Why It Matters
Fix-and-flip loans make the economics of flipping work by funding acquisitions too distressed for conventional financing and bundling renovation capital into the same deal. Speed is the other lever: these loans close in 5-10 days versus 30-45 days for a bank loan, which matters when you're competing for off-market properties or auction buys. The tradeoff is cost — double-digit interest rates and origination fees that only pencil out when your flip margin is strong.
At a Glance
- Loan type: Short-term, asset-based (ARV drives approval, not borrower income)
- Typical term: 6-18 months with extension options (usually 1-3 months at a fee)
- Loan sizing: 65-75% of after-repair value, covering purchase + rehab budget
- Interest rate: 10-14% annually; some lenders charge only on drawn amounts
- Points: 2-4 origination points paid at close
- Closing speed: 5-10 business days (vs. 30-45 for conventional)
- Lender types: Hard money lenders, private lenders, dedicated flip platforms (Kiavi, Lima One, RCN Capital)
How It Works
How the loan is structured. A fix-and-flip loan has two components inside a single facility: the purchase amount and the rehab budget. The purchase portion funds at closing. The rehab budget is held in reserve and released through a draw schedule as renovation milestones are completed — typically after a lender inspection confirms the work is done. This protects the lender and controls your renovation spend. Total loan amount is capped at 65-75% of ARV, which means the lender orders a broker price opinion (BPO) or appraisal before closing to confirm what the property will be worth after renovation.
How ARV underwriting works. ARV is the central underwriting variable. The lender estimates what the property will sell for once renovated using comparable sales — a process similar to how a standard appraisal works. From that ARV, they multiply by their loan-to-ARV limit (say, 70%) to get the maximum total loan. If the ARV is $400,000 and the lender lends at 70%, the max loan is $280,000. If you're paying $200,000 for the property, you have $80,000 available for the rehab budget. This private lending model is explicitly deal-focused: the asset protects the lender if you default, not your W-2.
How costs and timeline add up. Expect 10-14% annual interest, 2-4 origination points, and monthly interest payments on any drawn amounts. On a $280,000 loan at 12% over 8 months, your interest alone runs roughly $22,400. Add 3 points at origination ($8,400) and extension fees if your project runs long, and total financing cost can reach $35,000-plus on a single flip. That's why experienced flippers underwrite for a minimum 15-20% profit margin above all-in costs. Thin margins get eaten by cost overruns and holding period extensions.
Real-World Example
Lisa finds a 3-bedroom ranch in Columbus, Ohio listed at $148,000. The home needs a full kitchen update, new flooring, and exterior paint — a scope she prices at $42,000. Comparable renovated homes in the neighborhood are selling for $265,000, giving her an ARV of $265,000.
Her lender offers 70% of ARV, or $185,500. That covers the $148,000 purchase plus $37,500 of the $42,000 rehab budget — she puts in $4,500 of her own cash to cover the gap. The loan closes in 7 days at 12% interest, 2.5 points. Lisa completes the renovation in 11 weeks, lists the property, and accepts an offer at $261,000 within three weeks. After paying off the $185,500 loan, covering $31,000 in renovation and carrying costs, and paying agent commissions, she walks away with approximately $34,000 in net profit on the deal.
Pros & Cons
- Fast capital: Closes in days, not weeks — critical for winning time-sensitive deals and competitive auctions
- No income verification: Approval is based on the deal and property value, not pay stubs or DTI ratios
- Bundled rehab capital: Purchase and renovation funding in one loan, no separate construction draw structure needed
- Scalable: Build a track record and lenders will increase your credit lines and lower your rates over time
- Flexible exit: Repay through sale or refinance into a long-term rental loan if the flip plan changes
- High cost: 10-14% interest plus 2-4 points makes the cost of capital significantly higher than conventional loans
- Short fuse: Loan matures in 6-18 months — delays in renovation or a slow sales market can force a costly extension or a rushed sale
- Personal guarantee: Most fix-and-flip lenders require a personal guaranty, meaning default can expose personal assets
- Draw friction: Rehab funds are released in draws after inspections — timing mismatches can slow your contractors if inspections lag
- Experience penalty: First-time flippers face lower LTV limits and higher rates until they establish a track record
Watch Out
- Underestimating ARV: If your ARV is too optimistic and the lender's appraiser comes in lower, your loan amount shrinks — and your out-of-pocket costs grow. Always run comps yourself before submitting to a lender.
- Budget overruns eating your margin: Fix-and-flip loans don't increase when rehab costs spike. A $15,000 overage comes out of your profit, not the loan. Build a 10-15% contingency into every rehab budget.
- Extension fee erosion: Each extension typically costs 0.5-1.5% of the loan balance. Two extensions on a $280,000 loan at 1% each = $5,600 in added cost. Know your extension terms before you close.
- Market softening risk: You underwrote at today's comps; if values drop 5% before you sell, your margin absorbs it. In softening markets, stress-test your sale price 8-10% below ARV.
Ask an Investor
The Takeaway
A fix-and-flip loan is purpose-built for the buy-renovate-sell cycle — it moves fast, underwrites on the asset, and funds both purchase and rehab in a single draw structure. The cost is high, so it only works when your ARV estimate, renovation budget, and profit margin are all underwritten conservatively. The investors who use flip loans consistently are the ones who treat the financing cost as a fixed deal variable from day one.