Fix & Flip Financing for Real Estate Investors

What is a Fix & Flip Loan?

A fix and flip loan is short-term financing used to acquire an investment property and fund the renovation work that follows. Rather than being underwritten primarily around a borrower's household income, it is evaluated around the property, the scope of work, the projected value at completion and the plan for repaying the loan.

Because the loan is tied to a project rather than a residence, the timeline is usually measured in months. The financing is designed to be repaid when the renovated property is sold or refinanced into longer-term financing.

Who Uses Fix & Flip Financing?

• Investors buying distressed or dated properties to renovate and resell
• BRRRR investors renovating a property before refinancing and holding it
• Investors who need renovation capital in addition to acquisition capital
• Experienced flippers running multiple projects at once
• Newer investors with a well-documented scope of work and realistic budget

Acquisition + Renovation

Most renovation projects have two capital needs: the money to buy the property, and the money to improve it. Project financing generally addresses both, with the acquisition portion funded at closing and the renovation portion held back and released as work progresses.

That structure is why a realistic, itemized scope of work matters so much. It drives the renovation budget, the draw schedule and the projected value at completion.

Understanding ARV

ARV, or After Repair Value, is the estimated market value of the property once the planned renovation is complete. It is typically supported by an appraisal that considers comparable sales of similar, recently renovated properties in the same market.

ARV is an estimate, not a guarantee. Conservative assumptions protect the project if the market shifts or the scope changes mid-renovation.

Understanding LTC and LTV

Loan-to-Cost (LTC) compares the loan amount to the total project cost, which on a renovation project may include both the purchase price and the rehab budget. Loan-to-Value (LTV) compares the loan amount to a property value — either the as-is value today or the after-repair value at completion.

Investors frequently see both ratios referenced on the same transaction because they answer different questions: how much of the project cost is being financed, and how the loan compares to the underlying property value.

How Renovation Draws Work

Renovation funds are generally released in stages rather than at closing. As portions of the scope are completed, a draw request is submitted, the completed work is verified, and funds for that phase are released.

Because draws typically reimburse completed work, investors should plan for the working capital needed to carry each phase until the draw is funded. Specific draw procedures, inspection requirements and timing vary by program. [WJR POLICY TO BE CONFIRMED]

Typical Fix & Flip Loan Process

• Submit the scenario: property, purchase price, rehab budget, projected ARV and timeline
• Initial review of the property, project and requested structure
• Valuation and third-party reports ordered as required
• Underwriting review of the borrower, entity and project documentation
• Closing, followed by renovation draws as work is completed
• Payoff at sale or refinance

Common Exit Strategies

The two most common exits are a sale of the finished property or a refinance into longer-term financing, often DSCR rental financing when the investor intends to hold the property and rent it.

The exit should be identified before the project starts, because it influences how the renovation scope is planned and which financing structure fits best.