How fix and flip financing actually works.
A fix and flip runs on a short-term bridge loan: one piece of financing that funds the acquisition and the rehab, sized off the After-Repair Value (ARV) rather than just the purchase price. The rehab money does not arrive all at once. It releases in draws that reimburse work after it is finished and inspected.
The loan is short-term and usually interest-only, so the deal lives or dies on carrying costs and reserves. You exit one of two ways: sell, or refinance into long-term financing, conventional or DSCR, and keep the property as a rental. That second path is the bridge inside the BRRR method.
One loan, two jobs
Maya found a tired three-bedroom that had been sitting because the kitchen was original and the roof was near the end of its life. The list price was low for the block. The comparable homes that had been updated, the ones with new kitchens and clean inspections, were selling for noticeably more. Maya could see the spread. What she could not see, at first, was how to pay for both the house and the work.
A conventional purchase loan looks at the house as it is today. It does not care about the kitchen you are going to build. A fix and flip is financed differently. The short-term bridge loan funds the acquisition and the rehab together, and it is sized around what the property will be worth once the work is done, not what it is worth the day you buy it.
That one shift, financing the finished house instead of the broken one, is the whole idea. The rest is mechanics: how the money releases, how long you have, and what it costs you to hold the property while you work.
How the money moves across the flip
A flip has a lifecycle, and the financing tracks it stage by stage.
- 01
Acquisition
The bridge loan funds most of the purchase. You bring the rest plus your closing costs. Because the loan is underwritten against the After-Repair Value, the amount available is tied to the finished project, not only the price you negotiated.
- 02
The rehab budget
Your scope of work, a line-item plan for the renovation, becomes part of the loan. The lender holds the rehab funds and releases them as the work gets done. This protects the project: money is matched to completed value, not handed over up front.
- 03
Draws
You finish a phase, say demo and rough plumbing, then request a draw. An inspection confirms the work, and the lender reimburses you for that stage. You front the cash, complete the work, then get paid back. Plan your reserves around that order.
- 04
Carry
While you hold the property, you are paying to carry it: loan interest, taxes, insurance, utilities, and any HOA dues. The loan is usually interest-only during this window, which keeps the monthly number lower but does not make the clock stop.
- 05
Exit
When the work is done, you pay off the bridge loan. You either sell the finished house or refinance it into longer-term financing and keep it. The exit is the part of the plan you decide on before you buy, not after.
Sized off the finished value
ARV is the After-Repair Value: what the property should be worth once your scope of work is complete, supported by comparable sales of similar updated homes nearby. It is an appraised, evidence-based number, not a hope.
Sizing the loan off ARV is what lets a single piece of financing cover both the buy and the build. The lender is underwriting the project you are about to create, so the comps behind your ARV matter as much as the price you pay.
Draws keep it honest
Because money releases in draws tied to finished work, the loan and the property value grow together. You do not get rehab cash for a kitchen until the kitchen exists.
This is why your reserves are not optional. You pay contractors and material costs first, then the draw reimburses you. A thin cash position can stall a project that is otherwise on track, so size your reserves before you size your ambition.
An illustrative flip, start to finish
Every number below is made up to show the shape of a deal. None of it is an offer, a quote, or a prediction about your project.
This example is illustrative only. The dollar figures are invented to show structure. I can't tell you your exact rate or terms without seeing the file. Credit, the property, the loan size, and the deal all move the numbers. The spread between ARV and your all-in cost is where a flip makes or loses money, and carrying costs and selling costs eat into it the longer you hold. This is educational content only, not financial, tax, or legal advice, a rate quote, or a commitment to lend.
- Purchase price
- $200,000 (illustrative)
- Rehab budget
- $50,000 (illustrative)
- After-Repair Value (ARV)
- $320,000 (illustrative, comp-supported)
- Total project cost before carry
- $250,000 (purchase plus rehab)
- Carrying costs over the hold
- Interest, taxes, insurance, utilities (varies)
- Selling costs at exit
- Agent commissions, transfer taxes, concessions (varies)
- What is left after payoff and costs
- ARV minus project cost minus carry minus selling costs
The deal is not the spread between purchase and ARV. It is the spread that survives rehab, carry, and the cost of selling.
Illustrative principle, not a guarantee of outcome.
Sell, or keep it as a rental
A bridge loan is short-term by design. You plan the exit before you buy, and there are two clean ones.
Sell and recycle
If your plan is a true flip, you list the finished house, pay off the bridge loan from the sale, and what remains after carry and selling costs is your result. This frees your capital to roll into the next project. It fits when the comps support a sale and you want the cash back quickly.
Refinance and hold (the BRRR bridge)
Instead of selling, you refinance the bridge loan into long-term financing, conventional or DSCR, whichever you qualify for, and keep the home as a rental. Because the refinance is based on the higher ARV, you may pull much of your capital back out while keeping the asset. That is the bridge inside the BRRR method: buy, rehab, rent, refi.
Carry and reserves decide it
Two things end more flips than a bad purchase price: running out of time and running out of cash. Both trace back to carry. Every extra week you hold the property, you keep paying interest, taxes, insurance, and utilities, and none of that adds value. A delay does not just cost you the delay. It compounds against your spread.
Reserves are the other half. Draws reimburse finished work, so you need enough cash to pay contractors and buy materials before the money comes back, plus a cushion for the surprise behind the wall and a few extra months of carry in case the timeline slips. Investors who plan reserves around the draw schedule, not their best-case schedule, are the ones who finish.
When you map a deal with your Investor Success Coordinator (ISC), the conversation is honest: the math will tell us whether the spread holds once carry and reserves are real numbers instead of optimistic ones. It depends on the deal, and the math will not lie.
Questions, plainly answered
Related reading
Ground-Up Construction Loans
When the project starts from dirt instead of a distressed purchase.
Read the breakdownCash-Out Refinance on a Rental
The refinance mechanics behind the hold exit.
Read the breakdownHELOC vs HELOAN on Investment Property
Funding projects from the equity you already have.
Read the breakdownMap your flip before you buy it.
Bring a property and a scope of work, and we will run the spread against carry and reserves together. The math will tell us whether the deal holds.
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