The Brutal Truth About Fix And Flip Financing I Learned From 4,000 Funded Deals

I’ve rejected more loan applications than most people will ever see. Not because I enjoy saying no, but because after funding over 4,000 fix-and-flip deals since 2007, I can spot a disaster waiting to happen from a mile away. The brutal truth? Most investors come to me completely unprepared, armed with nothing but HGTV dreams and Zillow estimates. They don’t understand that getting fix and flip financing isn’t about convincing me you’re a nice person – it’s about proving your deal won’t blow up in both our faces.

Today, I’m pulling back the curtain on exactly how hard money lenders think, what makes us say yes, and, more importantly, what makes us run for the hills. This isn’t another generic guide about fix-and-flip financing. This is your insider’s playbook from someone who’s seen every possible way these deals can go right – and catastrophically wrong.

Understanding the Lender’s Mindset

After funding over 4,000 loans since 2007, I’ve seen every type of deal imaginable. The good, the bad, and the downright ugly. When Ian Horowitz and I sit down for the Real Estate Reserve Podcast, we’re giving you both sides of the coin – the lender who needs to protect capital and the investor who needs to deploy it.

Here’s the truth: I’m not in the business of saying no. I’m in the business of funding profitable deals. But profitability isn’t just about your return – it’s about my risk. Every loan I approve puts my investors’ money on the line. So when you understand how I think, you’ll understand how to get funded.

The dynamic between Ian and me on the podcast isn’t just for entertainment. It’s a masterclass in the fundamental relationship of real estate investing. He pushes for opportunity; I push for security. Find the sweet spot between those two forces, and you’ve found a fundable deal.

The 4 C’s That Actually Matter

Let me break down the framework I use for EVERY loan that crosses my desk. These aren’t just buzzwords – they’re the filters that determine whether you get a “yes” or a “thanks, but no thanks.”

Collateral: The Asset is King

The property itself is my primary security. I don’t care if you’re Warren Buffett – if the deal doesn’t make sense on paper, it’s not happening. This is asset-based lending at its core. The numbers need to work independently of who you are.

What does this mean for you? Your ARV (After Repair Value) calculations better be bulletproof. I’ve seen too many investors use Zillow estimates or their contractors’ “gut feeling” about value. That’s not analysis – that’s gambling with my money.

Character: Your Track Record Speaks Volumes

Character isn’t about being a nice person. It’s about integrity and reliability. Have you done what you said you’d do on previous deals? When problems arose (and they always do), did you communicate transparently, or did you ghost your lender?

First-time flippers always ask me, “How do I show character without experience?” Partner with someone who has it. Find a mentor, bring in an experienced contractor as a partner, or start with a smaller project. Show me you’re serious about learning this business, not just chasing quick money. And you’re well on your way to being someone a lender wants to approve when you apply for fix and flip financing.

Jason talks with Bryce Matheson from Holbrook Capital and Lendr. 

Capacity: Can You Handle the Unexpected?

Every project has surprises. The question is: can you handle them financially? Capacity means having enough cash reserves to weather the storms. If you’re putting every last dollar into the down payment, you’re already in trouble.

I need to see at least 10-15% in contingency funds beyond your renovation budget. Why? Because that “small water damage” often turns into a full bathroom gut. Those “minor foundation issues” can eat up $20,000 before you blink.

Credit: The Historical Snapshot

Your credit score tells me how you handle obligations when no one’s watching. It’s not about perfection – it’s about patterns. A 650 score with a clear explanation beats a mysterious 580 every time.

Hard money isn’t “no credit check” lending. It’s “credit matters less than collateral” lending. Big difference.

If you’re serious about getting funded, stop chasing lenders and start building a fundable profile. Apply for a loan with us (no cost, no obligation) and see where you stand.

How to Analyze Deals Like a Pro

The number one reason I reject loans? Bad math. Not bad credit, not lack of experience – bad math. Let me show you how to analyze deals the way I do.

The Conservative ARV Method

Here’s a technique I learned from Ryan Wright, a frequent guest on our podcast: Base your ARV on the three lowest active listings and three lowest recent sales of comparable properties. Not the average. Not the highest. The LOWEST.

Why so conservative? Because the market can shift between the time of your purchase and sale. And your renovation might not appeal to everyone. But, most importantly, because optimism doesn’t pay the bills when you’re stuck with a property that won’t sell.

The 70% Rule (And When to Break It)

You’ve heard it before: Don’t pay more than 70% of ARV minus repairs. It’s a good starting point, but it’s not gospel. In hot markets, that formula might mean you never buy anything. In slow markets, even 60% might be too much.

The real question is: What’s your profit margin after ALL costs? I’m talking about:

• Purchase price
• Renovation costs (with contingency)
• Financing costs (interest, points, fees)
• Holding costs (taxes, insurance, utilities)
• Selling costs (commissions, closing costs)

If you’re not clearing at least $20,000 on a typical single-family flip, the risk isn’t worth the reward. Remember, one bad deal can wipe out the profits from three good ones.

Contractor Bids: The Make or Break Factor

Never, and I mean NEVER, submit a loan application with a “rough estimate” for repairs. Get real bids from real contractors. Not your cousin who “does construction on the side.” Licensed, insured professionals who stake their reputation on their numbers.

When I see a detailed bid with line items, I know you’re serious. When I see “$50K for renovations,” I know you’re guessing. Guess who gets funded?

The Real Mechanics of Hard Money

Let’s talk about how these fix and flip financing loans actually work, because the mechanics matter as much as the money.

Speed vs. Cost: The Trade-off

Yes, our rates are higher than your bank’s. We’re talking 10-12% interest plus 2-3 points upfront. That’s the price of speed and flexibility. While traditional lenders typically take 45 days to approve you, we may be able to close in 7-10 days. Sometimes faster.

That speed isn’t just convenient – it’s profitable. It lets you make cash-like offers. Speed allows you to beat competing buyers. And it enables you to capitalize on opportunities that conventional buyers can’t touch. The extra cost is an investment in competitive advantage.

The Draw Process: Your Cash Flow Lifeline

Here’s something that trips up new borrowers looking for fix and flip financing: We don’t hand you a check for the full renovation budget at closing. The money is released in draws as you complete work. This protects both of us.

My advice? Plan your renovation in three to four major phases. Each phase should significantly advance the property’s completion. Don’t nickel and dime with 10 tiny draw requests – it slows everyone down.

Pro tip: Have enough cash to complete the first phase before requesting your first draw. If you’re living draw-to-draw, you’re one delayed inspection away from a stopped project.

Dutch Interest vs. Stage Funding

Pay attention to how your lender charges interest. With Dutch Interest, you pay interest on the entire loan amount from day one, including undisbursed renovation funds. With Stage Funding, you only pay interest on funds as they’re actually released.

On a $200,000 loan with $50,000 in renovation funds, that difference can mean thousands in interest charges. Always ask which method your lender uses.

From Funding to Finish Line

Getting funded is just the beginning. Execution separates the profitable flippers from the cautionary tales.

Managing the Three-Legged Stool

Every flip rests on three legs: time, money, and contractors. Lose control of any one, and the whole project topples.

Ian Horowitz tells a great story about his early days. He had a contractor walk off a job halfway through, leaving him with a gutted property and mounting interest payments. His solution? He learned to structure contractor agreements with performance incentives. Pay them $100/day extra for early completion, and charge them $50/day for late delivery. Suddenly, everyone’s motivated to move fast.

The Exit Strategy: Plan A, B, and C

Your primary exit is selling the property. But what if it doesn’t sell in 30 days? 60 days? What if the market shifts?

Smart investors always have backup plans:

• Plan A: Sell at the target price within 30 days of completion
• Plan B: Reduce price or offer buyer incentives after 60 days
• Plan C: Refinance into a rental property loan and hold

That’s why the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) has become so popular. It turns a potential problem into a cash-flowing asset.

Ready to put these strategies into action? Submit your loan application today. We fund deals, not dreams – but if your deal is solid, we can move FAST.

Fix and Flip Financing Mistakes That Kill Deals

On the Private Lenders Podcast, Chris Haddon and I break down the three deadliest mistakes we see. These aren’t minor hiccups – they’re deal killers.

Mistake #1: Over-Leveraging

Borrowing 90-100% of costs feels like using “other people’s money,” but it’s a recipe for disaster. When you have no cash cushion, every surprise becomes a crisis. Every delay costs you money you don’t have.

I’ve funded borrowers at 90% LTC who succeeded, but they had deep cash reserves. If you’re leveraging to the hilt because you’re cash-poor, you’re not ready for this business.

Mistake #2: Fantasy ARV Syndrome

I see it constantly. “Similar houses sell for $300K, so mine will too!” No consideration for location differences, market timing, or quality of renovation. Hope is not a business strategy.

Your ARV needs to be defensible. If I can poke three holes in it during a five-minute conversation, imagine what the market will do over three months.

Mistake #3: The Non-Plan Plan

Saying “I’ll figure it out as I go” is not a plan. Neither is “my contractor will handle everything.” You need:

• Detailed scope of work
• Timeline with milestones
• Budget with line items
• Marketing strategy for the sale
• Contingency plans for delays

The best borrowers send me project plans that look like business proposals. Because that’s what they are – proposals for a short-term business venture.

The Balancing Act: Risk vs. Reward

After all these years in the business, here’s what I’ve learned: The best flippers aren’t the most aggressive or the most conservative. They’re the most BALANCED.

They have Ian’s hunger for opportunity, but temper it with prudent risk management. They’ll push for profits but protect against catastrophic loss. They’re fast movers who think carefully.

This balance shows up in everything they do:

• They target 25-30% gross margins but model scenarios with 15%
• They negotiate hard on purchase price but pay fairly for quality work
• They leverage our capital but maintain their own reserves
• They plan for 90-day flips but can survive 180-day holds

The path to flipping success isn’t finding one perfect deal. It’s building a sustainable system that consistently produces profitable deals while managing downside risk.

Your Next Fix and Flip Financing Steps

Knowledge without action is worthless. If you’ve made it this far, you’re serious about this business. Here’s what to do next:

1. Analyze Your Market: Find 10 recently flipped properties in your target area. Study their purchase prices, renovation levels, and sale prices. This is your market education.

2. Build Your Team: You need a solid contractor, a knowledgeable agent, and an experienced inspector. Start interviewing now, before you have a deal.

3. Prepare Your Finances: Calculate how much you can put down, how much you can hold in reserve, and how long you can carry a property. Be brutally honest.

4. Find Your First Deal: Use the 70% rule as a starting point, but verify everything. When you find something promising, run the COMPLETE numbers.

5. Apply for Funding: When you have a solid deal, submit your application to us. Come prepared with everything I’ve outlined above.

Remember, I’m not looking for perfect borrowers. I’m looking for prepared borrowers who understand both the opportunities and the risks. Show me you’re one of them, and let’s make some money together.

The real estate market rewards those who act decisively on good information. You now have the information. The decision to act is yours.

Listen to the Real Estate Reserve Podcast for more unfiltered insights from both sides of the lending table. Every episode is a masterclass in what works, what doesn’t, and why.

Stay hungry, stay prudent, and most importantly, stay in the game.

– Jason Balin
Co-Founder, Hard Money Bankers