A hard money fix and flip loan is a type of short-term bridge loan designed to provide financing for real estate investors who purchase properties to renovate and sell for a profit, known as house flipping. Private lenders, not banks, typically issue these loans, which are secured by the subject property as collateral.
The terms for hard money fix and flip loans are typically short-term, ranging from 6-18 months, with interest rates starting at 10.00% extending to 13.00% – depending on the lender and the leverage, known as Loan-to-Value (LTV) and Loan-To-Cost (LTC). Closing costs usually come in at 2-4% of the total loan amount, which start at $100,000 and go up to $10 million.
Most hard money lenders provide borrowers with a purchase money loan, up to 80-90% LTV of the purchase price. For experienced borrowers, or in cases where the purchase price is well below the AS-IS value of the property, lenders will offer acquisition financing up to 85% or even 90% of the purchase price.
Additionally, fix and flip lenders will finance the rehab and renovation of the property, covering up to 100% of the costs in what is known as rehab reimbursement. In rehab reimbursement loans, borrowers submit invoices for labor and materials to the lender, who then either personally inspect the work or send out a third-party inspector to verify that the invoices match the physical progress. Once confirmed, the lender disburses funds and obtains releases from contractors, protecting their first position security interest on title from future mechanic’s liens that a contractor or supplier may file for unpaid work.
With fix and flip hard money loans, it’s common to see an 80/100 structure – 80% LTV on the purchase price and 100% LTC (Loan-To-Cost) on the rehab financing.
As hard money fix and flip loan amounts increase, especially up to $10 million, the LTV and LTC will decrease. A $10 million total loan (purchase money plus rehab financing) may only offer 70-75% LTV on the purchase and 75-100% LTC on the rehab component. The leverage depends on the borrower’s experience, the scope of the project, and the expected sale price of the property once completed.