Ways to not drown in interest
Investor · Member since 2026 · 2 posts · 1 vote
Ways to not drown in interest
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Real Estate Agent · Kansas City · Member since 2018 · 5k+ posts · 3k+ votes
1dHard money is very common. You would bake the interest and closing costs into your numbers. Good part of hard money is they cover the rehab or most so less out of pocket
21 Replies
- Real Estate Agent · Kansas City · Member since 2018 · 5k+ posts · 3k+ votes1d
Hard money is very common. You would bake the interest and closing costs into your numbers. Good part of hard money is they cover the rehab or most so less out of pocket
- 1dDevin PetersonBusiness MemberLender · Sarasota, FL · Member since 2022 · 2k+ posts · 693 votes
Cayden, good question. For most people starting out, the interest is just a cost of doing the deal, and the goal is to make sure the deal still works after all of it is paid.
Hard money is the most common route for newer flippers. It usually covers a large share of the purchase and often much of the rehab (released in draws as the work gets done), with points up front and interest-only payments. It's expensive, but you're typically only in it for a few months. When you run your numbers, include the points, interest for a longer timeline than you expect, and closing costs on both the purchase and the sale.
Private money is friends, family or other investors. The terms are whatever you both agree to, usually a fixed interest rate and sometimes a share of the profit instead of or on top of that. There isn't one right return. It depends on your market, the risk of the deal, your experience, and whether they're secured with a recorded note and mortgage or deed of trust on the property (they should be). Put everything in writing and have a local real estate attorney draft it, since depending on how you raise the money it can run into lending or securities rules.
A few other options: bringing in a partner who has the cash or the experience and splitting profits instead of paying interest, or using a HELOC or cash-out on a property you already own if you have one.
A lot of first-time flippers combine them, hard money for most of the project and a private lender or partner to cover the down payment, closing costs and reserves. Lenders also price off experience, so terms usually get better after a couple of completed flips. Whatever you use, buy with enough margin to absorb a project that runs long, because that's where interest really eats into the profit.
ProAlpha Capital55 Reviews - 1dVaibhav PuranikPro MemberMember since 2025 · 115 posts · 59 votes
In my opinion - people who are experienced flippers raise money from hard money lenders. People starting out generally use more informal channels such as friends of family. With friends and family, the interest rate can be lower than the market. Furthermore, you can also enroll friends and family as equity owners - give them the upside so it's not just interest only deal. For experienced flipper, the interest rate is one of the costs they need to bare, so they just add that into their model and make sure that the given flip is worth it. It's like any other expense - renovation, selling etc. While selecting the property, you need to make sure you will make money after paying interest and other costs.
- Member since 2026 · 13 posts · 1 vote1d
Cayden, one thing nobody's touched on yet is what the hard money lender wants to see from you on deal one. Most of them size the loan off your experience. Zero flips usually means more down, sometimes they want you to cover part of the rehab too, and they'll want cash left in the bank after closing. So "not paying cash" still means having some.
On the interest, yeah people mostly just bake it in. Its usually interest only and the clock is the real enemy, so the rehab timeline matters more than the rate. Pad your numbers for it taking longer to sell than you think.
On the private money from people you know, there's no standard return. Its whatever you two agree to. Just get it in writing so they're protected, thats what makes it an easy yes for them.
I'm a loan officer with Barrett Financial, figured I'd add the lender side of it.
- Lender · Indianapolis · Member since 2025 · 27 posts · 8 votes1d
Yeah, people mostly just underwrite the holding costs as an expense and hustle to finish as fast as humanly possible. The clock is your biggest enemy on a flip, which is why having contractors ready to swing hammers on day one matters so much. True private money from friends or family might let you defer payments until the sale, but outside private lenders are generally going to charge you the same steep rates that hard money does.
Cayden, the interest is a real cost, and most flippers treat it like any other line item. They build it into the offer so the deal still works if the project runs longer than planned. Rehab money usually comes out in draws after the work is inspected, so you still need some of your own cash at the start, even if you are not paying all cash for the house. Private money from people you know does not have a standard return. It is whatever you both agree to, and it should be in writing with a recorded lien on the property, because that protection is often what makes someone comfortable lending to a first timer. Do you have a specific property in mind yet, or are you still getting the money side straight before you make an offer?
Lindsay and Ryan with Futures Funding
Futures Funding Inc. 4.714 Reviews- Investor · Member since 2026 · 2 posts · 1 vote1d
Definitely getting the money and numbers side done before any offer. Thanks for your input.
- 1dRyan BakerBusiness MemberLender · Strongsville / Cleveland, OH · Member since 2026 · 162 posts · 43 votes
Cayden, hard money costs are pretty much part of the deal on a first flip. What you can control is how long you hold it. Most people who get burned on interest went over budget or over schedule on the rehab, so a tight scope and a realistic timeline save you more than shaving a point.
Private money can be cheaper, but usually only once you've got a track record or a relationship with the person. Until then a lot of guys start with hard money on the first one or two and move to private after that.
If you want to run the numbers on a deal you're looking at, give me a call. My number's in my signature below.
– Ryan
- Gainesville, Alachua County · Member since 2026 · 10 posts · 0 votes1d
Welcome, Cayden. Yes, most new flippers who aren't paying cash use a hard money loan, and the interest is a cost you plan for rather than avoid. The trick is to turn it into a daily number before you buy, so it's part of the deal math.
Example: a $230K loan at 11.5% is about $72/day in interest. Add taxes, insurance and utilities and you're near $100/day. A 5-month flip that runs 2 months late costs roughly $6,000 more than planned, so time is the real variable you control.
A few ways people keep it down:
Ask whether interest is charged on the full loan including the undrawn rehab money (often called Dutch interest) or only on what's been disbursed. On a big rehab budget, that difference adds up.
Shorten the clock before you close: line up your contractor and get permit applications started early, since permit and inspection delays are where a lot of extra months come from.
Keep your draw requests complete (invoice, lien waiver, passed inspection, matching photos) so the lender funds quickly and work doesn't stall.
On private money: returns are negotiated deal by deal. Many private lenders want a fixed interest rate secured by the property (first lien, title insurance, named on the insurance policy), while others prefer a share of the profit. For someone without a track record, a secured note on one small deal is usually an easier conversation than an equity split, because the lender's protection is the property, not your history.
Run the numbers with a realistic delay built in. If the deal still works with 2 extra months of holding costs, it's a much safer first flip.
- Member since 2026 · 44 posts · 7 votes1d
Hi Cayden, a couple of things that might help beyond what's been said. Most newer flippers do use hard money, and the interest is just a line item you plan for: you want the deal to still work after points, interest on a longer timeline than you expect (add a couple of months of cushion), and closing costs on both ends. The thing lenders care about most when you're new is the deal itself plus your skin in the game, so even a small down payment and a solid scope of work helps a lot. If you bring in private money, get it in writing with a recorded note and have a local attorney draft it. And before you commit to anyone, run the numbers with a couple of different lenders, because programs for first-time flippers vary quite a bit. I'm a mortgage broker and work with a range of investor lenders, so if you get a specific property under contract, I'm happy to help you compare options. – Stephen
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1d
You need to factor in interest and holding costs into your calculation to make sure you make money. Be conservative. Not only do you have to renovate the property, but you also have to get it ready, list it, sell it, and go through the closing. The other area people tend to miscalculate is that, after you renovate a property and close out the permit, they do a tax assessment, which typically increases the taxes on the property as well. Make sure to account for that.
7e investments53 Reviews - Lender · Irvine, Orange County · Member since 2026 · 80 posts · 46 votes23h
You're describing the exact play DSCR was built for — you just have the order backwards in your head.
Hard money and private money are 12-month bridge money by design. Nobody's going to give you 2 years of it, because that's not what it's for. The long-term money is the DSCR loan — 30-year fixed, qualifies on the property's rent, no personal-income documents. So the sequence is: buy with the private money, get it rented and stabilized, then refinance into DSCR and pay your investors back out of the refi proceeds. They get their return, you keep the property.
Two things that make or break this:
1. Line up the takeout BEFORE you take the private money. A lot of DSCR lenders want 6–12 months of seasoning before they'll refinance you, and if your investors want out in 12 months and your lender wants 12 months of seasoning, you're stuck. There are DSCR programs with no seasoning requirement at all — get your deal underwritten at a conservative rent and value up front, so you know the refi works before you promise anyone a payback date.
2. Don't promise a date you can't control. Tell your investors the exit is the DSCR refinance, give them the honest timeline, and put it in writing. The deals that blow up here are the ones where the investor was promised "12 months, guaranteed" and the refi needed 14.
One more check: make sure the refi loan amount clears $125K — that's the floor on most DSCR programs, so a small deal can leave you with no takeout at all.
If you want, happy to run your numbers on a specific property and tell you whether the DSCR exit actually pencils — Dan
- Pakistan · Member since 2026 · 5 posts · 1 vote22h
The way to think about it is that interest is not a surprise cost — it is a line item, and the one that kills first flips is time, not the rate. Put the holding cost in the deal before you make the offer.
A quick way to size it, using round numbers: a $250k hard money loan at 12% interest-only is $2,500 a month. Over six months that is $15,000 of interest, plus about $5,000 if the lender charges 2 points upfront, so roughly $20,000 of financing cost. If the project runs nine months instead of six, that becomes about $22,500 of interest alone — $7,500 extra, which is often most of a first flip's profit. That is why the experienced replies above keep saying the clock is the problem, and why you should underwrite the deal with two extra months built in. If it still works with the extra months, it is a real deal.
On private money, there is no standard return — it is whatever the two of you agree. A common range is 8-12% a year as a fixed return, sometimes with a share of the profit on top. What protects both sides is putting it in writing: the amount, an agreed rate, the term, the exit, and the security (usually a lien on the property). People who lend to a first-time flipper are mostly lending on the person and the numbers they can see, so bring the purchase price, rehab budget and after-repair value with you, and agree the numbers first.
My suggestion before your first offer: only do it if the numbers still work after the interest, points, taxes, insurance and selling costs are all counted, and after you have added a month or two of delay. If the margin is thin before interest, it is not a deal.
I worked the loan numbers with the mortgage calculator at CalcSmith — it shows the monthly payment and interest for any loan amount, rate and term, which is exactly the holding-cost line this deal needs. Worth a visit to CalcSmith to run your own flip numbers before you commit to a loan.
- Technology · New York, NY · Member since 2026 · 68 posts · 19 votes11h
Cayden, interest is not the risk. Duration is. Devin and Jaxon are directionally right, but underwrite a debt constant, not a daily drip.
$230K at 11.5% interest-only is a 0.115 constant, about $2,204 a month. Two points is $4,600. Six months all-in carry lands near $17,800 before taxes, insurance, utilities. Now run the S-curve: months 1-2 are permits and demo, months 3-4 are peak carry, months 5-6 are list and close. Underwriting the midpoint is how first flips die. Underwrite the tail at eight months. That is the $6,000 Jaxon flagged, and it comes out of your margin, not the lender's.
Then LTC versus LTARV. A first-timer sees 85-90% LTC and 65-70% LTARV, whichever is lower, with rehab drawn not funded. Your real cash-in is the gap plus three to six months of carry reserves. Sal and Ryan are correct: "not paying cash" still means cash.
Dan's DSCR takeout is the right structure, but verify the floor. Most programs want a $125K minimum loan, 1.20x DSCR on conservative rent, and 6-12 months seasoning. If the takeout does not clear, your private lender does not get repaid on schedule. Chris is right on reassessment, so add the post-reno tax step-up to carry.
Cayden, what is your all-in basis as a percent of LTARV, and does it survive an eight-month hold and a 1.20x DSCR takeout?
- Gainesville, Alachua County · Member since 2026 · 10 posts · 0 votes1h
Quote from @Max Comperatore:
Cayden, interest is not the risk. Duration is. Devin and Jaxon are directionally right, but underwrite a debt constant, not a daily drip.
$230K at 11.5% interest-only is a 0.115 constant, about $2,204 a month. Two points is $4,600. Six months all-in carry lands near $17,800 before taxes, insurance, utilities. Now run the S-curve: months 1-2 are permits and demo, months 3-4 are peak carry, months 5-6 are list and close. Underwriting the midpoint is how first flips die. Underwrite the tail at eight months. That is the $6,000 Jaxon flagged, and it comes out of your margin, not the lender's.
Then LTC versus LTARV. A first-timer sees 85-90% LTC and 65-70% LTARV, whichever is lower, with rehab drawn not funded. Your real cash-in is the gap plus three to six months of carry reserves. Sal and Ryan are correct: "not paying cash" still means cash.
Dan's DSCR takeout is the right structure, but verify the floor. Most programs want a $125K minimum loan, 1.20x DSCR on conservative rent, and 6-12 months seasoning. If the takeout does not clear, your private lender does not get repaid on schedule. Chris is right on reassessment, so add the post-reno tax step-up to carry.
Cayden, what is your all-in basis as a percent of LTARV, and does it survive an eight-month hold and a 1.20x DSCR takeout?
Good addition, Max. Underwriting the tail instead of the midpoint is the right frame.
Cayden, one practical way to do it: turn your total carry into a daily number, then ask what happens at month 8. If the deal still pencils with 60 extra days of holding cost and an extension fee, it's a safe first flip. If it only works at month 5, it's a bet on everything going right.
- 7hDan BeaulieuPro MemberLender · Knoxville, Tennessee (TN) · Member since 2016 · 430 posts · 672 votes
Cayden, welcome. Lots of good stuff above on the interest side so I'll mostly hit your second question, because that's the one that actually unlocks deal one.
Quick gut check on the scary part first. Say you buy at $150k, put $40k into it, and it sells for $280k. Pretend for a sec the lender covers all $190k (they won't on deal one, but humor me). At 12% that's $1,900ish a month. Yep, thousands a month. On a five month job that's $9,500, plus two points ($3,800), so about $13,300 to borrow the money. Now stretch it to eight months because it WILL take longer than you think and you're at $19k. Take 8% off the sale for selling costs (about $22k) and you still land in the high 40s before closing costs on the buy. That's a good deal that happens to have interest in it. If the interest is what kills a deal, the interest wasn't the problem. The purchase price was.
Now private money from people you know. In my world most private lenders on a first lien flip loan are looking for somewhere around 10 to 12% a year, sometimes a point on the way in. Friends and family will often take less, like 8%, because they're really investing in you. The other route is an equity split where they bring the cash, you do the work, and you split the profit, often 50/50 on a first deal. Splits feel cheaper since there's no monthly payment but on a good deal they're usualy the most expensive money you'll ever take.
You said you don't have the history for them to trust you yet. Totally fair, and honestly that's the right instinct. The fix isn't a track record, it's protection. Put them in first position with a recorded deed of trust and a note an attorney drafts, make them loss payee on the insurance, and keep the loan at or under about 70% of a conservative ARV. Show them the comps and the scope before they say yes. If you mess up, they end up owning a house worth more than they lent. That's an easy conversation to have with someone who already likes you.
I'm a lender, fwiw, and the borrowers I worry least about on deal one are the ones who ran this exact math before they ever made an offer. Sounds like that's you. What market are you looking at?
- 7hLogan LambertPro MemberMember since 2026 · 20 posts · 9 votes
Great question, Cayden!
There are certainly investors who utilize their own cash to avoid the costs associated with hard money loans. However, unless you have a significant amount of capital available, you can find yourself tapped out pretty quickly.
I've been in the mortgage industry for over three years, and I would estimate that 90% of the investors I've worked with finance their flips, including large-scale investors. The reason is simple: leverage allows you to scale much faster without tying up all your available capital.
We're actually private lenders ourselves, and here in our local market, we can offer up to 100% financing on the purchase, 100% of the renovation costs, and in some cases even roll in the closing costs. However, most of the deals we handle are brokered through other lenders, where investors typically bring 10–20% down on the purchase, depending on the deal.
As far as interest goes, you're generally looking at around 12% annually, with monthly interest payments, although terms vary by lender and deal. The key is factoring your interest payments, closing costs, and anticipated holding period into your numbers before purchasing.
At the end of the day, it's not necessarily about avoiding interest. It's about making sure the deal is profitable while keeping enough capital available to continue scaling your business.
- 6hJaimelyn HemingPro MemberInvestor · Howland Maine · Member since 2024 · 8 posts · 4 votes
Hi Devin,
I’m also a new investor. However, I own the property free and clear and have already put $25k into the property of my own documented money. My question is I’m looking for a asset based hard money loan type with an initial draw at the table of 44% of as is, for my engineer plans, first phase structural and GC mobilization and set up, and have the rest held for draws when more work is done. Also to have the loan fees and 6mo reserves incorporated in the loan as well. The town wants this done asap. I have the full backing of the town. They have already walked through with my engineer. What structure would I be looking for? How would be the fastest way to get a loan, time is of the essence to satisfy the town as they want to see funding to ensure things are moving along. My team is waiting and I need the funding. Any advice would be very appreciated. Thank you for your time
@Cayden Olson, I've raised capital before, and with people you know, a flip that runs long strains things far more than the rate does. I'd agree in writing on what happens if it goes past schedule before anyone puts money in. I'm open to sharing how I'd handle those first conversations if you'd find that useful. Have any of those people lent on a deal before? What drew you to flipping as your first strategy?
- Lender · Miami, FL · Member since 2026 · 37 posts · 14 votes4h
Hard money can get expensive fast. Private lending is often a solid middle option. Rates and leverage depend on the deal, the borrower’s experience, and the lender. Best to compare offers, but usually private is better than hard money. Ask any lender for the full cost: rate, points, fees, and the payoff if the flip runs long.
For your second question, private lenders usually charge interest plus points, and the terms depend on the deal and the borrower’s experience. That’s where a clear plan, a realistic budget, and a defined exit help.
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