If you’re new to fix and flip investing, the financing piece can feel like the most confusing part. You’ve found a property, you’ve got a renovation plan, and now someone is telling you about points and draws and after-repair value and loan-to-cost ratios and you’re not sure where any of it connects.
It’s actually not that complicated once you see how it’s structured. Here’s how fix and flip financing through hard money works, what it covers, and what to expect from the process.
The Basic Structure
A fix and flip hard money loan is designed to fund two things: the purchase of the property and the cost of the renovation. Some lenders will fund both from the start. Others fund the purchase upfront and release the renovation budget in draws as work is completed and verified.
The loan is secured by the property. It’s short term, typically six to eighteen months. It’s interest-only during the loan period. And it gets paid off when the property sells.
That’s the whole structure. Everything else is details about how different lenders implement it.
What Hard Money Covers on a Fix and Flip
The purchase price
Hard money lenders will typically fund between 70% and 90% of the purchase price depending on the lender and the deal. The borrower brings the rest as a down payment. On a $200,000 purchase with an 80% loan, you’re bringing $40,000 to closing.
Some lenders will go higher on the purchase price if the overall deal metrics are strong. Some will go lower on properties they consider higher risk. The purchase LTV is negotiated based on the deal, not set in stone.
The renovation budget
Most fix and flip lenders will fund between 100% and 100% of the renovation costs, released in draws. You don’t get all the renovation money at closing. You get it in stages as you complete work and the lender verifies it.
Here’s how draws typically work. You complete a phase of the renovation. You submit draw request documentation showing what work was done. The lender sends an inspector to verify the work was completed as described. The draw gets funded. You move to the next phase.
Some lenders do fewer, larger draws. Some do more frequent, smaller ones. The draw schedule should be discussed before you close so it aligns with how your contractor expects to be paid.
What it does not cover
Hard money loans for fix and flip do not typically cover holding costs like property taxes, insurance, and utilities during the renovation period. Those come out of your pocket or out of your projected profit. They also don’t cover your time, your carrying costs if the property sits after renovation, or selling costs like agent commissions and closing costs on the sale.
These costs need to be in your budget before you run your profit projection. They’re real and they add up.
How Lenders Evaluate the Deal
Fix and flip lenders look at a few specific numbers when they evaluate a deal. Understanding these helps you present your deal more effectively and know in advance whether it’s likely to get funded.
| Metric | What It Means | Typical Lender Preference |
|---|---|---|
| After-Repair Value (ARV) | What the property will be worth after renovation | Verified by lender appraisal or BPO |
| Loan to ARV | Total loan amount as a percentage of ARV | 65% to 75% maximum |
| Loan to Cost (LTC) | Total loan as a percentage of purchase plus renovation | 80% to 90% maximum |
| Purchase price vs. ARV spread | The gap between what you’re paying and what it’ll be worth | Minimum 25% to 30% spread preferred |
| Renovation scope | Detailed breakdown of planned work and costs | Itemized contractor estimate required |
The ARV is the number everything else is built around. Lenders will either order an appraisal or use a broker price opinion to establish it independently. Your estimate of ARV matters less than theirs. Don’t go into a deal assuming the lender will validate your most optimistic number.
What You Need to Bring to the Table
Fix and flip hard money applications are much lighter on documentation than conventional loans, but you still need a few things to get a deal done.
- Purchase contract or property details. The lender needs to know what you’re buying and at what price.
- Renovation scope and budget. An itemized breakdown of planned work with contractor estimates. The more detailed this is, the smoother the process goes.
- Comparable sales (comps). Evidence supporting your ARV. Recent sales of similar properties in similar condition in the same area.
- Your experience. First-time flippers aren’t automatically disqualified, but lenders charge more and lend less to borrowers with no track record. If you’ve done deals before, document them.
- Proof of funds for your down payment. You need to show you can cover the portion of the deal the lender isn’t funding.
That’s largely it. No two years of tax returns. No DSCR calculation. No business plan. The deal is the application.
First Deal Mistakes to Avoid
First-time fix and flip investors make the same mistakes with some regularity. Here are the ones that hurt the most.
Underestimating renovation costs
Get real contractor bids before you close. Not ballpark estimates, not your own guess based on watching renovation shows. Actual bids from people who will do the work. Then add 15% to 20% as a contingency because something always costs more than expected.
Overestimating ARV
Pull conservative comps. Use properties that are similar in size, condition, and location. Don’t use the nicest sale in the neighborhood to justify your ARV. Use realistic ones. The lender is going to do their own analysis and if your number is aggressive, the loan amount you get back will be lower than you planned for.
Not having enough cash reserves
Hard money covers most of the deal but not all of it. You need cash for your down payment, closing costs, holding costs during renovation, and a contingency reserve. Going into a fix and flip without adequate reserves is one of the fastest ways to get into trouble when something unexpected happens.
Choosing the wrong contractor
Your contractor is your partner on a fix and flip whether you treat them that way or not. A contractor who is slow, unreliable, or over budget doesn’t just create renovation headaches. They extend your hard money term, add to your interest cost, and can turn a profitable deal into a break-even or worse. Vet contractors carefully before you commit.
The Bottom Line
Fix and flip financing through hard money is a well-established, legitimate tool that experienced real estate investors use repeatedly and deliberately. The structure is designed for exactly this use case and when the deal is underwritten correctly — conservative ARV, realistic renovation budget, adequate reserves, and a clear sale timeline — it works.
If you’re looking at a fix and flip opportunity and want to understand whether the financing makes sense for your specific deal, that’s a conversation worth having before you put the property under contract. Let’s talk.
