Fix and Flip Loan
Quick Answer
A short-term real estate loan designed for investors who buy, renovate, and resell properties for profit.
Definition
A fix and flip loan is a short-term financing product designed for real estate investors who purchase distressed or undervalued properties, renovate them, and sell them for a profit. These loans typically cover both the property acquisition cost and a portion of the renovation budget, with rehab funds disbursed through a draw schedule as work is completed. Terms generally range from 6 to 18 months with interest-only payments.
Why It Matters for Flippers
Fix and flip loans give investors access to capital that conventional mortgages can't provide — fast closings, flexible underwriting based on property value rather than income, and construction draws for the rehab. Without purpose-built flip financing, most residential investors couldn't compete in time-sensitive acquisition markets.
Example in a Flip Deal
An investor buys a distressed home for $200,000 with a $70,000 rehab budget and an ARV of $350,000. A fix and flip loan at 80% LTC covers $216,000 of the $270,000 total project cost. The borrower brings $54,000 to closing and draws the $70,000 rehab budget in three installments as work is verified.
Related Terms
ARV (After Repair Value)
The estimated market value of a property after all planned renovations are complete.
LTC (Loan-to-Cost)
The ratio of the total loan amount to the total project cost (purchase price + rehab budget).
LTV (Loan-to-Value)
The ratio of the loan amount to the appraised value of the property, expressed as a percentage.
Rehab Budget
The estimated total cost to complete all planned renovations on an investment property.
Draw Schedule
A structured plan for disbursing rehab loan funds in installments as renovation work is completed and verified.
Hard Money Loan
Asset-based short-term lending secured by real property, typically used by investors who need fast financing without traditional income verification.