Should I have extra cash on hand when flipping? (outside of a hard money loan)

Member since 2026 · 4 posts · 7 votes

The more I learn about flipping, the more I realize how many unexpected problems and costs can arise during a flip

Which makes me wonder.... should I have a couple extra thousand in reserve when flipping in case my hard money loan does not cover all costs?

I feel like id be screwed if there was a major foundation issue, plumbing, etc. and my hard money loan couldn't cover the repair costs.

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Jay TolugantiPro Member
Investor · Clearwater, FL · Member since 2025 · 226 posts · 79 votes
5mo
This is the same dilema I had when I started flipping. You need to think like investor and assemble yoir team of experts. A good experienced contractor will be able to figure it out. So, before I started analyzing deals, I spoke to couple of investors at our local REIA about an investor friendly contractor. Spoke to him, checked out couple of his projects and called his referrals. Once I felt good about him and his work, i asked for his napkin number based on size of the house. So, whenever I get a lead, I check the subject property and the neighborhood, condition, and determine ARV based on recent sales. Once I get the number, I check how close is the wholesaler number to 70% rule using contractor napkin number. If its close, I will ask contractor to check pics and tell me the number. Once under contract, my contractor will walk the property before closing.
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J CastroBusiness Member
Lender · Florida · Member since 2025 · 698 posts · 253 votes
5mo
Hi @Cameron Jones, welcome to BP!
Short answer: yes—100%. You should always have reserves outside your hard money loan.

Hard money typically won’t cover everything (overruns, change orders, holding costs, delays), and those surprises are common, not rare.

A good rule of thumb:
- 10–15% contingency of your rehab budget
- Plus a few months of holding costs (interest, taxes, insurance)
So if your rehab is $50K, you should realistically have an extra $5K–$10K+ set aside.

Big issues (foundation, plumbing, etc.) are exactly why this matters—without reserves, even a solid deal can turn into a problem fast.
Reserves aren’t optional in flipping—they’re what keep you in the deal when things don’t go as planned. Best of luck!
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Cameron Jones
Member since 2019 · 17 posts · 4 votes
5mo
Thank you J, that is helpful
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Cody Waller
Flipper/Rehabber · San Antonio, TX · Member since 2026 · 20 posts · 19 votes
5mo
Your HML isn't covering 100% of the deal. Most hard money is 80-85% of purchase plus rehab draws released after the work is done. So day one you're out of pocket for the down payment, closing costs, and enough cash to float the work until your first draw comes through.

On my deals I'm usually 45-55K out of pocket before I see a draw check. That's before a single wall gets opened up. If you don't have that sitting in your account the deal stalls even with a fully approved loan.

On top of that I keep a contingency and on older houses it's usually half burned by the time demo is done. Galvanized pipe, panel swap, stuff you couldn't see from the walkthrough. The lender isn't giving you more money because the scope changed. You eat that yourself.

You mentioned foundation and plumbing. I stopped touching foundation deals a few years back because the real number never matches the estimate. If you're on your first flip stick to cosmetic scopes where the unknowns are manageable.
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Peter MckernanBusiness Member
Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
5mo
This is something you need in investing, you need to have reserves incase something goes really bad. Think of investing, especially active investing like you are looking at now as a business. Businesses need owner contributions in good times and bad times. Or they need to raise capital to get that money to keep the reserves up, or start a project and keep it going. You need to have this when you are actively flipping. There are a lot of times that you run into a change order issue which leads to infusion of money to that, and then you have no money for the hard money payment etc.
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Evan Polaski
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
5mo
@Cameron Jones, yes and yes. Each deal will be unique, but honestly a few thousand dollars doesn't go very far at all.
The more you can inspect and the more you can account for. I both live and invest in older homes, but newer ones have their own issues too.
I.e. you are refinishing floors and/or replacing drywall. Contractor doesn't cover HVAC returns, and runs fan. You could be buying a new HVAC, or at least replacing a motor to the tune of about $1000.
Your drywaller misses a stud and puts a screw through a drain line. In sale inspection, the inspector fills tubs to test drainage and leaks. Drywall gets wet. Opening wall, replacing broken section of plumbing, replacing drywall, painting, etc: could run you a couple grand.
And the big one: sewer line fails from house to road: $20k.
Don't pull permits: neighbor calls because they keep seeing all the vans in the driveway. You are already tiling that new tub surround. Inspector requires you to pull off tile and cement board to inspect the shower valve install. $5k+ of work.
All of these have happened to me or close friends. Clearly some are avoidable, i.e. pull permits and get your inspections, but the take away is, yes. Have more reserves than you think you need. (and let me know if you get into a deal without enough cash to finish. I will happily buy out the loan balance for a good flip :) )
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Cameron Jones
Member since 2019 · 17 posts · 4 votes
5mo
Thank you for the insight Evan, I’m glad I didn’t jump into a flip with no money in reserve

And I’ll certainly keep you in mind
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- Scott WolfPro Member
  Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 958 votes
  5mo
  Quote from @Cameron Jones:
  
  Thank you for the insight Evan, I’m glad I didn’t jump into a flip with no money in reserve
  
  And I’ll certainly keep you in mind
  
  Lots of good answers here. A lot of lenders (us included), make borrowers have at least 3 months of payments as well as 10% of the budget as reserves. But issues always arise, so definitely worth having more.
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Cameron Jones
Member since 2019 · 17 posts · 4 votes
5mo
Very interesting,

let me make sure I’ve grasped this. If I’m asking for a 50k loan, the lender would expect me to have 5k?
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- Ken M.
  Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
  5mo
  Quote from @Cameron Jones:
  
  Very interesting,
  
  let me make sure I’ve grasped this. If I’m asking for a 50k loan, the lender would expect me to have 5k?
  No, that is not quite right. The lender typically would expect you to have $10,000 (20%) and any typical closing costs, admin fees, and other fees
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Frank PyleBusiness Member
Specialist · USA · Member since 2024 · 279 posts · 130 votes
5mo
Yes, you should have extra cash on hand because hard money usually gets you through the plan you started with, not the problems you discover after demo. On a flip, a couple thousand is usually too light if you hit foundation, sewer, electrical, or permit delays, so I would want a real contingency plus holding cost reserves before closing. A simple check is rehab budget plus 10 to 15 percent contingency, then make sure you can also cover at least 3 to 6 months of payments, utilities, insurance, and random change orders without depending on the sale to bail you out. The easiest step you can take today is build your deal around the worst case budget, not the clean walkthrough budget, because flips get tight fast when both rehab and timeline slip at the same time. The deal is not really safe unless you can survive the surprise and still make a profit.

What price, rehab budget, and expected ARV are you working with?

If you want, send the numbers and I can do a quick underwriting style check on the cushion you really need.
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Matthew Bernal
Investor · Austin, TX · Member since 2021 · 497 posts · 127 votes
5mo
Yes — always have reserves. This is one of the most important lessons in flipping and you're smart to be thinking about it before the first deal.

Hard money loans cover the approved scope — what's in the original rehab budget. Foundation issues, hidden plumbing, or anything discovered mid-construction that wasn't in the initial scope isn't automatically covered. That gap is where unprepared investors get stuck.

Most experienced flippers keep 10-15% of total project cost as a contingency reserve. On a $50K rehab that's $5K-$7.5K sitting in your account untouched until you need it.

Some hard money lenders also build a contingency line into the loan itself — worth asking about when you're comparing programs. Not all do but the good ones understand that surprises happen.

I work with fix and flip investors on hard money financing. Happy to walk you through how the draw structure and contingency piece works on a real deal.

Do you have a specific property you're evaluating or still in the learning phase?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
5mo
Real estate is a capital intensive bizz especially flipping.. under capitalized business's incluing RE and many other bizzness's are the reason you have business failure. Just like syndication of apartments and all the melt downs we are seeing undercapitalized and bad debt.
so if your using a traditional HML that is going to stick to the NOTE terms verbatim then yes you need back up cash for sure..
In my case were we are a capital partner thats the value add we bring when an ut oh happens we work it out :)
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Joel Miller
Member since 2011 · 152 posts · 113 votes
5mo
Speaking as a long-time hard money lender who typically lends 100% of the purchase price and 100% of the rehab costs (which are paid out in draws), yes you must have some capital reserves as you enter a flip or keeper rental project. However, I would add that I occasionally do a loan modification if the borrower is running short on funds toward the end of the project. In this case, the original note/mortgage is modified to reflect that we have lent more money to the borrower that is secured by the original property. Our mortgage stays in first position...it's just modified. Typically the project is well along at this point, and the property value is there to justify the higher loan amount. So, I point this out because it's worth asking your HML about.
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- Jay HinrichsBusiness Member
  Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
  5mo
  Quote from @Joel Miller:
  
  Speaking as a long-time hard money lender who typically lends 100% of the purchase price and 100% of the rehab costs (which are paid out in draws), yes you must have some capital reserves as you enter a flip or keeper rental project. However, I would add that I occasionally do a loan modification if the borrower is running short on funds toward the end of the project. In this case, the original note/mortgage is modified to reflect that we have lent more money to the borrower that is secured by the original property. Our mortgage stays in first position...it's just modified. Typically the project is well along at this point, and the property value is there to justify the higher loan amount. So, I point this out because it's worth asking your HML about.
  
  thats the voice of reason in HML but many folks that use brokers who then use lenders who then sell to wall st. hedge funds one may or may not have the same flexibility as those of us that control our own funds 100%.. Bottom line.
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Joel Miller
Member since 2011 · 152 posts · 113 votes
5mo
That's why it's so important to get to know your local friendly hard money lenders.
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Irene Hunter
Real Estate Agent · Philadelphia Metro Area · Member since 2026 · 3 posts · 2 votes
5mo
Absolutely have a contingency fund outside of your renovation loan. Whether its cash or a line of credit for unforeseen issues, and holding costs. A few tips I learned early on was always over estimate the renovation costs, and expect the budget to be more than expected. Older homes in our market have very specific problems. Get familiar with the properties in your area, the the materials when the property was first built and what materials that are present when you purchase. When you first start out opt in for inspections or have an inspector walk through with you if you're worried about remaining competitive when touring potential projects.
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Arman AhmedPro Member
Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 940 votes
5mo
Quote from @Cameron Jones:

The more I learn about flipping, the more I realize how many unexpected problems and costs can arise during a flip
Which makes me wonder.... should I have a couple extra thousand in reserve when flipping in case my hard money loan does not cover all costs?
I feel like id be screwed if there was a major foundation issue, plumbing, etc. and my hard money loan couldn't cover the repair costs.

Yes, having extra cash on hand is not just helpful, it’s basically part of doing flips responsibly. Hard money lenders are great for leverage, but they rarely cover true surprises like structural, plumbing, or foundation issues, and those are exactly what can kill a deal if you’re fully stretched. Most experienced flippers keep a contingency reserve baked into every project budget instead of hoping nothing goes wrong. That margin is what separates a stressful flip from a controlled one. A lot of newer investors also start in Midwest markets, where acquisition prices are lower, so even with a reserve cushion, the deal still works mathematically if something unexpected pops up.
[email protected]614-418-6081
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Bo SmithPro Member
Hinton, WV · Member since 2026 · 1k+ posts · 373 votes
5mo
Cameron, the short answer is yes, but I'd actually flip your question around a bit. You shouldn't be asking if you should have reserves -- you should be asking if the deal works WITHOUT reserves. If your hard money loan plus your own cash doesn't cover everything, then your deal math is broken.
Here's what I see happen: investors get excited about an ARV, build a rehab estimate that's too lean, then pray nothing goes wrong. A deal that requires a safety net is a deal that's too close to the edge. When you're analyzing a flip, assume 15-20% cost overrun on labor and materials. Assume you'll hold for an extra month or two. Build all of that INTO the deal before you buy. If it still works and still makes your profit target, then you're golden. If it doesn't, pass and find something with tighter mechanics.
That said, I do keep cash on the sidelines -- but I use it for opportunity, not survival. It's for the next deal or fixing problems faster. Not for saving a bad flip. What's your current approach to estimating rehab costs -- are you using comps from completed projects in your area, or are you starting from scratch on each deal?
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Cameron Jones
Member since 2019 · 17 posts · 4 votes
5mo
Thank you matt,
Still in the learning phases, I will save your # when I find a deal

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Lipa F.
Investor · Member since 2024 · 79 posts · 31 votes
5mo
One of the most important things by flipping is cash reserves
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Crystal SmithPro Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
5mo
Quote from @Cameron Jones:

The more I learn about flipping, the more I realize how many unexpected problems and costs can arise during a flip
Which makes me wonder.... should I have a couple extra thousand in reserve when flipping in case my hard money loan does not cover all costs?
I feel like id be screwed if there was a major foundation issue, plumbing, etc. and my hard money loan couldn't cover the repair costs.

You should have reserve cash on hand when owning any real estate. Whether that be flipping, or renting.
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Masoud ArouniPro Member
Investor · Pleasanton, CA · Member since 2026 · 119 posts · 52 votes
5mo
@Cameron Jones, great question and you're thinking about it the right way. One thing nobody has addressed here is that you're in OC Ca, which changes every number in this conversation.

The 10-15% contingency rule is a national average built on Texas and Midwest labor markets. In OC, skilled trades run 30-40% above national rates. A 50K rehab scope in Cincinnati is a 70-75K scope in OC before a single surprise shows up. Your contingency needs to reflect that reality, not a generic rule of thumb.

Holding costs hit differently in Ca too. Hard money in today's market is running 10-12% annualized. On a 300K loan, which is not unusual for an OC flip — that is 2,500-3,000/m in interest alone before you add property taxes, insurance, and utilities. Ca permit timelines routinely to add 60-90 days to a project that would close in 30 days in another state. Every month of delay that you did not budget for is real money bleeding out.

The permit piece is the one that kills OC flippers quietly. One unpermitted item discovered during buyer inspection can collapse escrow or force you to open walls you already finished. That is not a 5K problem. That is a 20-30K problem plus another 60 days on your hold.

For a first flip in OC the honest minimum liquid reserve outside your hard money loan might be 40-60K sitting in your account untouched before you close. Not to spend and to survive the surprises that are not optional in this market.

The good news is OC ARVs support the math if you buy right. The trap is underestimating what "buying right" actually means in this zip code.

What price range and ARV are you working with?

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William Rizer
Member since 2023 · 79 posts · 27 votes
5mo
Don't forget payroll! How are you planning on paying your workers?
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Alfath AhmedBusiness Member
Real Estate Agent · Columbus, OH · Member since 2022 · 1k+ posts · 1k+ votes
5mo
Quote from @Cameron Jones:

The more I learn about flipping, the more I realize how many unexpected problems and costs can arise during a flip
Which makes me wonder.... should I have a couple extra thousand in reserve when flipping in case my hard money loan does not cover all costs?
I feel like id be screwed if there was a major foundation issue, plumbing, etc. and my hard money loan couldn't cover the repair costs.

You just really need to make sure you stay close to budget as possible. Buy low and make your systems efficient enough that you can keep the ball rolling even through problems. Make sure to understand SOW and hire a project manager to look over contractors + materials.
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Richard Golding
Contractor · NYC/Los Angeles · Member since 2019 · 91 posts · 54 votes
5mo
Yes. I would want cash outside the loan, even if the lender funds purchase and rehab. The issue is timing and surprises. Hard-money draws usually reimburse after work is completed and inspected. That means you may need to front labor, materials, deposits, permits, utilities, and emergency fixes before the draw comes back.

Also, not every cost fits cleanly into the lender’s rehab budget. Change orders, uncovered repairs, theft/damage, utility deposits, insurance, taxes, extra holding time, price reductions, seller credits, and punch-list items can all require cash. If you are tight on liquidity, one surprise can force bad decisions.

I would build reserves in layers: project contingency inside the rehab budget, cash for draw timing, and separate cash for holding/selling costs. For a first flip, I would rather have too much cushion than rely on everything going perfectly.

The exact amount depends on project size and risk. A cosmetic job with newer systems needs less cushion than a heavy rehab with old plumbing, roof, foundation, or unknown permits. But if the deal only works because you have no cash reserve, it is probably too thin.
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Alyssa MarquezBusiness Member
Real Estate Agent · San Antonio TX / Fort Lauderdale, FL · Member since 2023 · 120 posts · 29 votes
2mo
Certainly! I would never even consider flip one without the full price and rehab costs being already fully leveraged. There might just be an unforeseen crack in foundation or issue with the water system or structure that takes cash.

I’ll keep one side funds around 10%-20% funds (if project takes too long, it is even better if they are enough to hold costs) from total rehabilitation costs and some money liquid to cover any future cost exceeds, so not a single expense surprises you by borrowing an exorbitant amount of money.

I’ll be sure I do with your mortgage company during the closing day, all what would happen if prices to go over planned rehab.
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Should I have extra cash on hand when flipping? (outside of a hard money loan)

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