Fix-and-flip
Fix-and-Flip Loans: How Rehab Financing Works
A fix-and-flip loan funds both the purchase and the renovation, sized against what the property will be worth when you are done.
Fix-and-flip financing is built for value-add projects. Unlike a standard purchase loan, it funds the rehab too, and it is underwritten against the after-repair value, the ARV, rather than only today's price.
How the loan is sized
Most programs fund a large share of the purchase and a large share of the rehab budget, with the total capped at a percentage of the ARV. In practice that means three numbers drive your deal: the purchase price, the rehab budget, and a credible ARV supported by comparable sales. The stronger and better-documented those are, the more leverage you get.
How rehab money is released
You do not get the full rehab budget at closing. Lenders release it in draws as work is completed, often after an inspection of each stage. Plan your cash flow around this: you fund the work, then get reimbursed. A realistic draw schedule keeps the project moving.
Typical terms
- Term: short, commonly twelve to eighteen months, matched to the project.
- Payments: interest-only during the project.
- Cost: points and a rate above long-term financing, reflecting the short term and the construction risk.
- Experience: your track record of completed projects affects both approval and pricing.
Watch the exit. The plan is to sell or to refinance. If you intend to keep the property as a rental, line up the DSCR refinance before the flip loan matures so you are not forced to sell.
Fix-and-flip loans are a form of hard money, and they are the engine of the BRRRR method when the plan is to keep and rent the finished property.