Which three numbers define a flip?
Every fix-and-flip loan is built on three numbers: the purchase price, the renovation budget and the after-repair value. The purchase price is what you pay, the renovation budget is what the work will cost, and the ARV is what the finished property should be worth. The lender uses all three to decide how much to finance and how much you need to bring.
Get all three numbers honest before you commit. A low purchase price does not save a deal if the renovation runs over budget, and an inflated ARV does not help if no finished comparable supports it. See the after-repair value guide for how to build that number.
How do renovation draws work?
Hard money loans for flips usually fund the renovation through a draw schedule rather than in one lump sum. You and the lender agree on a scope of work and a budget, then funds are released in stages as work is completed. Each draw is typically tied to an inspection that confirms the work was done.
A typical draw schedule might look like this: an initial release to start the project, then draws at agreed milestones such as rough-in completion, drywall, finishes and final. The lender may withhold a portion of each draw to cover inspections and to keep a cushion. Draws keep the lender protected and keep you disciplined, but they also mean your contractor has to be reliable about timing and paperwork.
How should you budget for the holding period?
The renovation is not the only cost while you hold the property. You will also carry property taxes, insurance, utilities and the loan payment during the project, plus any HOA or permit fees. These carrying costs add up over the months the work takes, so they belong in your budget from day one.
Investors who underestimate carrying costs are the ones whose flips run out of cash at the end. A realistic timeline, with a buffer for permit delays and material lead times, keeps the budget honest.
Should you sell or refinance the finished property?
The two classic exits from a flip are selling the renovated property or keeping it as a rental. If you sell, the proceeds repay the hard money loan and the deal closes. If you keep it, you refinance the short-term loan into a long-term DSCR loan, qualified on the rent the property now earns.
The keep-versus-sell decision changes the plan. A property you plan to rent should be renovated with durable finishes and a layout tenants want, and you should compare the post-renovation rent against the full proposed refinance payment using the DSCR exit guide before you buy. A property you plan to sell should be renovated to what the neighborhood’s finished comps support, without over-improving.
What do lenders review on a flip?
- The purchase price and the source of your funds.
- A detailed scope of work and a budget with contractor bids.
- The projected ARV, supported by comparable sales.
- Your experience and track record, which can affect the structure.
- The exit plan: sale or refinance, and how the loan gets repaid.
How can a broker help compare your options?
Hard money lenders differ in the flips they prefer: some favor single-family homes, some are comfortable with larger rehabs or certain property types, and they structure loans differently. Hard Money Loan is a Loan Daddy LLC brand, and Loan Daddy LLC is a mortgage broker, not a lender. We arrange and shop financing from wholesale lenders and explain the structures that fit your deal. Send the property, the scope of work and the numbers through the application.
How can you model a flip with your own numbers?
Here is how the three numbers fit together, using user-style inputs rather than any lender’s terms. Say you can buy a dated three-bedroom house for $180,000, your contractor bids the renovation at $45,000, and the finished comparable sales nearby point to an after-repair value of about $285,000.
Add your own estimate for closing costs on both ends, the carrying costs for the months the work and the sale will take, and the cost of selling. Subtract all of it from the ARV. What is left is your margin for error and your profit. If that margin only works when the ARV hits the top of the range and the contractor finishes early, the deal is too thin. If it still works with a soft comparable and a month of delay, it is a deal a lender can underwrite with confidence.
| Line | Your input (example) | What to check |
|---|---|---|
| Purchase price | $180,000 | Matches the contract, and the source of your funds is documented |
| Renovation budget | $45,000 | Backed by a line-item bid, with a contingency for surprises |
| After-repair value | $285,000 | Supported by closed, renovated comparable sales nearby |
| Closing, carrying and selling costs | Your estimate | Built on a realistic timeline with a buffer |
Where can a flip go wrong?
Most flips that fail do not fail on the purchase. They fail in the middle, when the scope grows after the walls are opened, a permit takes longer than planned or a draw stalls because the paperwork is incomplete. The fix is planning: a scope written before closing, a contractor who has worked with draw schedules, and cash set aside for the gap between paying for work and receiving the draw. Read the rehab draw schedule guide before your first project.
General information, not legal, tax or insurance advice.
What questions do investors ask?
How do I finance a fix-and-flip?
Most flips use a short-term hard money loan that covers the purchase and the renovation through a draw schedule, repaid when you sell or refinance.
Do I get the rehab funds upfront or in draws?
Usually in draws, released in stages as work is completed and inspected, rather than in one lump sum.
Can I keep a flip as a rental instead of selling?
Yes, by refinancing the short-term loan into a long-term DSCR loan qualified on the rent.