The fix-and-flip business model is straightforward: buy a property below market value, renovate it, and sell it for a profit. But the financing side is where most new flippers get tripped up. Understanding your funding options — and having them lined up before you find a deal — is the difference between closing on a profitable flip and watching someone else buy it.
How Fix and Flip Loans Work
Fix-and-flip loans are short-term loans (typically 6 to 18 months) designed specifically for investors who plan to renovate and resell a property. Unlike traditional mortgages, these loans are structured around the deal, not the borrower's personal income.
Here is how the typical structure works:
- Purchase financing: The lender funds 80-90% of the purchase price
- Rehab financing: The lender funds 80-100% of the renovation costs
- Total loan-to-cost (LTC): Up to 90% of total project cost
- Loan-to-ARV: Up to 70-75% of the after-repair value
- Interest: 8-12%, interest-only payments during the loan term
- Points: 1-3 origination points
- Term: 6-18 months
The rehab funds are typically held in escrow and released in draws as you complete phases of the renovation. This protects both you and the lender.
The Fix and Flip Process: Step by Step
Step 1: Find the Deal Look for properties that are significantly below market value due to condition — not location. The best flips are in good neighborhoods with cosmetic or moderate rehab needs. Run your numbers before making an offer:
The 70% Rule: Your maximum offer should be 70% of the ARV minus rehab costs. For example, if the ARV is $300,000 and rehab costs are $50,000, your max offer is $160,000.
Step 2: Get Pre-Qualified Before you make offers, get pre-qualified with a private money lender through DealFlow Capital. This shows sellers you are serious and can close quickly. Pre-qualification takes minutes, not weeks.
Step 3: Make the Offer Submit your offer with proof of funds or a pre-qualification letter. Sellers — especially motivated ones — prioritize buyers who can close fast and with certainty.
Step 4: Close the Deal With private money financing through DealFlow Capital's lender network, you can close in 7 to 10 days. The lender will order a quick valuation, review your rehab budget, and fund the deal.
Step 5: Execute the Renovation Stick to your budget and timeline. Request draws from the lender as you complete renovation phases. Focus on improvements that add the most value: kitchens, bathrooms, flooring, and curb appeal.
Step 6: List and Sell Once renovations are complete, list the property and sell it. Use the proceeds to pay off the loan and pocket your profit.
Common Fix and Flip Mistakes
Underestimating rehab costs. Always add a 10-15% contingency buffer to your renovation budget. Surprises happen on every project.
Overestimating ARV. Be conservative with your after-repair value. Use recent comparable sales within a half-mile radius, not the highest sale in the zip code.
Holding too long. Every month you hold a property costs you money in interest, taxes, insurance, and utilities. Speed is profit in the flip business.
Not having financing lined up. The worst time to look for a lender is after you find a deal. Get pre-qualified first so you can move immediately when the right property comes along.
Why Private Money for Fix and Flip?
Banks do not fund fix-and-flip deals. They require the property to be in livable condition, they take 30 to 60 days to close, and they do not provide rehab financing. Private money lenders specialize in exactly this type of deal.
Through DealFlow Capital's lender network, fix-and-flip investors get: - Closings in 7-10 days - Up to 90% of total project cost funded - Rehab draws released as work is completed - No income verification — deal-focused underwriting - Experienced lenders who understand renovation projects
How DealFlow Capital Helps Flippers
As a private money broker, Rich Summers connects fix-and-flip investors with the right lender for each deal. Different lenders specialize in different property types, loan sizes, and markets. Having a broker who knows which lender fits your specific flip saves you time and often gets you better terms.
Ready to fund your next flip? Fill out the 2-minute Pre-Qual Form or book a free call with Rich Summers.
