REI Prime
Share
Lending·3 min read·invest

Fix-and-Flip Financing

Published Feb 6, 2025Updated Mar 18, 2026

What Is Fix-and-Flip Financing?

Fix-and-flip financing covers acquisition and renovation budget for flips. Common products: hard money loan, construction loan, bridge loan. Terms: 6–18 months, interest-only, rates 8–12%+. Lenders use ARV and 70% rule to size loans. Holding costs include loan payments—choose products that minimize monthly burn.

Fix-and-flip financing is short-term lending that funds the purchase and renovation of a property for resale, typically hard money, construction loans, or bridge loans.

At a Glance

  • What it is: Short-term loans for purchase + renovation of flip properties
  • Why it matters: Enables leverage; you don't need all-cash
  • Key detail: 6–18 month terms, interest-only, rates 8–12%+
  • Related: Hard money loan, construction loan, holding costs
  • Watch for: Points (2–4%), prepayment penalties, and draw fees add to cost

How It Works

Loan sizing. Lenders use ARV and 70% rule. Max loan = 65–75% of ARV minus renovation. Example: ARV $300K, renovation $45K. 70% = $210K. Loan might be $195K (purchase + rehab).

Rates and terms. 8–12%+ interest. 2–4 points (1 point = 1% of loan). 6–18 month term. Interest-only. No prepayment penalty preferred.

Draw structure. Construction loan style: funds release via draw schedule. Hard money may fund purchase + rehab upfront or in draws.

Exit. Sale pays off loan. Or refinance if converting to rental.

Real-World Example

Ryan Cooper flips in Tampa. He finds a deal: purchase $178K, rehab $52K, ARV $320K. He needs fix-and-flip financing.

He compares two lenders:

Lender A: 9% rate, 3 points, 12-month term. Loan $230K. Points: $6,900. Monthly interest: $1,725. Holding costs (7 months): $12,075 + $6,900 = $18,975.

Lender B: 10% rate, 2 points, 12-month term. Loan $230K. Points: $4,600. Monthly interest: $1,917. Holding (7 months): $13,419 + $4,600 = $18,019.

Lender B is slightly cheaper. Ryan chooses B. His flip profit: $320K − $178K − $52K − $20K closing − $18K financing = $52K. Financing cost is material—shop it.

Pros & Cons

Advantages
  • Enables leverage; don't need all-cash
  • Fast approval (days to weeks)
  • ARV-based sizing fits flip model
  • Interest-only reduces payments during rehab
Drawbacks
  • Higher rates and points than conventional
  • Short term—must sell or refinance
  • Holding costs include loan payments
  • Draw process can add timeline

Watch Out

  • Points and fees: 2–4 points + origination; factor into flip profit model
  • Prepayment penalty: Avoid if possible; you'll pay off at sale
  • Draw delays: Construction loan draws can slow contractor; manage timeline

Ask an Investor

The Takeaway

Fix-and-flip financing is the engine of leveraged flips. Hard money, construction loans, and bridge loans fund purchase and rehab. Shop rates, points, and terms. Holding costs matter—every basis point and point affects flip profit.

Was this helpful?

Explore More Terms

Depreciation14 views

Depreciation is the IRS allowance that lets you deduct a rental property's building cost (minus land) over 27.5 years — a non-cash expense that lowers taxable income even when the property appreciates.

Escrow Account5 views

Escrow Account is a financial analysis concept that describes a specific aspect of how real estate transactions, analysis, or operations work in the context of real estate investing deals.

Fractional Ownership Platform3 views

A fractional ownership platform is an online marketplace that allows multiple investors to collectively own shares of individual real estate properties, typically with minimum investments ranging from $10 to $5,000 per property.

Tax Deferral Engine3 views

A tax deferral engine is a systematic approach combining depreciation deductions, 1031 exchanges, and cash-out refinancing to defer capital gains taxes indefinitely — potentially eliminating them entirely through a stepped-up basis at death.

1031 Exchange3 views

A 1031 exchange (IRC Section 1031) lets you sell an investment property and defer capital gains and depreciation recapture by reinvesting the proceeds into a like-kind replacement property of equal or greater value, using a Qualified Intermediary to hold the funds.

PRIME Framework Overview2 views

The PRIME Framework is a five-phase system — Prepare, Research, Invest, Manage, Expand — that guides new real estate investors from initial education through portfolio growth in a structured, repeatable sequence.

Previous

Fix-and-Flip

Next

Fix-and-Flip Loan