How Do You Structure Financing?

Question

When evaluating a fix & flip, how do you determine what financing structure makes the most sense?

Do you start with:

Purchase price → Rehab → ARV → Financing

or do you establish your financing parameters before looking seriously at properties?

What's your preferred approach?

Erik Estrada · Answer

I agree with this structure: ARV → Rehab → Purchase Price → Financing

I would also add credit and experience, but that could be a sub-category for financing

Mark Updegraff · Answer

@Linda Murray I think you need to understand your financing limitations before seriously pursuing deals, but I wouldn’t let financing determine whether something is a good investment.

From the investor and GC side, one area I’d pay particularly close attention to is how the money actually moves during construction.

A lender offering attractive leverage doesn’t necessarily mean the project will be adequately funded throughout the rehab.

When are draws released? What inspections are required? How long does reimbursement take? What deposits do contractors need? How much cash remains available if the scope changes or the project runs behind schedule?

I want the acquisition to make economic sense independently, and then I want a financing structure that allows the construction plan to execute without creating unnecessary liquidity problems.

A good deal can be damaged by poorly structured financing. Better financing doesn’t turn a bad deal into a good one.

Ashish Acharya · Answer

Linda, I’d start with the property economics and work backward into the financing rather than choosing the financing structure first.

I’d want to know the purchase price, realistic rehab budget, ARV, holding period, financing costs, selling costs, and the minimum profit margin I need. Then I’d compare financing options based on how much cash is required, total cost of capital, and how the financing affects the exit. I’d also stress test the deal. If the rehab runs over budget or the ARV comes in below expectations, the financing structure that looked best initially may not be the best one anymore.

There is a tax piece I’d include from the beginning as well. If you are regularly flipping properties, the tax treatment can be very different from holding rental real estate. I’d model the expected after tax profit and, depending on the volume and facts of the business, evaluate whether an S Corp structure is worth considering for the active flip business.

So for me it is really purchase price -> rehab -> realistic ARV -> total project costs -> financing -> after tax profit.

Divin Kanyama · Answer

@Linda Murray I prefer to establish the financing guardrails first, then underwrite each property using its actual purchase price, rehab budget, ARV, holding period, and exit costs. Knowing the likely leverage, interest rate, points, draw process, required cash, and lender timeline prevents wasting time on deals that cannot realistically be funded.

That said, financing should not make a weak deal look acceptable. Once a property is identified, I would underwrite it independently of the loan first, build in conservative rehab and holding-cost contingencies, and then compare financing options based on total cost and execution risk—not just the headline rate.

So the sequence is really: define the buy box and financing limits, underwrite the property, then select the structure that protects margin and keeps enough liquidity for surprises. The best loan is not always the cheapest one; it is the one that allows the project to close, fund smoothly, and still produce an acceptable return if the rehab or resale takes longer than expected.

Dan Duenas · Answer

Linda — flip the order. Financing first, then the deal box, then offers.

Every hard money lender has a box, and it's usually something like 90% of purchase price plus 100% of rehab, capped at 65–75% of ARV, interest-only payments. If you know those three numbers before you analyze a single property, you can work backwards: max purchase price = (ARV × max LTV − rehab) ÷ 0.90. Anything listed above that number isn't your deal, no matter how pretty the ARV looks.

The mistake I see new flippers make is finding the property first and then shopping for a loan to fit it — that's how you end up force-fitting numbers, or discovering at the closing table that the lender's ARV cap kills the deal. Establish the financing parameters once, then every property either fits the box or it doesn't. Takes the emotion out of it.

And build the exit into the front end: if you're planning to BRRRR instead of sell, make sure your takeout loan (usually DSCR) has no seasoning requirement — mine doesn't — or your capital sits trapped for 6 months after the rehab. Happy to walk through the math on a live deal — Dan

AJ Exner · Answer

Was actually just talking with someone about this.

I think it is really helpful to do it this way:ARV → Rehab → Purchase Price → Financing

It helps to have a good margin in mind and focus on what you can do and what kind of room you have on the negotiation on the purchase

My last project, I knew the market and that particular neighborhood caps ARV at around $280k-$290k, so when a deal came along I had an idea on what it would sell for, thought about the rehab cost, and then based my negotiations on where it needed to be to get the margins I needed.

It can also help me shape the type of financing that I am looking for and the type of leverage I would need to make things work. If there is margin on the back end, then I might be willing to leverage a little more on the front if I know I can get out and exit quickly to reduce my holding costs.

How Do You Structure Financing?

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