Rehab style lenders that do NOT care about the spread a seller earns
Rob BeemanPro Member
Specialist · Philadelphia, PA · Member since 2010 · 305 posts · 119 votesRehab style lenders that do NOT care about the spread a seller earns
10 Replies
- 15hDevin PetersonBusiness MemberLender · Sarasota, FL · Member since 2022 · 2k+ posts · 679 votes
Rob, it can feel like a penalty, but it's mostly about how the lender sizes risk. Most rehab/HML lenders lend against a % of purchase price (or purchase + rehab) and a % of ARV, whichever is lower. The purchase price on the contract is what they treat as the borrower's real basis. When an assignment or double close shows a big markup over what the original seller is getting, they worry about a few things: an inflated price pushing the loan past what the property supports, the borrower having little real skin in the game, and in the worst cases fraud or straw-type deals. A cap on the spread is just a simple way to screen for that.
A higher price can still work when the numbers support it. A strong ARV with solid comps, lower leverage so the buyer is putting more cash in, or a lender that sizes mostly off ARV and the as-is value instead of contract price. Some lenders will also look at a recent appraisal rather than the contract. Your $300K to $400K example with a $750K flip is a pretty healthy ARV, so it may well pencil, just not with every lender.
As for who, I'd ask each lender directly how they treat assignment fees and whether they size off contract price or as-is/ARV, because it varies a lot by lender and by state. Having the flipper's comps and scope ready up front helps too.
ProAlpha Capital55 Reviews Adding the practical side, since the why is covered above. In most cases the cap doesn't kill the deal, it just limits how much of the fee gets financed. The flipper brings the difference in cash, so on your example the question is really whether your buyer has the extra liquidity, not whether the deal works.
A few things that make these files go smoother from the wholesaler's end. Put the original contract and the assignment in the file up front so nobody feels like something was hidden. Have comps that support the as-is value near your assigned price, not just the ARV, because when the as-is value backs up the $400K, a lot of the spread concern goes away. And ask the buyer's lender early whether they size off purchase price or as-is value, since that answer decides how much cash your buyer needs at closing.
Full disclosure, I'm a lender, and the deals with a big spread that close fine are almost always the ones where the as-is value was documented before the buyer applied.
- 13hNoah WrightBusiness MemberUSA, Nationwide · Member since 2024 · 353 posts · 126 votes
You're not wrong that negotiating the $300K price took real work, and the cap isn't a judgment on that. Plenty of bridge and fix and flip lenders sell their loans to larger capital partners after closing. When they do, the spread cap comes from that buyer's guidelines, and the lender has to match it to sell the loan. That's why asking a loan officer for an exception rarely gets anywhere. The lenders with room to bend are usually private lenders putting out their own money and keeping the loan on their books. They tend to be local and lend in one state or a handful, so where the property sits matters more than any national list. What state is this deal in?
- Lender · Houston, TX · Member since 2026 · 113 posts · 34 votes12h
Rob, you spelled out that spread-cap problem better than most people ever do, and it really does punish the person who negotiated well. One tip: when you ask a rehab lender about their purchase-price LTV, also ask whether they underwrite to the flipper's contract price or to a separate ARV and cost stack, because that is usually where the silent cap shows up. This is what I do every day, and I work with a network of hard money and rehab lenders too, so if I'm not the right fit I'll connect you with someone who is. Shoot me a message with the states you work in and a sample purchase and ARV, and I'll point you to lenders who won't ding you for a strong negotiated price.
- 12hJames JonesPro MemberInvestor · Collierville, TN 38017 · Member since 2017 · 1k+ posts · 677 votes
As a buy-and-hold buyer, I look at it from the exit, not the flip. I buy single-family BRRRR houses in Memphis under $100K, rehab to an ARV of $180K-$265K, and refinance with DSCR at 70-80% LTV once rented at $1,395-$1,950 for a 3BR+ on Section 8.
If the wholesaler's spread pushes the purchase price up, my refi math breaks the same way the flipper's lender math does - the ARV does not move just because the contract price did. The numbers that matter are purchase price, rehab cost, ARV with comps, and rent. If those work, the spread is the wholesaler's business. If they do not, no lender should fund it.
Ask the lender up front: do you size off contract price or ARV? If they cannot answer in one sentence, move on.
What market are you buying in?
- 11hDivin KanyamaBusiness MemberAccountant · Seattle, WA · Member since 2025 · 671 posts · 283 votes
I get the frustration, @Rob Beeman. From an investor’s perspective, I’d care more about whether the buyer still has a solid deal after acquisition, rehab, financing, and selling costs than what the wholesaler earns. But I’d separate limiting someone’s profit from limiting how much of that profit a lender will finance. A lender may see a large assignment fee as a reason to question the buyer’s basis or require more cash—not necessarily as a judgment about what the wholesaler deserves. I’d ask whether the issue is a hard fee cap, the accepted property value, or the amount they’ll advance. Those are different obstacles.
I’d get the assignment-fee policy clarified upfront, including whether the buyer can cover any funding gap and whether an exception is possible when the deal supports it. To me, the useful question is whether the buyer has enough margin and cash to complete the project—not whether the wholesaler negotiated too well.
- Lender · Franklin, TN · Member since 2026 · 127 posts · 36 votes10h
From the lender side it's mostly about what the real basis is. If the underlying contract is 300k and the flipper is paying 400k, the lender sees 100k of the purchase price that isn't backed by anything they can verify yet, so they cap it to keep their loan-to-cost honest. Lenders that lean on an as-is appraisal rather than just contract price tend to be more flexible about the fee, and some deals get done with a double close instead of an assignment so the end buyer's lender just sees a normal purchase. Worth asking each lender up front how they size the purchase portion before you bring them a deal.
- 9hLogan LambertPro MemberMember since 2026 · 16 posts · 8 votes
Rob, I think a lot of this comes down to risk management and how lenders and their end note buyers underwrite these transactions. It’s not necessarily about punishing an investor for negotiating a great deal.
One of the biggest concerns is inflated purchase prices and potential fraud. When a property goes under contract for $300K and is immediately being sold for $400K, lenders want to make sure that additional $100K is supported by the property’s actual value and not simply an inflated transaction. That’s why some outlets have specific guidelines limiting how much of that spread they’re willing to finance.
But another important thing to understand is that this doesn’t necessarily kill the deal. In many cases, it just limits how much the lender is willing to finance. If the lender won’t recognize the entire spread, the investor may still be able to close by bringing the difference out of pocket, assuming the rest of the deal meets underwriting requirements.
I do have lending outlets that don’t impose those same spread caps, and I also lend private money locally here in Maryland, where we have more flexibility with these types of transactions.
Ultimately, I think it’s less about restricting someone’s ability to make money and more about how the lender manages its exposure and satisfies the guidelines of whoever is ultimately purchasing or holding that loan. Every outlet is different, which is why finding the right financing partner matters.
- Lender · Philadelphia, PA · Member since 2024 · 55 posts · 16 votes9h
Hi Rob, the spread issue comes up a lot on double close and assignment style deals because many rehab lenders cap the seller spread and also look at the full chain of title and the assignment fee. Some portfolio and private rehab lenders will underwrite mainly to the final purchase price, the rehab budget, and the ARV, so on a $400K purchase with $100K in and a $750K ARV the leverage can still work if the appraisal supports it. Experience, reserves, and a clean exit plan matter a lot on those. We are Royal Partners and we arrange hard money and fix and flip financing through our lender network. If you want, DM us the property state, purchase price, rehab budget, and ARV and we will give you straight numbers on which lenders would look at it without a hard spread cap.
- 7hErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Hey Rob,
There are some ways around this. The MAIN issue is financing the wholesaler's fee. Most investors do not pay the fee at closing, rather they finance the entire wholesaler purchase price and the wholesaler is paid out from the proceeds at close of escrow. If the end investor is OK with paying the wholesaler fee outside of closing or putting more cash down (difference between original sales price + your fee) then you will not run into this issue.
I disagree that it is penalizing a wholesaler from finding deals. In my opinion 20% is more than substantially upcharge to assign a contract... Realtors get paid 3-6% max, and they have to disclose any and everything. Mortgage brokers are capped at financing 5% of the loan balance for the most part. 20% in the grand scheme of the entire industry should be plenty.
You can also close on the purchase yourself and then sell it to the investor...
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