Ways to not drown in interest
Investor · Member since 2026 · 2 posts · 0 votes
Ways to not drown in interest
11 Replies
- Real Estate Agent · Kansas City · Member since 2018 · 5k+ posts · 3k+ votes6h
Hard money is very common. You would bake the interest and closing costs into your numbers. Good part of hard money is they cover the rehab or most so less out of pocket
- 6hDevin PetersonBusiness MemberLender · Sarasota, FL · Member since 2022 · 2k+ posts · 689 votes
Cayden, good question. For most people starting out, the interest is just a cost of doing the deal, and the goal is to make sure the deal still works after all of it is paid.
Hard money is the most common route for newer flippers. It usually covers a large share of the purchase and often much of the rehab (released in draws as the work gets done), with points up front and interest-only payments. It's expensive, but you're typically only in it for a few months. When you run your numbers, include the points, interest for a longer timeline than you expect, and closing costs on both the purchase and the sale.
Private money is friends, family or other investors. The terms are whatever you both agree to, usually a fixed interest rate and sometimes a share of the profit instead of or on top of that. There isn't one right return. It depends on your market, the risk of the deal, your experience, and whether they're secured with a recorded note and mortgage or deed of trust on the property (they should be). Put everything in writing and have a local real estate attorney draft it, since depending on how you raise the money it can run into lending or securities rules.
A few other options: bringing in a partner who has the cash or the experience and splitting profits instead of paying interest, or using a HELOC or cash-out on a property you already own if you have one.
A lot of first-time flippers combine them, hard money for most of the project and a private lender or partner to cover the down payment, closing costs and reserves. Lenders also price off experience, so terms usually get better after a couple of completed flips. Whatever you use, buy with enough margin to absorb a project that runs long, because that's where interest really eats into the profit.
ProAlpha Capital55 Reviews - 6hVaibhav PuranikPro MemberMember since 2025 · 115 posts · 59 votes
In my opinion - people who are experienced flippers raise money from hard money lenders. People starting out generally use more informal channels such as friends of family. With friends and family, the interest rate can be lower than the market. Furthermore, you can also enroll friends and family as equity owners - give them the upside so it's not just interest only deal. For experienced flipper, the interest rate is one of the costs they need to bare, so they just add that into their model and make sure that the given flip is worth it. It's like any other expense - renovation, selling etc. While selecting the property, you need to make sure you will make money after paying interest and other costs.
- Member since 2026 · 11 posts · 1 vote6h
Cayden, one thing nobody's touched on yet is what the hard money lender wants to see from you on deal one. Most of them size the loan off your experience. Zero flips usually means more down, sometimes they want you to cover part of the rehab too, and they'll want cash left in the bank after closing. So "not paying cash" still means having some.
On the interest, yeah people mostly just bake it in. Its usually interest only and the clock is the real enemy, so the rehab timeline matters more than the rate. Pad your numbers for it taking longer to sell than you think.
On the private money from people you know, there's no standard return. Its whatever you two agree to. Just get it in writing so they're protected, thats what makes it an easy yes for them.
I'm a loan officer with Barrett Financial, figured I'd add the lender side of it.
- Lender · Indianapolis · Member since 2025 · 26 posts · 7 votes6h
Yeah, people mostly just underwrite the holding costs as an expense and hustle to finish as fast as humanly possible. The clock is your biggest enemy on a flip, which is why having contractors ready to swing hammers on day one matters so much. True private money from friends or family might let you defer payments until the sale, but outside private lenders are generally going to charge you the same steep rates that hard money does.
Cayden, the interest is a real cost, and most flippers treat it like any other line item. They build it into the offer so the deal still works if the project runs longer than planned. Rehab money usually comes out in draws after the work is inspected, so you still need some of your own cash at the start, even if you are not paying all cash for the house. Private money from people you know does not have a standard return. It is whatever you both agree to, and it should be in writing with a recorded lien on the property, because that protection is often what makes someone comfortable lending to a first timer. Do you have a specific property in mind yet, or are you still getting the money side straight before you make an offer?
Lindsay and Ryan with Futures Funding
Futures Funding Inc. 4.714 Reviews- Investor · Member since 2026 · 2 posts · 0 votes2h
Definitely getting the money and numbers side done before any offer. Thanks for your input.
- 4hRyan BakerBusiness MemberLender · Strongsville / Cleveland, OH · Member since 2026 · 158 posts · 39 votes
Cayden, hard money costs are pretty much part of the deal on a first flip. What you can control is how long you hold it. Most people who get burned on interest went over budget or over schedule on the rehab, so a tight scope and a realistic timeline save you more than shaving a point.
Private money can be cheaper, but usually only once you've got a track record or a relationship with the person. Until then a lot of guys start with hard money on the first one or two and move to private after that.
If you want to run the numbers on a deal you're looking at, give me a call. My number's in my signature below.
– Ryan
- Gainesville, Alachua County · Member since 2026 · 9 posts · 0 votes3h
Welcome, Cayden. Yes, most new flippers who aren't paying cash use a hard money loan, and the interest is a cost you plan for rather than avoid. The trick is to turn it into a daily number before you buy, so it's part of the deal math.
Example: a $230K loan at 11.5% is about $72/day in interest. Add taxes, insurance and utilities and you're near $100/day. A 5-month flip that runs 2 months late costs roughly $6,000 more than planned, so time is the real variable you control.
A few ways people keep it down:
Ask whether interest is charged on the full loan including the undrawn rehab money (often called Dutch interest) or only on what's been disbursed. On a big rehab budget, that difference adds up.
Shorten the clock before you close: line up your contractor and get permit applications started early, since permit and inspection delays are where a lot of extra months come from.
Keep your draw requests complete (invoice, lien waiver, passed inspection, matching photos) so the lender funds quickly and work doesn't stall.
On private money: returns are negotiated deal by deal. Many private lenders want a fixed interest rate secured by the property (first lien, title insurance, named on the insurance policy), while others prefer a share of the profit. For someone without a track record, a secured note on one small deal is usually an easier conversation than an equity split, because the lender's protection is the property, not your history.
Run the numbers with a realistic delay built in. If the deal still works with 2 extra months of holding costs, it's a much safer first flip.
- Member since 2026 · 43 posts · 6 votes2h
Hi Cayden, a couple of things that might help beyond what's been said. Most newer flippers do use hard money, and the interest is just a line item you plan for: you want the deal to still work after points, interest on a longer timeline than you expect (add a couple of months of cushion), and closing costs on both ends. The thing lenders care about most when you're new is the deal itself plus your skin in the game, so even a small down payment and a solid scope of work helps a lot. If you bring in private money, get it in writing with a recorded note and have a local attorney draft it. And before you commit to anyone, run the numbers with a couple of different lenders, because programs for first-time flippers vary quite a bit. I'm a mortgage broker and work with a range of investor lenders, so if you get a specific property under contract, I'm happy to help you compare options. – Stephen
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1h
You need to factor in interest and holding costs into your calculation to make sure you make money. Be conservative. Not only do you have to renovate the property, but you also have to get it ready, list it, sell it, and go through the closing. The other area people tend to miscalculate is that, after you renovate a property and close out the permit, they do a tax assessment, which typically increases the taxes on the property as well. Make sure to account for that.
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