Cash to Close on a Flip Loan: Adding Up the Real Number

More than the down payment. Your total cash need is the down payment plus closing costs, plus reserves, plus enough working capital to pay for rehab work before each draw is reimbursed. Many investors budget the first item and get caught short on the other three.

Why lenders want your cash in the deal

Private lenders rarely fund 100% of a project. Your cash creates an equity cushion that protects the lender if values dip, and it shows you're committed to finishing. How much you bring depends on the loan's leverage limits, your experience, the property and the deal's margins.

RSC Private Lending's Fix & Flip loans go up to 95% LTV on the purchase, 100% of rehab, 95% of total cost and 75% of ARV, and the loan has to fit within all four. At those maximums, the cash you bring can be as low as 5% of the purchase price plus 5% of the rehab budget (the 95% total-cost cap), before closing costs, as long as the ARV cap doesn’t come in lower. Reaching 95% of total cost on a light rehab requires 3+ completed projects.

The four buckets

1. Down payment. The gap between the loan and the purchase price (and, if the lender funds part of the rehab, the gap on the total cost). Across the industry this often lands somewhere around 10% to 30% of the purchase, but it varies widely.

2. Closing costs. Lender points and fees, title insurance, settlement or escrow fees, recording, valuation and your insurance premium. Ask for a written estimate. At RSC, an appraisal or due-diligence fee may be due upfront, and most other costs are paid at closing.

3. Reserves. Cash left in your account after closing. Many lenders want enough to cover a few months of payments and carrying costs. RSC doesn't require cash reserves on Fix & Flip loans, and full interest reserves can be built into the loan, but a cushion of your own is still smart.

4. Rehab float. On most flip loans, draws reimburse finished work, so you fund each phase first. You need cash to keep crews moving while a draw is processed.

Adding it up

Example: You buy a house for $250,000 with a $70,000 rehab, so total project cost is $320,000. Say the loan covers $272,000 (an illustrative 85% of cost).

• Down payment: $48,000
• Closing costs, estimated: $9,000
• Reserves, about four months of carrying costs: $12,000
• Rehab float for the first phase: $20,000

Total cash you'd want available: about $89,000, not $48,000.

Ways to lower the number

• Negotiate a lower price or seller credits.
• Buy below as-is value, so leverage on value goes further.
• Ask whether any fees can be rolled into the loan.
• Phase the rehab so the first draw comes quickly.

What this means for you

Budget all four buckets before you make an offer. Running out of cash mid-project is far more expensive than finding out early that a deal is too big for your current reserves.

Want to add up cash to close on a specific property? Send RSC Private Lending the scenario for a term sheet in 24 hours. Subject to underwriting.