Gap Funding
Private capital used to cover the difference between a primary loan and the total funds needed for a deal.
Definition
Gap funding (or gap financing) is secondary capital used to bridge the difference between what a primary lender will fund and the total capital needed to close and rehab a property. It's the 'gap' between your loan proceeds and your actual costs.
Example: A hard money lender will fund 75% of the purchase price but not the rehab costs. If you need $50,000 in rehab money plus closing costs, that's your gap. A private money lender or gap funder provides that capital — often in a second lien position — at a higher rate than the primary loan.
Gap funding allows investors to acquire properties with little or no money out of pocket. It's commonly used in BRRRR investing and flipping by investors who have deals but limited liquid capital. The combined cost of primary loan + gap funding must still leave enough profit margin to make the deal viable.
Related Terms
Hard Money Loan
Short-term, asset-based loans from private lenders — used for acquisitions and rehabs when speed matters.
Private Money
Loans from individual private investors — usually friends, family, or high-net-worth individuals — secured by real property.
BRRRR Method
Buy, Rehab, Rent, Refinance, Repeat — a strategy to recycle capital into multiple rental properties.
Loan-to-Value (LTV)
The ratio of a loan's balance to the property's appraised value, expressed as a percentage.
Bridge Loan
Short-term financing that bridges the gap between purchasing a property and securing permanent financing.