Fix and Flip Financing: What You Need to Know

Fix and flip investing — buying a distressed property, renovating it, and selling at a profit — requires a specific type of financing. Conventional mortgages don't work because lenders won't lend on properties in poor condition. Fix and flip loans fill that gap, covering both the purchase price and the renovation budget.

How Fix and Flip Loans Work

A fix and flip loan is a short-term, asset-based loan secured by the subject property. The lender advances funds for the acquisition and typically releases renovation funds in draws as work is completed. The structure is similar to a construction loan — you don't receive all the renovation money upfront. Instead, it's released in stages as the lender's inspector verifies completed work.

Loans are typically interest-only during the project term. You pay it off when you sell the property.

Key Terms to Know

• LTV (Loan-to-Value): Based on current as-is value — typically 65 to 75%
• LTC (Loan-to-Cost): As a percentage of total project cost — often up to 85 to 90%
• ARV (After Repair Value): The projected value after renovation — lenders also cap at 65 to 70% of ARV
• Points: Origination fees, typically 1 to 3 points
• Term: Usually 6 to 18 months
• Rate: Typically 10 to 14%+

What Lenders Evaluate

• After repair value (ARV) — supported by a comparable sales analysis
• Detailed renovation scope of work and budget
• Borrower experience — number of prior flips
• Exit strategy — when and how will the property sell?
• Credit score — minimum typically 620 to 640
• Liquidity — cash reserves to cover holding costs and overruns

First-Time Flippers

First-time flippers can get funded, but lenders will often charge higher rates, require more equity, or require a co-borrower with flip experience. Having a detailed, credible scope of work and a licensed contractor under contract goes a long way toward building lender confidence when experience is limited.

Speed Matters

Time is money in fix and flip. Carrying costs — interest, insurance, utilities, property taxes — accumulate every day you hold the property. Fast lenders who can close in 7 to 14 days are worth the premium over slower conventional financing. Missing a purchase opportunity because financing took too long can cost more than the rate difference.

KQT Advisors is a commercial loan broker and does not make lending decisions. All loan approvals, rates, and terms are subject to lender underwriting. Information in this article is for general informational purposes only.