Funding Your Flip

Everything you need to know about financing your real estate deals

Pro Tip: Always secure funding BEFORE making offers. Having proof of funds makes your offers much stronger.

Understanding Your Options

Every deal is different, and so is the best financing. Consider:

  • Your available capital
  • Deal timeline
  • Property condition
  • Your experience level
  • Exit strategy

Hard Money Loans

The most common funding for flips:

What They Are

Short-term, asset-based loans from private lenders.

Pros

  • Fast approval (days, not weeks)
  • Based on property value, not your credit
  • Can finance purchase AND repairs
  • Leverage your capital for multiple deals

Cons

  • High interest rates (10-15%)
  • Points (2-4% of loan amount)
  • Short terms (6-12 months)
  • Require significant equity

Typical Terms

  • LTV: 70-80% of ARV
  • Interest: 10-15% annually
  • Points: 2-4%
  • Term: 6-12 months
  • Rehab funds: Draw schedule

Private Money

Loans from individuals rather than companies:

Who to Approach

  • Wealthy friends and family
  • Other real estate investors
  • Professionals (doctors, lawyers)
  • Retirement account holders

Making the Pitch

  • Show them the deal specifics
  • Explain your experience
  • Offer security (mortgage)
  • Be transparent about risks
  • Start small to build trust

Cash Out Refinance

Using equity from existing properties:

How It Works

  1. Buy property with cash or hard money
  2. Complete renovations
  3. Get new appraisal
  4. Refinance at 75-80% LTV
  5. Pull out cash for next deal

Benefits

  • Lower long-term rates
  • Keep property as rental
  • Recycle capital quickly
  • Tax advantages

Partnerships

Team up with other investors:

Common Structures

  • Money Partner: They provide funds, you do the work
  • 50/50 Split: Equal partners in all aspects
  • Silent Partner: Funds only, no involvement
  • Work Equity: Your labor for their capital

Partnership Agreement

Always have a written agreement covering:

  • Capital contributions
  • Profit split
  • Responsibilities
  • Exit strategy
  • Dispute resolution

Creative Financing

Subject-To

Take over existing mortgage payments:

  • Seller deeds property to you
  • Mortgage stays in seller's name
  • You make payments
  • Risky but powerful

Owner Financing

Seller acts as the bank:

  • Negotiate terms directly
  • Lower closing costs
  • Flexible requirements
  • Often higher interest

Lease Options

Rent with option to buy:

  • Option fee upfront
  • Rent credit toward purchase
  • Time to secure financing
  • Lock in purchase price

Business Credit

Establish business credit lines:

Steps to Build

  1. Form LLC or corporation
  2. Get EIN from IRS
  3. Open business bank account
  4. Apply for business credit cards
  5. Establish vendor credit
  6. Build credit history

HELOCs and Credit Cards

Use personal credit strategically:

Home Equity Line

  • Lower interest rates
  • Interest-only payments
  • Tax deductible
  • Puts your home at risk

Credit Cards

  • For materials only
  • 0% APR offers
  • Rewards points
  • High rates after promo

Self-Directed IRA

Use retirement funds tax-free:

Setup Process

  • Open self-directed IRA
  • Rollover funds
  • Find IRA-friendly custodian
  • Follow all rules strictly

Rules to Follow

  • No personal benefit
  • All profits stay in IRA
  • Can't work on property
  • Prohibited transactions

Funding Checklist

Before Making Offers:

  • □ Get pre-approval from lender
  • □ Verify proof of funds letter
  • □ Understand all costs
  • □ Calculate cash reserves needed
  • □ Have backup funding source

For Each Deal:

  • □ Calculate total costs
  • □ Verify loan amount available
  • □ Review all terms
  • □ Understand draw schedule
  • □ Plan for contingencies

Common Funding Mistakes

  • Not having enough reserves
  • Ignoring closing costs
  • Underestimating holding costs
  • Using all your cash on one deal
  • Not reading the fine print
Get Funding Templates & Calculators