How investors buy and flip houses without paying cash
Most people assume flipping requires hundreds of thousands sitting in the bank. That's rarely how experienced investors do it. There are loan programs that finance the purchase and the renovation together — here's how they work, what they cost, and a real deal run end to end.
Down payment
20%
First-time flippers; less with experience
Interest rate
~10.5%
Interest-only, 12-month term
Income verification
None
No tax returns, W-2s or pay stubs
This comes from a conversation with Wes Friedman, our mortgage advisor, and it answers the question aspiring investors ask me more than any other: I've found a property that needs work and I know what it's worth fixed, but I don't want to tie up all my cash — or I don't have it all.
Fix and flip loans are short-term financing covering both the purchase and the renovation. They work for genuinely damaged property and for homes that just need a facelift to reach their value.
Your down payment is based on the total loan cost
Not the purchase price. Total loan cost is the purchase price plus the renovation budget, and your down payment percentage applies to that combined figure.
On a $415,000 purchase with a $50,000 rehab, total loan cost is $465,000. A 20% down payment is $93,000, not $83,000. Budget accordingly.
| Experience level | Flips in the last 3 years | Minimum down |
|---|---|---|
| First-time flipper | None | 20% |
| Seasoned | 3 or more | 10% |
| Experienced | 6 or more | As little as 5% |
Experience changes the down payment, not the rate. A track record of completed flips reads as lower risk, so the lender lets you keep more of your own capital in reserve — which is the entire point of using leverage here.
10.5%, and it makes sense when you think about the collateral
These rates run well above conventional. The reason is the property itself. A house with bare subfloor, holes in the walls, or a kitchen that doesn't function won't pass conventional financing at all — the collateral doesn't qualify.
That leaves two options: pay cash, or use a loan built for exactly this. The lender is accepting weaker collateral in exchange for a higher rate.
You're not being penalized. You're being financed on an asset nobody else will lend against.
It's a 12-month interest-only loan at a fixed rate, with an option to renew. Ideally you're out well before twelve months.
What the loan doesn't cover
Worth knowing before you model a deal, because these all come out of pocket:
- Holding costs — utilities, HOA dues, property taxes, insurance
- Closing costs on the purchase
- Anything left over in your rehab budget cannot be redirected to holding costs
That last one catches people. The renovation budget is entitled to renovation work only. If you come in under, you simply don't draw it — which is good news, since you never pay interest on money you didn't take.
With this lender there's no interest reserve held back, so the interest payments are yours to carry from the start. Your first mortgage payment comes due roughly 30 to 60 days after closing.
The draw process
You don't receive the renovation budget as a lump sum. It's released in draws as work is completed, and you only pay interest on what's been drawn.
Start by sitting down with your general contractor and agreeing a draw schedule before anything begins. It can be two draws or fifteen — whatever suits the job and the working relationship. Get it on paper.
Then the cycle for each draw:
- Contractor completes a stage and requests payment
- You notify the lender
- An inspector is on site within 24 to 48 hours to verify the work
- Funds are wired to you within 24 hours of verification
- You pay the contractor
Your loan balance grows with each draw and your interest payment adjusts accordingly. Take a $10,000 first draw against a $50,000 budget and you're paying interest on $10,000, not $50,000.
The inspection isn't just lender protection. It also confirms work was genuinely completed before money changes hands, which protects you.
If you go over budget
It depends entirely on the ARV. If the after-repair value supports it, the lender can issue more — and generally will, when a project is in good standing and profitable. If the ARV came in soft, they may decline, and can even reduce your remaining budget.
This is why the appraisal matters so much. Your ARV isn't just a projection — it's the ceiling on your flexibility if something goes wrong.
You can't use your own crew
The renovation budget requires a licensed contractor. Not a handyman, not friends with the right skills.
If you're a skilled labourer who wants to do the work yourself, the lender will still finance the purchase — but they won't fund a renovation budget.
Unless you're a licensed general contractor yourself. Then you can, with a limit: a maximum of 10% of the total loan cost for renovation, regardless of what the ARV would otherwise support. The logic is that you're capturing labour margin and material discounts, so the lender caps its exposure.
Your contractor has to qualify too
The lender vets the general contractor for prior work. The threshold is a formula: take your renovation budget, divide by two, and the contractor needs at least three completed jobs in the last three years at or above that figure.
On a $50,000 renovation, that means three jobs of $25,000 or more. Honestly, that's a low bar — I'd want considerably more experience than the minimum on any project I was funding.
Subcontractors under your GC aren't scrutinised. The lender looks at the general contractor.
Three things, and income isn't one of them
No tax returns, no W-2s, no pay stubs. It's an asset-driven loan with a credit component. What the lender really underwrites is the deal itself — the ARV, the projected sale price, and whether there's genuine equity in the project.
The ARV is set by the appraiser, who values the property as-is and then again against the scope of work as if completed. That second valuation typically adds about $100 to $125 to the appraisal cost.
Start to finish, with the numbers
This is a project we're working on. The house was listed at $435,000, had been sitting, and had taken price reductions — so there was room to be aggressive on the offer.
| Amount | |
|---|---|
| Purchase price | $415,000 |
| Renovation budget | $50,000 |
| Total loan cost | $465,000 |
| Down payment (20%) | $93,000 |
| Loan balance | $372,000 |
| Closing costs (5%) | $23,250 |
| Projected ARV | $625,000 |
The renovation budget, itemised
| Item | Budget |
|---|---|
| Kitchen | $10,000 |
| Bathrooms | $8,000 |
| Flooring | $7,000 |
| Landscaping | $5,000 |
| Paint | $4,000 |
| Cabinets (partial) | $4,000 |
| Appliances | $3,000 |
| Countertops | $3,000 |
| Total itemised | $44,000 |
| Buffer held back | $6,000 |
The buffer is deliberate. I budgeted $50,000 and scoped $44,000, because something unexpected always surfaces. Leaving room in the budget is not the same as spending it.
What comes out the other end
Four-month timeline, holding costs around $4,400 a month all in — interest-only comes to roughly $4,000 at full draw, plus taxes and insurance.
| Amount | |
|---|---|
| Sale price (ARV) | $625,000 |
| Selling costs (7% — commissions, title, escrow) | −$43,750 |
| Net proceeds | $581,250 |
| Loan payoff | −$372,000 |
| Cash back at closing | $209,250 |
| Down payment | −$93,000 |
| Closing costs | −$23,250 |
| Holding costs (4 months) | −$17,600 |
| Total cash invested | $133,850 |
| Profit | $75,400 |
Three of those in a year and you're well past $200,000. Do it enough times and you stop needing the loan — you become the bank.
Proceed with caution on that number, though. A 56% return is earned, not free. It reflects real risk: construction delays, budget overruns, a market that shifts while you're mid-project, and a substantial amount of your own capital tied up. Deals don't always run this cleanly.
Timelines and what moves them
Closing: allow 30 days. With a good team, clear scope of work and quick contractor bids, 20 days is achievable.
Renovation to sale: target 90 days with a 30-day buffer. Three to four months start to finish is a fair plan. Large-scale flippers turn some projects in 60 days.
What you don't want is six months. Carrying costs compound, and a market that suited you in summer may not in the holidays.
Line up contractors before you close
Contractors are busy. If the one you want is booked two to three weeks out, that's dead time you're paying for. They also naturally prioritise bigger, more profitable jobs.
This is a practical reason to work with someone established. I share my contractors with my clients and make clear they should get scheduling priority. Getting crews working the day you close meaningfully changes your carrying cost.
Stay in an affordable price band
Flipping $1.5 to $2 million properties means a far smaller buyer pool and longer days on market. In Las Vegas right now, renovated homes at $500,000 and below don't sit. Buyers want move-in ready and don't have the time or capital to renovate themselves.
Flip to rental
It happens — you renovate a house and decide you'd rather hold it. That's straightforward: on completion, the interest-only loan converts to traditional financing. The property is now in good condition, so the collateral problems that forced you into this loan no longer apply.
You'll usually be in a strong equity position already, since you bought below market and the ARV is higher.
Before deciding, get the going rents for the neighbourhood and confirm the numbers work. Find out what the new payment would be and whether projected rent covers it.
If you'd rather not qualify on personal income, a DSCR loan is the other route — it qualifies on the property's rental income instead of yours.
A note on FHA 203(k)
People ask why not use one of those, since they also combine purchase and renovation. The answer is simple: 203(k) loans are for owner-occupied homes. The program described here is strictly for investment property.
Fix and flip loan FAQ
How much down payment do you need for a fix and flip loan?
20% for a first-time flipper, calculated on the total loan cost — purchase price plus renovation budget, not the purchase price alone. With three or more completed flips in the last three years the minimum drops to 10%, and with six or more it can go as low as 5%. Experience changes the down payment rather than the interest rate.
What interest rate do fix and flip loans charge?
Around 10.5%, meaningfully higher than conventional financing. The reason is collateral: properties needing significant work often can't qualify for conventional loans at all, so the lender is accepting weaker security in exchange for a higher rate. It's typically a 12-month interest-only loan at a fixed rate with an option to renew.
How does the renovation budget get paid out?
In draws as work is completed, not as a lump sum. You agree a draw schedule with your general contractor in advance — anywhere from two to fifteen draws. When a stage is finished, an inspector visits within 24 to 48 hours to verify the work, and funds are wired within 24 hours after that. You only pay interest on what has been drawn, so an unused budget costs you nothing.
Can I do the renovation work myself?
Only if you're a licensed general contractor, and then the renovation budget is capped at 10% of the total loan cost regardless of the ARV. Otherwise the work must go to a licensed contractor. A skilled but unlicensed owner can still get the purchase financed, but no renovation budget. Your general contractor also has to qualify: licensed, with at least three jobs in the last three years at or above half your renovation budget.
Do fix and flip lenders check your income?
No. There's no income verification — no tax returns, W-2s or pay stubs. Lenders evaluate three things: your credit, your assets for the down payment, and the property itself, particularly the after-repair value and whether the deal has genuine equity in it.
What is ARV and who decides it?
After-repair value: what the property is worth once the renovation is complete. The appraiser sets it, valuing the home as-is and then again against the documented scope of work as though finished. It typically adds about $100 to $125 to the appraisal cost. ARV matters beyond qualification — if you go over budget, whether the lender will release additional funds depends on whether the ARV supports it.
What does the loan not cover?
Holding costs are out of pocket — utilities, HOA dues, property taxes and insurance — as are purchase closing costs, which run around 5% of total loan cost. Unused renovation budget cannot be redirected to holding costs, as those funds are entitled to renovation work only. With this lender there is also no interest reserve held back.
Thinking about a flip?
The deal is made on the buy. Before anything else, we look at recent flips in the neighbourhood, work out a realistic renovation budget, and establish whether the ARV supports enough profit to be worth your time. Plenty of properties don't survive that analysis, and knowing that early is the point.
Send us the address and we'll do the homework before a lender ever sees it.