The Anatomy of a Profitable Flip

When entering the world of property flipping, it is easy to get caught up in the aesthetics: the open-plan kitchens, the fresh plaster, and the transformation of a derelict space into a beautiful home. But at Nexus Hearth Properties Ltd, we know that a successful flip is built on a foundation of rigorous mathematics. If the numbers do not work on day one, the project will not work at exit.

To protect investor capital and ensure predictable profits, we rely on two critical financial metrics: Return on Investment (ROI) and Return on Capital Employed (ROCE). While they sound similar, understanding the difference between them is what separates amateur hobbyists from professional property investors.

Here is a look at the math behind a profitable flip.

1. The Baseline: Net Profit

Before diving into percentages, we must map out the hard cash. Every flip we analyse follows a strict formula to determine the Gross Development Value (GDV); the estimated selling price after refurbishment.

Let’s look at a typical example of a 3-bedroom terrace:

• Purchase Price (Below Market Value): £130,000

• Refurbishment Costs (Kitchen, Bathroom, Rewire): £30,000

• Legals, Stamp Duty, & Holding Costs: £10,000

• Total Project Cost: £170,000

• End Resale Value (GDV): £210,000

In this scenario, the Net Profit is £40,000 (£210,000 GDV minus £170,000 Total Cost).

2. Metric One: Return on Investment (ROI)

ROI calculates the total profitability of the project relative to its overall cost. It answers the fundamental question: Is this project inherently efficient?

• The Formula: (Net Profit ÷ Total Project Cost) x 100

• The Math: (£40,000 ÷ £170,000) x 100 = 23.5% ROI

At Nexus Hearth, our baseline target for a flip is a minimum of 20% ROI. This provides a robust safety buffer against unexpected material price increases or minor market shifts, ensuring the project remains highly profitable.

3. Metric Two: Return on Capital Employed (ROCE)

While ROI looks at the total cost of the project, ROCE focuses specifically on the actual cash you (or your private finance partners) have to physically put into the deal. This is the ultimate metric for measuring cash efficiency.

If we use private finance or short-term lending to fund part of the purchase, the amount of cash "left in" the deal changes. Let’s assume we fund the purchase using a combination of investor capital and bridging finance, and our actual cash cash-out-of-pocket (Capital Employed) is only £60,000 to cover the deposit and refurb.

• EBIT: Earnings Before Interest and Tax, which, in this case, is our Net Profit.

• The Formula: (EBIT ÷ Capital Employed) x 100

• The Math: (£40,000 ÷ £60,000) x 100 = 66.6% ROCE

Why ROCE Matters: A project with a 66.6% ROCE means that the capital is working incredibly hard. It allows us to return investor funds quickly—usually within 6 to 12 months, so that the same "pot of cash" can be redeployed into the next project. This velocity of money is how we rapidly scale our business.

The Nexus Hearth Approach

We do not gamble on property; we calculate. By meticulously tracking ROI to ensure the property itself is a strong asset, and optimising ROCE to ensure our investors' cash is utilised efficiently, we create win-win joint ventures.

By focusing heavily on these metrics during our current flipping phase, we are successfully generating the cash reserves required to transition into long-term, high-yield HMOs and commercial developments down the line.

Want to see the mathematical breakdown of our next Leeds project?

We are currently presenting detailed investment packs to our inner circle of private finance partners.

📧 Connect with our network today at: enquiries@nexushearthproperties.com