Fix and flip financing funds both sides of a renovation project: acquiring the property and completing the work. It is a specialized, short-term structure underwritten on the property's after-repair value (ARV) and the investor's execution.
Because the project is temporary, cost and speed matter in specific ways: the funding must carry the project long enough to complete and sell it, and delays are the main risk to manage.
How it generally works
Funding typically covers a portion of the purchase price plus a budget for renovations. Renovation funds are released in draws as work completes and is verified.
The project is repaid when the property sells; the margin between total project cost and sale price is the investor's return.
Common uses
- Purchasing distressed or outdated properties for renovation
- Funding materials and contractor labor
- Carrying costs : taxes, insurance, utilities : during the project
- Auction and time-sensitive purchases
Qualification factors providers commonly review
- The after-repair value (ARV) and quality of comparable sales
- Renovation budget realism and scope
- The investor's track record with completed projects
- The exit timeline and marketing plan
- Equity contribution to the project
Potential advantages and trade-offs
Advantages: access to both purchase and renovation funding in one structure, speed suited to competitive acquisitions, and availability for properties conventional lenders won't finance in current condition.
Trade-offs: higher cost than long-term financing, draws requiring verified progress, and project risk : overruns, delays, or a slower sale than planned.
How repayment is typically structured
Periodic cost payments during the project and a full payoff from the sale proceeds. Some structures allow partial prepayment of the renovation portion as draws complete. Know the extension terms before you commit.