Fix and Flip Loans Explained: A Plain-English Primer

A flip loan is short-term financing that helps an investor buy a property, renovate it and sell it. Instead of focusing on your income, the lender focuses on the deal: what you are paying, what the rehab costs, and what the house should be worth when it is done.

Who uses them

Real estate investors who buy homes that need work. These properties often will not qualify for a bank mortgage because of their condition, or the timeline is too tight for a bank to close. Private lenders fill that gap. These loans are for business purposes, not for a home you plan to live in.

How the loan is structured

Details vary by lender, but most flip loans share a few traits:

• Short term. Often 12 months or less, and some lenders offer extensions. RSC Private Lending's Fix & Flip loans have a 12-month term.
• Interest-only payments. You pay interest each month and repay the principal when you sell or refinance.
• Purchase plus rehab. The loan usually funds part of the purchase and some or all of the renovation budget.
• Draws. Rehab money is held back and released in stages as work is completed.
• Asset-based approval. Lenders lean on the property and your plan more than tax returns or pay stubs.

How the loan amount is set

Lenders look at three numbers: the purchase price, the rehab budget and the after-repair value (ARV), which is the estimated value once work is done, based on comparable sales. They cap the loan as a percentage of total cost and as a percentage of ARV. The lower result usually wins. RSC Private Lending's Fix & Flip loans go up to 95% LTV on the purchase price, 100% of the rehab budget, 95% of total cost and 75% of ARV, with loan amounts from $150K to $6M.

Example (illustrative only): You buy a dated three-bedroom for $180,000 and plan $45,000 of work. Total cost is $225,000. Recent sales of updated homes nearby suggest an ARV of $310,000. The lender sizes the loan from those figures, funds part of the purchase at closing, and releases the rehab money in draws. You sell the finished house and pay off the loan from the proceeds.

Why investors choose them

• Speed. Private lenders can often close faster than a bank, which helps you win deals. RSC issues term sheets in 24 hours and can close in as few as 10 days.
• Access to distressed property. Houses that banks will not lend on can be financed.
• Capital efficiency. Using leverage lets you keep cash free for reserves or another project.

The trade-offs

Rates and fees are typically higher than long-term bank loans, and the short term means you need a clear plan to finish and exit on time. The loan rewards investors who buy well and manage the rehab tightly.

What this means for you

If you find a house that needs work and you have a realistic budget and exit plan, a flip loan can fund the purchase and renovation with less of your own cash tied up.

Have a property in mind? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.