You finance a fix-and-flip with a short-term loan built around two numbers. First, what you pay for the property. Second, what it’ll be worth once renovated. It funds the purchase and the rehab, and you pay it off when you sell. As a result, speed and the after-repair value matter more than your personal income.
The number that drives it: ARV
The center of a flip loan is the ARV, or after-repair value. In other words, it’s what the property will be worth once you finish the work. Lenders often size the loan as a percentage of ARV, or against the purchase price plus the renovation budget. Above all, a realistic ARV that comparable sales support makes the deal fundable. In contrast, an inflated one is where flips go wrong.
Purchase plus rehab, released in draws
To finance a fix-and-flip, the loan typically covers the acquisition and the renovation. For example, lenders usually release the rehab portion in draws, paying out funds as you complete the work. So you’re not carrying the full rehab balance from day one. It’s short-term and interest-focused, because the whole plan is to be in and out quickly.
The exit is the sale
A flip’s exit is selling the finished property, following the closing process the CFPB outlines. The sale pays off the loan, and what’s left is your profit. Therefore, lenders scrutinize the ARV and the rehab scope. The exit depends entirely on hitting the after-repair value on a realistic timeline. Instead, some investors flip the strategy at the end and refinance into a rental. In any case, you have to plan the exit before funding.
What the lender weighs to finance a fix-and-flip
- The deal’s margin — that is, the spread between all-in cost and ARV.
- Your rehab plan and budget — in short, realistic scope and numbers.
- Experience — a track record of completed flips strengthens the file.
- Your equity — flip loans still expect real money in the deal.
A typical deal
A scenario I see often: an investor buys a dated single-family below market, with a clear ARV that neighborhood comps support. Then we fund the purchase and release the rehab in draws as the work progresses. The investor renovates, lists, and sells. Finally, the sale pays off the loan, and the margin between all-in cost and sale price is the profit.
Have a flip lined up?
The margin between your all-in cost and a realistic ARV tells us fast whether it works. Tell us about your deal and we’ll run it — in English or Spanish.
By Andres Jara — Alpha Equity Lending (NMLS #1855083). 20+ years in real estate finance, an MS in Finance, and an active South Florida investor and landlord.
