Fix and Flip Loans: The Deal Lifecycle From Offer to Payoff
A flip loan is not one event. It is nine stages, and the money behaves differently at each.
Most investors understand stage one and stage nine. The failures happen in the middle, where carrying cost compounds daily and nobody is watching it.
Programs: Fix and flip financing · How hard money works
Stage 1 — Pre-approval, before you shop
Get a term sheet before you look at properties, not after you are under contract.
What it establishes: your leverage tier, your experience tier, your cost of capital, and the lender's appetite for your market. All four change how you should be bidding.
An investor who knows they are at 85% LTC and 70% ARV can calculate their maximum offer in their head at a showing. An investor who does not is guessing, and will either overbid or lose deals to people who are not.
Stage 2 — The offer
Hard money's advantage is certainty, and it is worth real money in a negotiation.
Use it. A seven-to-fourteen-day close with proof of funds beats a higher offer with a forty-five-day financing contingency more often than new investors expect — particularly on estate sales, tired landlords and anything with condition problems.
Get a proof of funds letter from your lender and attach it. Conditional pre-approval from a hard money lender is a stronger document than a conventional pre-qualification, because it is underwritten to the asset.
Stage 3 — The scope of work
This is where files get repriced, and it is entirely within your control.
Submit a line-item scope: room by room, trade by trade, with quantities and costs. Not "kitchen $25,000."
Why it matters beyond the loan: the scope becomes your draw schedule. Vague scopes produce vague draw milestones, which produce disputes about whether a phase is complete. A precise scope makes draws mechanical.
Include a contingency line, 10-20% of the budget. Lenders expect it. A budget with no contingency signals inexperience, and it is usually wrong anyway.
Stage 4 — Valuation
The lender orders an appraisal with an ARV — after repair value — based on your scope.
The appraiser is answering: if this scope is executed competently, what does this property sell for?
A low ARV shrinks your loan, because the ARV cap is often the binding constraint. How ARV is determined and contested.
Your leverage is the lowest of the LTC, ARV and LTV results. Investors who model only LTC get surprised. How the three stack.
Stage 5 — Closing
Faster than conventional. 7-21 days when documentation is ready.
At closing you bring: down payment, origination points, title and escrow, insurance premium, and any interest reserve the lender requires.
Builder's risk or vacant dwelling insurance is required, not a standard landlord policy. It costs more and needs to be bound before closing. Start this early — it is a common source of last-minute delay.
Stage 6 — Rehab and draws
The long middle, and where the money actually gets spent.
Rehab funds are reimbursed after verified completion. You front the work, request a draw, the lender inspects, funds release.
What goes wrong here:
- Running out of working capital. The draw float — 3-10 days between paying and being reimbursed — requires cash you did not put down.
- Permit delays. In Austin and surrounding jurisdictions, permit and inspection timelines can add weeks. Build it into the schedule, not the contingency.
- Scope creep. You open a wall, find knob-and-tube, and the budget moves. Changes to the approved scope usually need lender approval before the work is funded.
- Contractor turnover. Losing a GC mid-project is the single most expensive event in a flip. Carrying cost runs whether anyone is working or not.
Track carry per day. On a $300,000 balance at 11%, interest alone is roughly $92 a day. Add taxes, insurance and utilities and $110-$130 a day is realistic. A three-week delay is $2,300-$2,700 of pure loss.
Writing that number on the wall changes behavior. Investors who know their daily burn make faster decisions about contractors and materials.
Stage 7 — Listing
List as the last trades finish, not after.
Photography, staging and MLS entry can be scheduled ahead. Days on market run against the same clock as the rehab.
Price to the appraisal and the comps, not to your costs. The market does not care what you spent. A property priced above its comps sits, and sitting costs $110 a day plus the risk of a price reduction that signals weakness.
Stage 8 — Under contract
The buyer's lender orders their own appraisal, and it is a separate opinion from your ARV.
If it comes in under contract price you are renegotiating, covering the gap, or relisting. This is why conservative ARV assumptions matter at stage four.
The buyer's inspection will find things. On a rehabbed property, unpermitted work is the most common problem — and it can kill a sale outright when the buyer's lender sees it. Pull permits during the rehab even when it is slower.
Stage 9 — Payoff
Handled at the closing table.
Request the payoff statement ten days out. It carries per-diem interest and an expiration date.
Check for an exit fee — many hard money loans have one, commonly 0.5-1 point, and it is routinely forgotten in the profit model.
If you funded an interest reserve and did not use it all, ask about a refund.
Where the margin actually goes
A deal that looked like $60,000 of profit:
| Line | Amount |
|---|---|
| Gross spread (ARV less purchase less rehab) | $60,000 |
| Origination points | -$5,800 |
| Interest, 7 months | -$17,500 |
| Exit fee | -$1,450 |
| Holding: taxes, insurance, utilities | -$6,900 |
| Selling costs at 7% | -$27,300 |
| Actual profit | $1,050 |
That is a real pattern, not a worst case. Financing and selling costs routinely consume 60-80% of gross spread on a thin deal.
The lesson is not that flips do not work. It is that the spread has to be large enough to survive roughly $60,000 of cost on a $400,000 resale — and investors who model gross spread as profit lose money on deals they believed were good.
Illustrative. Costs vary by lender, market and project.
Frequently asked questions
How much do I need for a fix and flip loan? Typically 10-20% of purchase, plus closing costs, plus working capital to float draws, plus contingency. The draw float is the part most often missed.
How long are fix and flip loans? 6-18 months, interest-only. Extensions are often available for a fee.
Is the rehab budget paid up front? No, it is reimbursed in draws after inspection. Some lenders release a first draw at closing — worth asking.
What if the project runs over? Request an extension early. They typically cost 0.5-1 point and are not guaranteed. Carrying cost continues throughout.
Do I need a licensed contractor? Most lenders require one for permitted work and may want their license and insurance on file. Self-performing is allowed by some lenders, usually with reduced rehab leverage.
Can I live in the property? No. These are business-purpose loans requiring non-owner-occupied property.
What is the most common reason flips lose money? Underestimating total cost. Financing and selling costs commonly consume 60-80% of gross spread, and investors model gross spread as profit.
Next steps
Calculate your daily carry before you close, and model profit after financing and selling costs rather than on gross spread.
Have a deal you want looked at?
Send the property and the numbers — we shop it across lender programs and tell you honestly whether it works.
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Educational content, not a commitment to lend or an offer of credit. DSCR and fix-and-flip loans are business-purpose loans secured by non-owner-occupied property. Program parameters vary by lender and change over time. Figures are illustrative.