Have you found a property that can be fixed up so you can flip it for quick profits? Have you
recently bought property you’d like to renovate and sell quickly? Are you thinking of flipping
residential properties for some quick profits.
If any of above applies to you, listen up. While it’s easy to get excited about cable TV home
flipping shows like “Flip or Flop,” you have to have solid financing support to pull off your
dreams of flipping your way to financial freedom.
The bad news? Residential rehab hard money loans are not easy to get. Not by a long shot.
While most commercial banks, coops, credit unions, and thrift banks have lots of long-
standing programs to help both first time and veteran home buyers buy property they are
going to live in, these financial institutions are much tighter when it comes to people looking
for loans to finance residential rehab projects.
Key #1: “Flipper loans” present a higher risk for most traditional banks
If you go through a bank, you may have to settle for higher interest rates. Your account
presents greater risks for them so they don’t hesitate charging you a higher rate.
As you probably already know, just because your previous flips were successful, there’s no
guarantee your current project will make money. Banks also know that most flippers already
took out a loan for the underlying property. Most are extra cautious about lending money for
rehab. Given these risks, banks are most comfortable offering residential rehab loans at
higher rates.
Key #2: Getting a loan through traditional financing can delay your project’s profitability
Flipping homes for a profit is all about timing. Local residential markets often go through
sudden periods of booms and busts. In fact, the typical housing market in the US features
sales figures that rise, stall, fall, and rise again.
If you’re a homeowner looking to sell your home, you wouldn’t have anything to worry from
the pattern above. But if you are a flipper who is leveraged heavily (e.g. you borrowed almost
all your capital for buying the property you’re flipping and you’re borrowing to cover rehab
costs), you can’t afford to get caught in a tight squeeze.
Since traditional financing sources aren’t exactly eager to jump at the chance to finance very
risky home rehab projects, your loan might take a bit longer.
You would have to postpone your rehab project’s start date for every week the bank takes in
processing your loan. By the time your loan is approved and you access your rehab funds,
you end up in a race against the clock to complete your project on time.
Sadly, any delay can mean unlucky flippers get caught in a market downturn. While most
residential price stalls are temporary, this may mean you might not enjoy a decent profit for all
the time, focus, planning, and effort you put into your project.

To add insult to injury, every single month you wait for local residential home pricing ‘to start
appreciating normally,’ you’re on the hook for all your loan payments. No wonder most flippers
want a quick rehab loan source. They want to complete their projects as rapidly as possible
so they can sell their flipped property when the market is still hot.
Key #3: Traditional financing sources may ask for all sorts of documentation for your
residential rehab hard money loan
Given the risk profile of most flippers, it is not a surprise that typical or traditional lenders
make residential rehab loan applicants go through a lot of hoops. Please understand that if
you are applying for this type of loan, you are really applying for a business loan. You are in
the business of buying and rehabilitating homes so don’t be all that surprised if you are asked
questions regarding your business.
Since a lot of flippers are not exactly established and many have uneven records of success,
don’t expect your loan application to be a shoo-in. It definitely doesn't make sense for you to
expect that your residential rehab hard money loan application process would be a formality.
Expect to answer lots of questions regarding your flipping business.
The process can be especially hard on people who look at flipping as just a ‘sideline’ to their 9
to 5 job.
On top of all the hassle described above, even if you were to comply with all the paperwork
requirements, there’s no guarantee the bank will take a risk on you. This really is the bottom
line-they are being asked to take a risk on a flipping project. Many loan officers at typical
banks and other financial institutions don’t exactly have their ear to the ground when it comes
to local real estate sales trend. In many cases, they will process your loan based on their
understanding of past sales trends. This may or may not work to your favor.
The bottom line? You are rolling the dice when trying to take out a rehab loan with a traditional
financing institution. If they do decide to give you a loan, it will be at a higher interest rate and
it may take so long that you might find yourself stuck. How come? The process might take so
long or you might have to find other loans and after you finish this process, your completion
date happens at precisely the time when the market heads south.
It’s not unusual for flipper to get caught in a bind. Despite the otherwise lucrative potential of
their project, they end up settling for cents on the dollar and sell their flipped properties when
they get low ball offers. At best, they are selling for a fraction of the full potential profit they
could have had. At worst, they actually lose money since they can’t wait for the market to
‘reverse course.’ They lose money on both loan payments as well as the final sales price of
their flipping project.
Key #4: If you are fixing up and flipping properties, you might want to consider firms who
specialize in the kind of loans you are looking for
Residential rehab hard money loan providers know the flipping game inside and out. They
know how hard it is for flippers to get loans from traditional financing sources. They also know
how devastating any delay can be for flippers looking to sell and lock in on profits.

These providers offer a streamlined process. Most are actually brokers or ‘fund aggregators’
for private individuals looking to lock into a specific interest range for their investment.
When you contact a residential rehab loan provider, they will cut straight to the chase. First,
they will ask for a minimum commitment from you regarding the total rehab costs of your
project. Sometimes this involves up to 30% borrower cash.
Next, they spell out industry-specific loan to value thresholds for rehab loans in your area.
Depending on your region’s market dynamics, this can be as high as 60% or even less.
You will also be expected to have enough cash reserves should there be a sudden rise in
construction costs. This figure is factored into the total loan amount you’ll get.
Finally, firms specializing in hard money residential rehab loans calculate costs in a particular
way. Don’t be surprised if they factor in the following: cost of your project’s land, soft costs like
permits and engineer’s/architect’s fees, the actual hard costs of construction (with your 10%
cash reserve taken out), and several months’ worth of pre-paid interest.
Key #5: You might want to participate in a flipping joint venture before taking out an individual
loan
Many, although not all, companies specializing in this type of loan automatically refuse first
time flippers. This is very understandable since a large percentage of entrepreneurs buying
and fixing homes to resell don’t exactly realize the profits they hoped for. Some even lose
money since local real estate markets can quickly turn cold. Some are forced by mounting
loan payments to unload as quickly as possible-profit or no profit.
This standard industry policy leaves you in a classic ‘chicken or egg’ dilemma. For you to get
a loan, you need rehab and resale experience but to get such experience, you need a loan.
What’s the quick fix for this tight bind? Joint ventures.
When you team up with a person or team of investors who have successfully applied for
residential rehab loans before, you leverage their experience with lenders. This increases
your chances of getting the loan you need to cover your construction costs.
Once you have successfully flipped at least one previous project, you can then start thinking
of taking out a rehab loan in your own individual name or the name of your corporation.
Keep the key points above in mind. The key takeaway here is if you want to maximize the
speed you buy, rehab, and sell residential projects, you need to approach firms that specialize
in that kind of loan. They are specially qualified to process your loan quickly so you can
improve your chances of unloading your project at a hefty profit.

If you are in need of help to find a good lender for a rehab loan, you can apply below and we will help you find a suitable lender for your project.
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Best of luck with your project!