Fix-and-Flip Loans

Fix-and-flip loans are 12–24 month bridge financings for property renovation and quick sale. Repayment comes from the sale proceeds, not rental income. Lenders charge 9–14% rates because the exit is speculative and execution risk is high.

Key takeaways

• Fix-and-flip loans underwrite on after-repair value (ARV), not current condition or rental income; the lender is betting on your ability to execute renovations
• Loan-to-value is capped at 65–75% of ARV (not current value), meaning 25–35% equity cushion to absorb renovation overruns and market downturns
• Interest-only payments during the hold period minimize carrying cost; principal is due from sale proceeds (a "balloon")
• Hard money lenders close in 2–4 weeks and charge 9–13% rates plus 2–3 points; bank-affiliated lenders close in 4–6 weeks at 7.5–10% rates
• Exit risk dominates the underwriting: if the property doesn't sell on timeline or at target price, refinancing is difficult and expensive

How Fix-and-Flip Loans Are Structured

A typical fix-and-flip deal:

• Purchase price: $300k (distressed property, below market)
• Target after-repair value: $500k (market comp for renovated property)
• Renovation budget: $80k (kitchen, baths, flooring, paint)
• Holding period: 12 months (buy, renovate over 3 months, market for 3 months, sell)

A fix-and-flip lender evaluates the deal as:

Max loan amount:

• ARV: $500k
• LTV: 70% (conservative)
• Max loan: $350k

Sources and uses:

• Purchase: $300k
• Renovations: $80k
• Carrying costs (12 months): $30k
• Contingency: $10k
• Total: $420k needed

Shortfall: The max loan ($350k) covers purchase + most renovations, but you need $420k total. You must bring $70k cash (17% equity). The lender will only lend what the ARV supports.

Repayment:

• Renovated property sells for $500k (on target)
• Sale proceeds: $485k (net of 3% realtor commission)
• Loan payoff: $350k + interest accrued (say, $35k total cost for 12 months at 10%)
• Net proceeds to you: $100k

The lender's thesis: Your execution is credible; the ARV is realistic; the market will absorb the property; the exit happens on time.

Interest Rates and Costs

Fix-and-flip lenders charge 9–14% all-in (rate plus points). The breakdown:

Hard money (shortest timeline, highest cost):

• Rate: 10–12%
• Points: 2–3% upfront
• All-in cost: 12–15% (annualized)
• Closing time: 2–4 weeks

Bank-affiliated bridge (moderate timeline, moderate cost):

• Rate: 8–10%
• Points: 1–1.5% upfront
• All-in cost: 9–11.5% (annualized)
• Closing time: 4–6 weeks

Portfolio lender (longer timeline, lower cost):

• Rate: 7–9%
• Points: 0.5–1% upfront
• All-in cost: 7.5–10% (annualized)
• Closing time: 6–8 weeks

On a $350k fix-and-flip loan at 10% rate and 2.5 points:

Year 1 cost:

• Interest: $35,000
• Points: $8,750 (upfront)
• Total: $43,750

Compare to a portfolio loan for a stabilized rental at 6.5% with 0.75 points:

Year 1 cost:

• Interest: $22,750
• Points: $2,625 (upfront)
• Total: $25,375

The fix-and-flip costs 72% more in year 1—a reflection of the higher risk (execution and market risk) and the short hold period.

After-Repair Value and Underwriting

The lender's entire decision hinges on ARV credibility. If you claim the renovated property will be worth $500k, the lender will:

1. Order an appraisal of comparable properties (recently sold, renovated to similar condition)
2. Review your contractor's estimate (and, for large loans, hire a third-party reviewer)
3. Inspect the property and identify any structural issues not visible in initial walkthrough
4. Stress-test the ARV down: if you claim $500k, the lender may cap the appraised value at $480k (96% of your projection) to build in conservative margin

Overestimating ARV is the leading cause of fix-and-flip deal failure. You claim $500k ARV, but the actual market absorbs it at $460k. The lender financed based on $500k, and you now have a $40k shortfall.

Experienced flippers build in 5–10% ARV cushion: if your true target is $480k, you project $500k to the lender. This gives you a buffer. But lenders aren't naive; they discount your ARV estimate by 3–5% automatically.

Loan-to-After-Repair Value (LTARV)

Lenders speak of "LTARV"—loan-to-after-repair value. On a $500k ARV property, an LTARV of 70% means a max loan of $350k. An LTARV of 75% means a max loan of $375k.

LTARV is the key constraint. You can't borrow more than the lender's comfort zone on the ARV, regardless of your contribution. If you want to borrow $400k on a $500k ARV, you'd need an 80% LTARV, which most lenders won't do (too close to 100% of final value, no cushion for overshooting renovation).

LTARV varies by market and lender:

• Competitive market, strong reputation borrower: 75–80% LTARV
• Average market, average borrower: 70–75% LTARV
• Weak market or first-time flipper: 60–70% LTARV

If you're a first-time flipper with no track record, expect to bring more cash.

Interest-Only and Quarterly Interest Payments

Most fix-and-flip loans are interest-only, with interest paid quarterly (every 3 months). This minimizes monthly carrying cost and aligns payment timing with expected project milestones.

On a $350k loan at 10% annual rate:

• Quarterly interest: $8,750
• Annual interest: $35,000

You pay $8,750 per quarter while the property is under renovation and on the market. Once sold (say, at month 14), the final interest accrual is added to the payoff.

Some lenders offer "negative amortization" (rolled interest), where unpaid interest is added to the loan balance each period. This is dangerous: a 12-month fix-and-flip at 10% with negative amortization grows from $350k to $385k+ by payoff. You're extending the balloon and increasing exit cost.

Avoid negative amortization unless your exit price is certain and you've modeled the impact.

Execution Risk and Timeline Overruns

The biggest risk in fix-and-flip financing is the execution timeline. Most projects run over:

• Renovation delay: Discovered asbestos, mold, structural issues add 4–8 weeks.
• Market timing: The property sits on market for 6 months instead of 3 months. Carrying costs double.
• Market downturn: The market declines 5–10% during the hold period. Your ARV of $500k is now worth $475k. You sell at a $25k loss.

When the timeline extends past 12 months, interest accrues indefinitely. A project that was supposed to close after 12 months and save $35k in interest now runs 18 months and costs $52,500 in interest. The extra $17,500 in carrying cost directly reduces profit.

Lenders address this with extension fees. If the loan matures (12 months) and the property hasn't sold, the lender charges a fee to extend—typically 0.5–1% of the loan balance per month. A $350k loan extended 2 months costs $3,500–7,000 in extension fees.

These extensions are expensive. The better approach is to build 2–3 months of time cushion into the original project timeline and loan term.

Equity and Skin in the Game

Lenders require skin in the game—typically 20–35% equity (borrower cash) invested in the deal. This ensures:

1. You're incentivized to execute (you lose your cash if the deal fails)
2. You have cushion if things go wrong
3. You have credibility (you've passed your own underwriting)

If you want to flip a property with $300k purchase, $80k renovations, $30k carrying = $410k total cost, and the lender will finance 70% of a $500k ARV ($350k), you need to contribute:

• $410k total cost - $350k lender = $60k cash (14.6% of total cost, 21% of purchase + renovation)

Some operators argue for 100% financing (they contribute nothing), but this only works with:

• Exceptional track record (lender trusts you implicitly)
• Properties with high-confidence ARV (you've flipped similar properties)
• Strong sponsor or cash reserves

Most first-time flippers should expect to bring 25%+ equity.

Lender Selection: Hard Money vs. Bank vs. Portfolio

Hard money lenders:

• Fastest closing (2–4 weeks)
• Highest rates (11–14%)
• Minimal underwriting hassle (income, employment history not required)
• Relationship-based (lenders know local rehab markets)
• Best for time-sensitive acquisitions or properties with title issues

Bank-affiliated bridge lenders:

• Moderate closing (4–6 weeks)
• Moderate rates (8–10%)
• More documentation (employment, bank statements)
• Institutional underwriting (appraisals, contractor estimates, third-party reviews)
• Best for borrowers with good credit and documented income

Portfolio lenders:

• Slower closing (6–8 weeks)
• Lower rates (7–9%)
• Relationship-based, but require documented track record
• Will finance repeat flippers; won't finance first-timers
• Best for experienced operators with multiple deals per year

For your first flip, hard money is often the only option. You pay 150–300 bps more in rate, but you close quickly and the lender doesn't demand extensive financial documentation. As you build track record (3–5 successful flips), portfolio lenders and banks will offer better terms.

Decision tree: Which fix-and-flip loan is right?

Related concepts

• Hard Money Loans
• ARM Loans for Investors

Next

Fix-and-flip loans are short-term bridges for acquisition and renovation. Construction loans serve a different purpose: financing a building project from ground-up, with staged draws tied to construction milestones. Unlike fix-and-flip (where the value-add is cosmetic renovation), construction loans finance the building itself, and the lender's underwriting is based on projected stabilized rent, not sale comp.