Funding the flip: hard money, private money, and the cheaper doors
Speed capital is priced by the month and earned by the exit — how flip financing actually works, what it truly costs on your deal, and the owner-occupied loopholes that cut the price in half.
Flip financing runs on a different logic than every mortgage you've known: the lender cares about the deal's exit, not your W-2 — and charges accordingly, by the month. Master this lesson and financing stops being the scary part; it becomes a line item you price in sixty seconds and shop like lumber.
The standard tool: hard money
A hard money loan funds 80–90% of purchase plus 100% of rehab (released in draws), capped around 70–75% of ARV, at 10–13% interest plus 1–3 points, for 6–18 months. Approval runs on the deal and your track record, closes in days, and exists precisely because the discounted houses you're hunting can't wait for a bank.
The cost, priced honestly on a real deal — $150k purchase, $40k rehab, 7-month cycle:
| The financing bill | |
|---|---|
| Points (2% on ~$175k funded) | $3,500 |
| Interest (~11.5%, avg balance, 7 mo) | $9,800 |
| Total cost of speed | ~$13,300 |
That's the number that lives inside the 70% rule's missing 30% — real, but survivable when the deal was bought right. And it clarifies the actual rule of speed capital: expensive money on a great deal beats cheap money on none — and every month saved is ~$1,700 recovered. Speed of execution is a financing strategy.
The cheaper doors
- Private money — individuals lending at 9–12%, no points, flexible draws. Cheaper and relationship-gated: private lenders fund track records, which is why Lesson 3's partner deals build toward this. (One day you'll likely be one — it's the flipper's classic retirement.)
- The owner-occupied cheat codes — if you'll live in it: 203(k)/HomeStyle renovation loans fund purchase + rehab at 3.5–5% down and mortgage rates, and the live-in flip exits tax-free. Half the financing cost, all the patience.
- HELOC on your home — 8–10%, no points, instant draws: the ideal rehab-budget layer beside a purchase loan, repaid at every exit. Bridge uses only; two exits per draw.
- Gap funders & partners — cover what hard money won't (the down payment, reserves) for a profit slice. Stack carefully: 100% financing means the deal must be flawless, because every party gets paid before you do.
What lenders actually underwrite (become fundable)
- 01The deal's math, in their formatPurchase, scope-of-work rehab number, ARV with comps attached. Lenders re-run everything — borrowers who arrive with Lesson 6-grade comps get better terms, because they're less work to trust.
- 02Your skin10–20% of purchase plus reserves. 'No money down' hard money exists for proven operators; beginners bring a down payment or a gap partner.
- 03Your exit, twiceSale at a defensible ARV — AND the fallback (refinance and rent). Lenders love borrowers with two exits for the same reason you should: it means nobody ends up owning your optimism.
- 04Your fileEntity docs, insurance (builder's risk — not homeowner's), track record or the partner who has one. Build the file once; reuse it every deal.
The pitfall to skip: letting the loan clock manage the project. A 6-month note on an honest 7-month plan hands your margin to extension fees. Take the 12-month term; pay it off in 7 like a professional.
Do this now: Call two hard money lenders this week (find them where the wholesalers and REIA crowd gather) and get real term sheets — points, rate, ARV cap, draw process. You're not borrowing yet; you're pricing the lumber. Then run those exact terms through the Flip Calculator on a live deal.