Flipping Deals Creative Financing

[David Kimuge]

My name is David Kimuge, and I currently reside in Garland, Texas. I am gearing up to invest in the Dallas/Fort Worth Metroplex. This year, I am particularly excited about buying my first flip deal, with the goal of reaching at least 3 deals in the next 11 months, which will be a significant milestone on my investment journey.

My interest in real estate began two years ago which was around the time that I first discovered the BiggerPockets podcast. The information and discussions shared on the show enriched my knowledge of real estate investing. After listening to different podcasts on the subject for a while, I finally decided to enrol in a masterclass with Brandon, which I belief will enhance my knowledge and skills in flipping properties. I'm excited to share this journey with you all.

As I embark on this new venture, I have a question for the community: How do the various creative methods of funding deals work? Until now, I have primarily relied on traditional financing methods, but due to my current financial situation, I am eager to explore alternative funding strategies. I'm looking forward to learning from your insights or experiences about the creative financing techniques that could help me succeed in my first flip deal and beyond.

[Ashish Acharya]

@David Kimuge Thanks for sharing your story, David—you're already doing the right thing by getting educated and surrounding yourself with good resources. Since you're diving into flipping in the DFW area and looking to do multiple deals this year, learning how creative financing works and how it's taxed is key to maximizing your returns. Let me walk you through it like I would if we were sitting down over coffee:

First, yes—you absolutely can fund flips without going the traditional route, especially if cash is tight. Many new investors scale using one or more of these:

• Hard Money Loans: These are fast, asset-based loans with higher interest rates and shorter terms. They’re great for flips because you can close quickly, and all the interest and fees you pay are deductible as business expenses come tax time.
• Private Money: This could be friends, family, or local investors who want to earn a return. You’ll negotiate your own terms. If they fund the deal and you handle the work, it’s best to set up a formal agreement. From a tax standpoint, they’ll report interest as income, and you'll deduct it just like hard money.
• Equity Partnerships: Let’s say someone fronts the money and you bring the sweat equity—contractors, permits, staging, etc. You’d split the profits however you agree. For taxes, you'd typically report income through a partnership return (Form 1065), and each of you gets a K-1. Just remember this is all taxed as ordinary active income (not capital gains).
• Seller Financing: Sometimes the seller is willing to carry the note. That means you avoid banks and set your own terms. You’ll deduct interest paid as a business expense, but like all flips, the profit gets taxed as active income when you sell.
• Subject-To Financing: You take over the seller’s mortgage payments without formally assuming the loan. It’s a creative strategy that can work well if you’re flipping quickly. Tax-wise, you still deduct interest and costs tied to the project.

One important note: since flip profits are considered active income, they’re subject to your normal income tax rate plus self-employment tax (15.3%). That can really eat into your profits. If you plan on doing multiple flips, setting up an S Corp might save you thousands by letting you split income into salary (taxed) and distributions (not subject to self-employment tax).

If you're funding part of the deal with a HELOC or personal line of credit, any interest is also deductible but only if that money goes toward the business (materials, rehab, etc.), not for personal use.

You’re in a great market and taking all the right steps. Feel free to reach out if you want help structuring your first deal or choosing the right entity setup. We also have flip analyzer if you want. Good luck locking in your first flip.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.