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"I found a deal before I had the money. Everyone told me that was backwards. Turned out it was exactly right — a real deal attracts capital. A deal in search of a deal does not."
Most first-time flippers run into the same problem in the same order: they find a property that pencils as a flip, then they start scrambling for money. Banks won't fund severely distressed properties. They don't have enough cash to close. They don't know where to start.
This is actually fine. The financing ecosystem for fix-and-flip investing is large, well-developed, and designed for exactly this situation. Hard money lenders, private lenders, equity partners, and HELOCs all exist to fill the gap between a great deal and the capital to fund it. The key is knowing which source fits your specific situation before you need it.
This guide covers the 6 financing options used by real investors on real flips — with the actual rates, terms, and tradeoffs for each, plus a side-by-side comparison to help you decide which fits your first deal.
1Why Flip Financing Is Different from Buy-and-Hold
Long-term rental financing is straightforward: you borrow for 30 years at a fixed rate and your tenant covers the payment. Flip financing is more complicated because you are borrowing short-term, the collateral is a distressed property (which conventional banks won't touch), and you need money for both the purchase and the renovation.
Short Time Horizon
Flip loans run 6 to 18 months, not 30 years. Every month the property does not sell is another month of interest, taxes, insurance, and utilities coming out of your profit.
Distressed Collateral
Conventional banks lend on habitable properties in good condition. A house with a damaged roof, no functioning kitchen, or structural issues will not get a conventional mortgage. You need lenders that specialize in distressed property.
Rehab Capital
You need money for both the purchase price and the renovation budget. On a $150,000 purchase with a $60,000 rehab, you need access to $210,000 total. Most financing sources handle these as two separate components.
Speed matters in competitive markets
Off-market motivated sellers and auction properties often require you to close in 10 to 21 days. A conventional mortgage takes 30 to 60 days and won't fund a distressed property anyway. This is why most flippers use hard money, private money, or cash — sources that can move as fast as the deal requires. Knowing your financing source before you write the offer is not optional. It is the difference between winning the deal and losing it.
2The 6 Financing Options
1. Hard Money Loans
Most common for beginnersHard money lenders are private companies or individuals that lend short-term capital secured by real estate, underwriting primarily on the property's value rather than your personal income or credit score. They move fast — many can fund in 7 to 14 days — and they can lend on properties that traditional banks won't touch (severely distressed, non-habitable, REO). The tradeoff is cost: expect 10% to 14% interest rates plus 2 to 4 origination points (each point equals 1% of the loan amount). They typically lend 65% to 75% of ARV (After Repair Value), covering both purchase and a portion of rehab costs.
Typical Rate
10% to 14%
Points
2 to 4
LTV
65% to 75% of ARV
Speed to Fund
7 to 14 days
Rehab Funded
Yes (draw schedule)
Credit Required
580+ typically
Advantages
- +Fast closing — competitive with cash offers
- +No income verification in most cases
- +Funds rehab in draws as work is completed
- +Available to investors with limited track record
Drawbacks
- -High interest rate adds carrying cost quickly
- -Points paid upfront reduce deal profit
- -Short terms (6 to 18 months) create exit pressure
- -Requires 25% to 35% of purchase price as down payment
2. Private Money Lenders
Best long-term relationshipA private money lender is an individual — often a friend, family member, colleague, dentist, doctor, or fellow investor — who lends their personal capital secured by a deed of trust or mortgage on your property. Unlike hard money companies, private lenders have no standardized underwriting. Terms are entirely negotiable: rates typically run 6% to 10%, with little to no points, and some private lenders will fund 100% of both the purchase and the rehab if they trust the borrower and the deal. The catch is that you need to find them, and that takes time and trust-building.
Typical Rate
6% to 10%
Points
0 to 2
LTV
Negotiable
Speed to Fund
Varies (days to weeks)
Rehab Funded
Negotiable
Credit Required
Relationship-based
Advantages
- +Lowest cost of any non-institutional source
- +Fully flexible terms — can fund 100% in some cases
- +Can close as fast as the attorney can draft docs
- +Relationship deepens your REI network
Drawbacks
- -Difficult to find before you have a track record
- -Personal relationships create personal risk if a deal goes wrong
- -Less predictable than institutional lenders
- -Requires convincing someone to trust you with their money
3. HELOC (Home Equity Line of Credit)
Best if you own your homeA Home Equity Line of Credit lets you borrow against the equity in your primary residence or another property you own with significant equity. HELOCs are revolving credit lines — you draw what you need, pay it back when you sell, and draw again on the next deal. Rates are typically prime plus 0.5% to 1.5%, which as of 2026 puts most HELOCs in the 8% to 10% range. The major advantage: zero cost until you draw, and flexible repayment. The limitation: your personal home secures the loan, which means a bad flip puts your residence at risk if you cannot repay. Most lenders will issue a HELOC up to 80% to 85% of your home's value minus any existing mortgage balance.
Typical Rate
Prime + 0.5% to 1.5%
Points
Usually none
LTV on Collateral
80% to 85% of home value
Speed to Fund
3 to 6 weeks to set up; instant draws after
Rehab Funded
Yes (draw as needed)
Credit Required
680+ typically
Advantages
- +Lower rate than hard money with no points
- +Draw only what you need — no interest on undrawn funds
- +Reusable across multiple deals
- +Fast draws once the line is established
Drawbacks
- -Requires existing home equity to qualify
- -Your primary residence is collateral
- -Setup takes 3 to 6 weeks before you can use it
- -Variable rate tied to prime — can increase mid-deal
4. Cash-Out Refinance on an Existing Property
Works if you own a rentalIf you own a rental property with equity, you can refinance it at a higher loan balance and pull the equity out as cash to fund a flip. This is not a line of credit — it is a full loan replacing your existing mortgage. The result is a fixed amount of cash you can deploy immediately. Rates on investment property cash-out refis typically run 1% to 2% higher than primary residence rates, and most lenders cap cash-out at 75% to 80% of the rental's appraised value. The advantage is relatively low cost of capital versus hard money. The disadvantage is that the process takes 4 to 8 weeks and reduces the cash flow on your rental by increasing its mortgage payment.
Typical Rate
Conventional + 1% to 2%
Points
0.5 to 2 (closing costs)
LTV on Rental
75% to 80%
Speed to Fund
4 to 8 weeks
Rehab Funded
No (receive lump sum at close)
Credit Required
660+ typically
Advantages
- +Lower rate than hard money
- +No short-term pressure to repay — becomes a permanent mortgage payment
- +Large lump sum available for multiple projects
- +30-year amortization keeps monthly payments manageable
Drawbacks
- -Slow — 4 to 8 weeks to complete
- -Reduces cash flow on the rental property
- -Requires existing investment property with equity
- -Full rehab cost must come from cash or other sources
5. Transactional Funding
For double-close wholesalingTransactional funding is short-term capital — sometimes just 24 to 72 hours — used to complete an A-to-B close when you are simultaneously buying from a seller and reselling to your end buyer on the same day or within a few days. It is primarily used by wholesalers doing double closes and some light rehab flippers who have a buyer lined up before they close. Transactional lenders charge a flat fee (typically 1% to 2% of the loan amount) rather than a monthly interest rate, because the money is out for such a short period. This is not a general flip financing tool — it only works when your exit (the end buyer) is secured before you close on the purchase.
Typical Cost
1% to 2% flat fee
Points
None (fee-based)
LTV
Up to 100% of A-to-B price
Speed to Fund
24 to 72 hours
Rehab Funded
No
Credit Required
Often none
Advantages
- +Extremely fast — purpose-built for same-day or next-day closes
- +Often no personal credit check required
- +Can fund 100% of purchase price
- +Flat fee structure is predictable
Drawbacks
- -Only works when end buyer is already secured
- -Not suitable for projects requiring a rehab period
- -Fee still applies even if it is used for only 24 hours
- -Limited to double-close and assignment-style transactions
6. Joint Venture / Equity Partnership
No money? Find a partnerA joint venture pairs an investor who has the deal, the time, and the operational skills with a capital partner who provides the funding in exchange for a share of the profit. A common structure: the deal finder manages the project and gets 50% of the net profit; the capital partner funds 100% of acquisition and rehab and gets 50% of the net profit. This is the primary path for investors who have found a great deal but have no capital to fund it. The capital partner carries all financial risk; the deal finder carries all operational risk. Get the agreement documented by a real estate attorney before any money changes hands — verbal agreements on equity splits end friendships and generate lawsuits.
Typical Cost
50% of profit (negotiable)
Points
None
Capital Required
$0 from deal finder
Speed to Fund
Varies by partner
Rehab Funded
Yes (by partner)
Credit Required
None from deal finder
Advantages
- +Zero capital required from the deal finder
- +Aligns interests — both parties win or lose together
- +Teaches you to operate a flip while using someone else's money
- +No debt to service — profit-based compensation only
Drawbacks
- -You give up 40% to 60% of your upside
- -Requires trust and legal documentation
- -Finding the right partner takes time
- -Disagreements on decisions can complicate the project
3Side-by-Side Comparison
| Option | Rate | Speed | Rehab Funded | Capital Needed | Best For |
|---|---|---|---|---|---|
| Hard Money | 10-14% | 7-14 days | Yes | 25-35% | Most beginners |
| Private Money | 6-10% | Days-weeks | Negotiable | Varies | Relationship builders |
| HELOC | 8-10% | Instant (after setup) | Yes | Existing equity | Homeowners |
| Cash-Out Refi | 7-9% | 4-8 weeks | No | Existing equity | Rental property owners |
| Transactional | 1-2% flat | 24-72 hours | No | 0% | Double-close wholesale |
| JV Partnership | 50% profit | Partner-dependent | Yes | $0 | No-capital investors |
4How Lenders Think About Flip Deals
Understanding how flip lenders evaluate deals helps you structure better offers and get approved faster. The core concept is ARV — After Repair Value.
ARV-Based Lending
Hard money and private lenders do not lend based on the current distressed value of the property. They lend based on what the property will be worth after the repairs are complete. A house worth $80,000 today with $50,000 of needed work and an ARV of $200,000 is a completely different loan than its current value suggests. Lenders typically advance 65% to 75% of ARV. At 70% ARV on a $200,000 property, the lender will advance up to $140,000 across purchase and rehab combined.
The 70% Rule
The 70% Rule is the standard underwriting benchmark for fix-and-flip deals: your Maximum Allowable Offer (MAO) should not exceed 70% of the ARV minus your estimated repair costs. On a $200,000 ARV property with $50,000 in repairs: MAO = ($200,000 x 0.70) - $50,000 = $90,000. This 30% buffer covers holding costs, closing costs, lender fees, and your profit margin. Lenders who use ARV-based underwriting are essentially enforcing a version of this rule on every loan they make.
What Lenders Want from First-Time Flippers
If you have no prior flips on your record, expect lenders to require more documentation, a lower LTV (sometimes 60% to 65% of ARV instead of 70% to 75%), or a larger cash reserve requirement. Some hard money lenders require you to hold 3 to 6 months of carrying costs in reserve. The fastest path to better terms on your second deal is finishing the first one on time and on budget — your track record becomes a genuine asset.
Draw Schedules for Rehab Funds
Most hard money lenders do not hand you the entire rehab budget upfront. They fund the purchase at closing, then release rehab money in draws — typically after an inspector or the lender's representative verifies that completed work matches the draw request. A $60,000 rehab budget might be released in 3 draws of $20,000 each, triggered when specific milestones are complete. Plan your contractor payments around this schedule to avoid cash flow gaps between draw approvals.
5Stacking Multiple Sources
Experienced flippers rarely rely on a single financing source. They stack sources to reduce cost, plug gaps, or stretch limited capital across more deals.
If you have home equity but limited liquid cash, use a HELOC draw to fund the 25% to 35% down payment that the hard money lender requires. The hard money lender funds the rest. You are now using two credit sources on one deal. Your HELOC rate (8% to 10%) is lower than the hard money rate, so this blended cost is lower than putting your full cash down. Pay off the HELOC when the property sells.
A private lender provides the down payment or a second position loan behind the hard money lender. This is called a 'second trust deed' arrangement. Not all hard money lenders allow it, so ask upfront whether they permit a second in position. When they do, you can complete a deal with zero personal capital — the private lender funds the gap and shares in the profit or takes interest.
A capital partner funds acquisition and rehab through a JV structure. You maintain your own HELOC as a reserve — not to fund the deal, but to cover unexpected costs (a burst pipe, an HVAC failure, a permit delay) without going back to your partner or your hard money lender for additional draws. This keeps the project moving when surprises hit.
6Your Pre-Flip Financing Checklist
Do this before you write your first offer, not after. Knowing your financing source in advance lets you make faster, cleaner offers — and actually close them.
Interview at least two hard money lenders in your market
Rates, points, LTV limits, draw schedules, and experience with first-time borrowers vary significantly between lenders. Get a term sheet from two or three before you have a deal under contract. When a deal comes, you will know exactly who to call and what to expect.
Audit your existing assets for potential capital sources
Do you own a home with equity? Check HELOC eligibility now — the line takes 3 to 6 weeks to set up. Do you own a rental with equity? Understand your cash-out refi ceiling. Do you have a 401k that allows participant loans? Know the rules. Map your capital landscape before you need it.
Start building your private lender list before you have a deal
Tell everyone in your network that you are investing in real estate. Not that you are looking for money — that you are doing deals. The conversation about private lending comes organically when people ask how they can get involved. Build a list of interested individuals and document their capital availability. When you have a deal, you will have people to call.
The deal funds the deal
The best financing source for your first flip is a good deal. A property purchased at 65 cents on the dollar with a clear scope of work and a realistic ARV will attract hard money lenders, private lenders, and joint venture partners. Capital follows deals — it does not precede them. Your job is to find the deal. The money will follow. Now you know where to look for it.
REICommunity Editorial
Editorial Team · REICommunity · REICommunity Contributor
The REICommunity editorial team covers the operational and financial side of real estate investing — from finding your first deal to structuring your exit. Articles are reviewed by active investors in the REICommunity network.
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