Fix and Flip Loans

A fix and flip loan is short term financing built around one event: the resale. It funds the acquisition, holds back the renovation budget, and releases that budget in draws as the work is completed and inspected. The loan is designed to be paid off when the property sells, which is why it is priced and structured differently from a thirty year mortgage.

How the draw process actually works

This is the part that catches new flippers. You do not receive the renovation budget at closing. You fund the work yourself in stages, then request a draw, an inspection confirms the work is complete, and the funds are released to reimburse you. That cycle usually takes a few business days.

The practical consequence is that you need working capital beyond your down payment. If your first phase is a $40,000 demolition and framing package, you need to be able to carry that $40,000 for the length of a draw cycle. Investors who budget only for the down payment and closing costs stall out on their first draw.

1. Close on the property with your down payment and closing costs
2. Complete a defined phase of the renovation using your own funds
3. Submit a draw request with photos and invoices
4. An inspection verifies the completed scope
5. Funds are released, usually within a few business days

What determines your leverage

Two things move leverage more than anything else: documented experience and the strength of the after repair value. An investor with four completed flips in the last twenty four months will be offered materially more leverage than a first time buyer on an identical property. That is not a credit decision, it is an execution risk decision.

The after repair value has to be supported by genuine comparable sales, not by optimism. If your ARV assumes a finish level that no comparable sale in the neighborhood has achieved, the appraisal will not support it and the loan will resize. Run the numbers first with the ARV calculator.

Fix and flip versus a bridge loan

The two products overlap and are often quoted interchangeably, but they are not the same. A fix and flip loan includes a renovation holdback and a draw process. A bridge loan is acquisition money with no rehab component. If your project needs construction funding, ask specifically for a rehab facility, because a bridge loan will leave you funding the entire renovation out of pocket.

Common mistakes we see

• Budgeting for the down payment but not for the first draw cycle
• Using an ARV that no comparable sale supports
• Ignoring holding costs, which run every month the property sits unsold
• Underestimating the renovation timeline, then paying extension fees
• Choosing a lender on rate alone when a slower close loses the property

If you want to stress test a specific deal, the fix and flip profit calculator models purchase, rehab, holding costs, selling costs and financing so you can see the actual net profit rather than the spread between purchase and resale.

Frequently asked questions