What Breaks a Flip Faster — Rehab Surprises or Financing Structure?

Question

For active flippers, which has caused more issues on recent projects: unexpected construction costs or financing that didn’t match the timeline? Would love to hear lessons learned.

Bo Smith · Answer

Financing timeline mismatches hurt way more than construction surprises. Learned this the hard way when my hard money lender promised 21 days but took 45 - ate $3,200 in extra carrying costs on a deal with thin margins. Now I automatically add their timeline + 50% to my holding cost calculations before I even submit an offer. Do you factor lender delays into your initial numbers or trust their promised timelines?

Scott Chilton · Answer

In my experience, both can hurt a deal, but financing that does not line up with the timeline usually causes more damage. Extra repair costs are frustrating, but you can often adjust finishes, renegotiate with contractors, or add a little more cash. Time problems with money are harder to fix because the clock never stops. Every extra week adds interest, taxes, insurance, and stress.

I have seen good flips turn into average ones just because the loan took longer than expected or the lender changed terms midstream. That is why I always push to match the funding to the plan before buying. If the project is a three month rehab, make sure the money comfortably covers four or five months.

The big takeaway is control. You make more profit by controlling time than by squeezing every dollar out of the budget. When your financing gives you breathing room, you can handle surprises without panicking and finish the project strong.

Frank Pyle · Answer

Biggest flip killers right now are rehab surprises, timeline slip, and financing terms that don’t flex when the project runs long. The sneaky one is timeline because it makes the other two worse fast, a 30 to 60 day delay stacks interest, utilities, insurance, and extensions until the spread is gone.

If you want to sanity check any deal, run rent or ARV based profit minus PITI or carry, minus utilities, minus 8 to 10 percent contingency, then see what two extra months does to the number. What market are you flipping in and what are your typical hard money terms and average days over schedule?

Andy Sabisch · Answer

We tend to build in a reserve cushion for unexpected expenses and overestimate the timeline to avoid carrying cost surprises. Those that don't tend to be shocked when the deal does not turn out the way it was expected to.

Kenneth Garrett · Answer

@Tracy Thielman

Hi Tracy, unfortunately the answer it depends on the severity of the issue.

There are two parts to the financing aspect:

1. The ARV/appraised value came out lower than expected thereby causing greater funds to be stuck in the deal provided you have the funds.

2. The rehab took longer to do than expected and your hard money lender and or private lender has a penalty clause where the interest rate may increase if you didn’t meet a deadline or extra points are charged. No matter how you look at it, it is costing you money.

On the rehab part there are unfortunately many times a surprise comes up. This is why it is stressed to have a contingency fund in your budget, but do you have enough? 10%-15% seems reasonable depending on the extent of the work. If you encounter a structural issue you did not anticipate as an example and the repair is $10K. $10K of a $50K rehab is only $5000-$7500 on a 10%-15% contingency fund.

I had a project where we opened a wall up and found the electrical was in terrible condition. Had to rewire the entire house as it was a hazard. That gobbled up our contingency fund. That didn’t mean other things didn’t need to addressed. You need additional access to funds for the enviable unavoidable or we need to do a better job evaluating investments.

Always be prepared!!!

What Breaks a Flip Faster — Rehab Surprises or Financing Structure?

What Breaks a Flip Faster — Rehab Surprises or Financing Structure?

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