How to Finance a Fix and Flip: Hard Money, Private Money, and More

Fix-and-flip investing moves fast. When you find a distressed property at a great price, you often have days - not weeks - to close. Traditional bank mortgages take 30 - 60 days and require the property to be in livable condition. Neither fits the flip timeline.

This is why successful flippers use specialized financing. Here's your complete guide to every option.

Why Traditional Mortgages Don't Work for Flips

Traditional (conventional) mortgages have three problems for fix-and-flip investors:

1. They're slow. Bank mortgages take 30 - 60 days to close. Many distressed property deals require 7 - 14 day closings.
2. They require habitable condition. Banks won't lend on properties with significant damage, missing HVAC, or structural issues. These are exactly the properties flippers target.
3. They penalize resale. Conventional mortgages may have prepayment penalties and aren't designed for short-term holds.

Fix-and-flip investors need asset-based, fast-close, short-term financing.

Option 1: Hard Money Loans

Hard money is the most common fix-and-flip financing. Hard money lenders are private companies (not banks) that lend based primarily on the property's after-repair value (ARV) rather than your credit or income.

How hard money works:

• Loan amount: 65 - 75% of ARV (some lenders go up to 90% of purchase price + 100% of repairs)
• Interest rate: 9 - 13% annually (varies significantly by lender and market)
• Origination fees: 2 - 4 points (1 point = 1% of loan amount)
• Term: 6 - 18 months
• Closing time: 5 - 14 days

Example: You're buying a house for $95,000 and budgeting $35,000 in repairs. ARV is $185,000.

• Hard money loan at 70% of ARV = $129,500
• This covers the purchase price ($95,000) and most of the rehab ($34,500)
• Interest at 11% on $129,500 = ~$1,185/month
• Origination: 3 points = $3,885

Over a 5-month flip: interest cost ≈ $5,925 + origination $3,885 = ~$9,810 in financing costs. If your gross profit is $40,000, that leaves $30,000+ after financing.

Finding hard money lenders:

• Search "[your city] hard money lender"
• BiggerPockets has a lender directory
• Local REI meetups - hard money lenders actively attend to find borrowers
• Kiavi, Lima One Capital, RCN Capital (national lenders)

What lenders look for: Experience (first-timers may get worse terms), the deal quality (strong ARV, conservative repair estimate), and your exit strategy (how will you sell or refinance to repay?).

Option 2: Private Money

Private money is borrowed from individuals - friends, family, business contacts, or private investors you meet through networking - rather than institutional lenders.

Typical terms: More flexible than hard money. Rates might be 6 - 10%, terms negotiated case by case.

The advantage: Lower cost, more flexibility, faster closing (sometimes same day), and better relationships.

The challenge: You have to find and cultivate these relationships. Private lenders don't advertise. They're built through networking, demonstrated competence, and track record.

How to attract private money:

• Present your deal professionally with an investment summary showing the numbers
• Offer competitive returns (8 - 10% secured by real estate beats any savings account)
• Start with smaller deals to build trust
• Network at real estate investor meetups and online groups

Once you have private lenders who trust you, funding deals becomes much easier and cheaper than constantly going to hard money lenders.

Option 3: HELOC (Home equity Line of Credit)

If you own your primary residence with equity, a HELOC can provide relatively cheap capital for fix-and-flip deals.

Typical HELOC rate: Prime rate + margin - currently in the 7 - 9% range

The advantage: No origination fees, no points, no balloon payment risk. You draw what you need and repay as you sell.

The disadvantage: Slower to get approved (weeks, not days), and your home is the collateral. If a flip goes badly wrong, you could put your primary residence at risk.

Best used for: Supplemental financing (covering rehab costs while a hard money loan covers the purchase) or for experienced investors with solid track records who want lower all-in financing costs.

Option 4: Cash-Out Refinance on Existing Rentals

If you own rental properties with equity, you can do a cash-out refinance to access that equity and use it to fund a flip.

Trade-off: You're increasing the leverage on your rental portfolio. This works well if rental cash flow is strong enough to absorb the higher mortgage payment comfortably.

Option 5: Joint Venture / Equity Partnership

If you don't have the capital but have the skills (finding deals, managing rehabs, selling properties), partner with someone who does have capital.

Common structure: Capital partner provides funding; operator partner finds and manages the flip. Profits split 50/50 (or another negotiated structure).

This is how many successful flippers start - without using a dollar of their own money.

Comparing Fix-and-Flip Financing Options

| Option | Interest Rate | Speed | Ease of Access | Best For | |---|---|---|---|---| | Hard Money | 9 - 13% + points | Fast (5 - 14 days) | Moderate | Most flippers | | Private Money | 6 - 10% | Very fast | Hard to find | Experienced investors | | HELOC | 7 - 9% | Slow (2 - 4 weeks) | Easy if you have equity | Supplemental financing | | Cash-Out Refi | 6 - 8% | Slow (3 - 5 weeks) | Moderate | Experienced investors | | JV Partnership | Share of profit | Variable | Requires networking | Capital-light beginners |

Tips for Getting Your First Hard Money Loan

Present professionally. Bring a written deal summary with purchase price, repair estimate, ARV with comps, your projected timeline, and exit strategy.

Show you've done the homework. Know the exact repair scope. Lenders hate vague estimates.

Have some skin in the game. Even if the lender covers most of the costs, having your own money in the deal (10 - 15% minimum) shows commitment.

Build a relationship before you need the money. Meet lenders at events, introduce yourself, and express interest before you have a deal. Cold-calling with a deal under contract is stressful for everyone.

Understand the full cost. Rate alone is misleading. Calculate total financing costs: interest over the hold period + points + any other fees. Then confirm your deal still has enough margin.

The Flip Financing Rule of Thumb

Your gross profit on a flip should be at least 20% of ARV to justify the risk and financing costs. At a $200,000 ARV, that's $40,000 gross profit minimum - before financing costs, realtor commissions (5 - 6%), and closing costs.

Model your deals conservatively and only proceed when the margin is clearly there.