Financing a Fixer-Upper

5 Replies


I am new to BiggerPockets, and REI as a whole, but have read that traditional financing is hard to come by when dealing with a fixer-upper. I would like to know your strategy on financing a fixer-upper. Any information you have would be greatly appreciated. Thanks to everyone at BiggerPockets for opening up the world of REI to those that want to know what you know.


Taylor Guest

There is a whole other world of transitional financing out there.  You'll hear people mention hard money loans.  Those aren't cheap.  Some charge 4% origination and as high as 12-14% interest.   those will cover the purchase price and repairs.  Depending on the lender they will cover in the range of 60-80% of the after repair value.  Sometimes you can find some that will do it outside of the range.

To me those are crazy costs.  If you take some time to call around to some small banks, many will do the same kind of loans at much lower costs.  It may take some leg work to find them but your first deal will pay you back easily due to the lower costs.

Both loans I talked about will be short term loans.  Some as short as a few months, to a few years. Often they are interest only payments.  Depending on your exit strategy you are either selling it and paying off the loan or you are holding and you refi out of it into some sort of longer term loan.

A greater number of savvy fix/flip investors and buy/hold investors are using hard money lenders to finance their initial acquisitions of real estate and also to access cash in investment real estate they already own or have recently acquired.  There are a lot of myths about the world of Hard Money Loans, which I covered in a Blog I wrote on this BP site some months ago (search the blogs if this interests you).  The bottom line is that if the transaction is fundamentally and financially sound, "Hard Money" costs the investor no more than any other type of financing they may be able to use and in a fix/flip transaction LESS than other forms of conventional financing would.  The reason for this is that acquisition costs related to financing are entirely paid for by the gain made in the transaction (at entry, or at exit, or by appreciation OR, by all three (and there are other means/types of gain and profit as well...), NOT by the pocket book of the investor.  Some will argue this, and that is fine.  Ron White has a saying for that, however in the interests of being kind, I'll not repeat it here.  The fact is that if you as an investor are not recouping 100% of your costs IN ADDITION to your desired profit from the gain of your investment transaction, then you are doing something wrong.

Hi @Taylor Guest ! There are numerous posts on this site about financing real estate investments, but I think the basics are pretty straight forward. There are always a few options, but, the best one will depend on your personal situation. Most people advise not to use Hard Money on your first flip because if you run into a problem delaying the resale, you are paying high interest rates until it sells. What this all comes down to is your experience and confidence in your due diligence. There is no question hard money is expensive, but there is a reason why all the big time flippers use it - it drastically increases your Cash on Cash ROI, meaning your personal capital will be spread out over much more projects, in turn leaving you with much more profit. It is all about the numbers. If you do your research correctly and the numbers work, then go for it! Best of luck and feel free to reach out with further questions.