Funding

What it is

Funding is one half of the Deal — acquisition plus funding. Every flip and every rental needs both. The question is, how do people get the money to do it?

Most people’s first instinct is to go to the bank. The bank is actually the worst place to go for a flip. Banks are super conservative. If you’re buying a house you’re going to flip, they’ll make you put 20% down — and then you also have to bring the renovation money. So you might need $30,000 down on a $150,000 purchase, plus $50,000 for the renovation. That’s a lot.

That’s where hard money lenders come in. Hard money lenders are made for real estate investors, for house flippers. They’re accustomed to lending on houses that aren’t livable today with a rehab portion. Instead of basing the loan on what it costs you upfront, they give you money based on what it will be worth when it’s done — the ARV. A lot of hard money lenders are like retired or reformed flippers. Their typical terms: around 12% interest, 2-4 points upfront, 65-75% LTV on ARV, 6-18 month terms. Fast close, expensive, built for flips.

Then there’s private money — basically borrowing money from your rich uncle, or from accredited investors. I’ve never been a big fan of private money, honestly. I always felt like until I had a track record, I was going to go with the hard money lender who was used to working with novices like me. But if your rich uncle wants to help you invest, do it. Terms are whatever you negotiate — usually cheaper than hard money once you have a track record.

Other options: DSCR loans (underwritten against the property’s income, not your W2, 30-year fixed available, great for scaling), seller financing (the seller carries the note, no bank, works when they own free and clear), and partnerships (someone brings money, you bring the deal and the work — fastest way to start with no capital, slowest way to build wealth).

Why it matters

Funding is where most new flippers either freeze or blow themselves up. The freeze looks like six months of searching for zero-down tutorials. The blow-up looks like taking hard money on a deal that barely pencils, betting the six-month term won’t run out before resale.

Different money serves different deals. Hard money buys speed when the seller needs to close in ten days. Conventional buys the cheap 30-year money for a keeper rental. DSCR buys you doors 11 through 50 once the bank stops returning your calls. Seller financing buys you terms no bank will match.

The funding plan has to be in place before you sign the contract, not scrambled for afterward. The 70 percent rule and the equity gap formula both bake funding costs into the offer. If the math doesn’t survive a 12% hard money loan with 3 points, you either need cheaper money or a cheaper purchase price. Never hope the spread will appear after you own it.

How it shows up

Beginners: start with hard money. You’ll probably have to bring some cash to the table — they want to see skin in the game. That’s fine. It’s real, it’s transparent, and hard money lenders actually want the deal to work. They’ll work with you on it.

As you build track record, you graduate to better terms — private lenders who know you, relationship-based hard money with lower rates, and eventually your own capital recycled from BRRRR pulls. The goal over time is to pay less per deal on the money side. Every percentage point you shave on interest is pure profit.

Related

hard money, private money, dscr loan, seller financing, partnerships, equity gap, 70 percent rule