500. Council tax during works, say £1,200. You sell for £220,000. Estate agent fees at 1.5% plus VAT: £3,960. Legal fees on sale: £1,200.
Your total costs are £150,000 purchase plus roughly £48,860 in other costs = £198,860. Your sale price is £220,000. Your net profit is £21,140. That is 10.7% return on total costs. But you only put in roughly £50,000 of your own cash. Your return on cash deployed is closer to 42%.
The key lesson: be ruthless about including every cost. The flippers who consistently make money are the ones who budget honestly. The ones who lose money are the ones who say I will sort that out later.
The formula
Net Profit = Sale Price - Total Acquisition and Development Costs - Selling Costs
Why this matters
Net profit is the only number that matters on a flip. Every cost you forget to include is profit you never actually had. Build a complete cost schedule before you buy, not after.
Not sure whether a property stacks up? Xelox Properties offers detailed deal analysis so you know what you are getting into before you commit.