Looking for insight and guidance for flip funding

New to Real Estate · Lincoln, NE · Member since 2026 · 3 posts · 2 votes

Transitioning from wholesaling into fix-and-flipping and fix-and-holding, and trying to better understand gap funding. Has anyone successfully used a gap funder or secondary private lender to cover the down payment on either a hard money loan or DSCR loan, plus closing costs and a few months of carrying costs? Looking to structure deals with zero out of pocket. How did you find your gap funder? How was it structured (interest rate, terms, lien position), and did your primary lender have any issues with it? Any lenders or resources you'd recommend for someone doing their first few flips/holds in the Midwest?

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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

5mo

Your best bet is to have an equity partner.
but to be clear - a property that is a DSCR loan and finance the down payment will not cash flow and you will be underwater every month and it will be an awful investment

a fix and flip property possibly could work but if you run into any delays and you need to still make all your payments monthly it could work but again very difficult to do.

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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
5mo
Your best bet is to have an equity partner.
but to be clear - a property that is a DSCR loan and finance the down payment will not cash flow and you will be underwater every month and it will be an awful investment

a fix and flip property possibly could work but if you run into any delays and you need to still make all your payments monthly it could work but again very difficult to do.
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Bryce Fairburn
Lender · Lake City, MI · Member since 2019 · 118 posts · 42 votes
5mo
Hey Tyler

there are a few different ways you could structure your deals. One example is "hard money to purchase and renovate with an interest only payment" then refinance into a long term mortgage.

I try to get my clients every other form of financing before I go to DSCR because the rates and fees are typically higher. I use DSCR when I can't get anything else
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- TYLER J WARNER
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  New to Real Estate · Lincoln, NE · Member since 2026 · 3 posts · 2 votes
  5mo
  Quote from @Bryce Fairburn:
  
  Hey Tyler
  
  there are a few different ways you could structure your deals. One example is "hard money to purchase and renovate with an interest only payment" then refinance into a long term mortgage.
  
  I try to get my clients every other form of financing before I go to DSCR because the rates and fees are typically higher. I use DSCR when I can't get anything else
  
  I would love to learn more about this and the way you structure these.
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Richard Golding
Contractor · NYC/Los Angeles · Member since 2019 · 91 posts · 55 votes
5mo
The idea of stacking a secondary private gap lender behind a hard money or DSCR loan to hit zero out of pocket is a massive operational risk that most primary institutional lenders will block the second it hits underwriting.

A primary lender wants to see your own skin in the game. When they run title and review the closing disclosures they explicitly look for unapproved secondary liens. If you try to slip a private gap loan behind them without disclosure it constitutes mortgage fraud. If you do disclose it the primary lender will almost always slash their leverage or outright kill the file because your debt service coverage ratio cannot support two compounding interest payments.

The only clean way to execute a zero down structure is through a true equity joint venture partner rather than a gap lender. You bring the boots on the ground wholesale tracking skills and the daily project management. Your partner brings the balance sheet to fund the down payment closing costs and carrying reserves. You form a brand new entity where they hold a preferred equity position until their capital is returned and then you split the backend upside.

If you want to transition successfully in the Midwest stop chasing 100 percent leverage through creative debt stacks. Focus on building a clean local track record with a joint venture partner who values your deal flow or keep wholesaling until you can comfortably fund a standard 20 percent down payment solo.
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Denise WebsterBusiness Member
Financial Advisor · Albuquerque, NM · Member since 2014 · 83 posts · 30 votes
5mo
Tyler, good question — and this is where I’d be careful separating “possible” from “safe.”

Gap funding can exist, but when it is being used to cover down payment, closing costs, and carry costs, the deal has to be very strong because you are layering risk on top of risk. The primary lender may also care whether there is a second lien, outside private capital, borrowed down payment funds, or an equity partner involved.

For a first few flips/holds, I would look at the structure in this order:

(1) Purchase price vs. conservative ARV

(2) Rehab budget with real contractor numbers

(3) Carry costs if the project runs 30–90 days longer than expected

(4) Exit strategy — resale, DSCR refinance, or hold

(5) Whether the DSCR refinance would still work after taxes, insurance, vacancy, management, and realistic rent

(6) How much cash you would need if the gap lender or hard money lender does not fund exactly as expected

Zero out-of-pocket sounds attractive, but it can also create a deal where one delay wipes out the profit. If the numbers still work after conservative stress-testing, then you may have something worth presenting. If the deal only works when everything goes perfectly, I’d treat that as a warning sign.
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Matthew Paul
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
5mo
All this creative financing , gap lenders , DSCR loans etc . Its not investing , its gambling in my opinion. Tyler wants to fix and flip houses , thats great . Not having done it before , not knowing contractor costs , or having any connections with the trades . Just 1 small screw up , time delay , permit problem , and its all over and done .
I have seen too many newbees lose their backside , thinking they can do a flip in a couple months , and then things go wrong .
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Mike Klarman
Specialist · NJ · Member since 2022 · 1k+ posts · 663 votes
5mo
What you want is 100% financing with payments rolled in.
That's a pro structure. You need a track record of exits in reasonable time frames to prove the money is used and returned within 6 - 9 months. True private lenders do not want to go a full 12 months or beyond really. They'd like their capital back before that.
You need to be an expert in finding margin heavy deals in order to attract the money.
Fix and Flip strategy is suffering all around the country. Exits are not happening in the time or at the number they were forecasted to be.
I've seen enough to know that if you are plucking a property off MLS or through a New Western type, YOU ARE GAMBLING and you will probably lose.
Properties must be sourced at the discount windows for cash. You are holding a 100k asset for 65k. That 35% discount means everything. It's room for error in numbers and time which is what you want.
You also need to learn how to GC your own projects. Build a list of the trades needed and you hire, fire, and hold the money.
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