Hard money, gap lenders, draws, points, and what closing really costs. This is the conversation every new flipper wants to have with me, written down.
If someone sent you this, it's because you asked a good question: how do I actually get started flipping houses, and how does the financing work? I've had this exact conversation over coffee, on the phone, and walking through my own projects more times than I can count. This is that conversation, complete, so you can read it on your own time and come back with the questions that actually matter.
Read it all the way through. It's honest, including the parts about first deals that most people selling courses won't tell you. At the end, you'll know exactly what to do next.
I didn't grow up in real estate. I came to Florida from Hungary chasing a better life, and found it the way most people do: by learning to solve the problems other people walk away from. Since 2021 I've bought, renovated, and sold homes across the state, and along the way I learned that the best deals aren't won with money. They're won with preparation.
Flipping is a numbers business that looks like a house business.
Before any of the money mechanics matter, three rules. First: don't make it a deal. A property either works at the numbers or it doesn't. Your excitement can't change the math, and forcing it is how beginners lose money. Second: know your buy box. Decide in advance what you buy: property type, price range, neighborhoods, rehab scope, minimum profit. Then let everything that doesn't fit go. Third: every problem has a price. A bad roof isn't a deal killer; an unbudgeted roof is. Your job is to find the expensive surprises before you own them, never after.
I wrote a full guide on exactly how I walk and evaluate a property, the Fix & Flip Walkthrough Guide — 25 pages, free, with a print-and-carry checklist you take to the property. Read that one for the house. This one is about the money.
It's not like a bank loan. It's built for flips, and it's faster.
A bank lends to you: your job, your tax returns, your debt. A hard money lender lends to the deal. They care about one question: if everything goes wrong, is this property still worth enough to protect their money? That's why they can close in days instead of months, and why they'll fund a house a bank won't touch.
Before you talk to a single lender, know this: hard money lenders don't lend to people. They lend to companies. Almost all of them require an LLC, and the loan closes in the entity's name. If you don't have one, that's your actual first step, not finding a house. Set it up properly with its own bank account, because lenders will want to see reserves sitting in it. Don't let this blindside you a week before closing.
Most hard money lenders fund 80–90% of the purchase price. You bring the rest: down payment, closing costs, and part of the rehab money up front. That leftover piece is called the gap, and there are lenders who fund just that part (gap lenders).
One honest warning: gap lenders are hard to get on your first deal. They fund based on track record, and you don't have one yet. So as a first-timer, plan on one of two paths. Bring roughly 20 to 30% of your own money, or partner with someone experienced whose track record opens those doors. Keep that second option in mind; it comes back later in this guide.
When you send a lender an address, they underwrite the deal themselves. They want:
If those four numbers make sense together, you have a loan. If they don't, no lender in the country will save the deal. And that's the lender doing you a favor.
My honest opinion: even if you had all cash, a hard money lender is worth it for one reason: somebody else underwrites your deal. Not you, with your excitement and your vision of the finished renovation. A professional whose own money is on the line, determining the real ARV. Most lenders won't lend beyond roughly 70 to 80% of ARV. That ceiling protects their money, but it protects yours too. If your numbers don't fit under it, that's not the lender being difficult. That's the market telling you the deal doesn't work.
This happened to us. We sent a lender a deal we liked, and their underwriting came back about $10,000 lower than our numbers. We walked away. That "no" saved us real money. When you're new, that second set of eyes is peace of mind you can't buy anywhere else.
Your rehab budget can't just be "about $75,000." Lenders require a Scope of Work (SOW), line by line: painting $5,000, tile $10,000, kitchen $18,000, bathrooms, roof, everything. They review it, sometimes adjust it, and that document determines how much they'll actually lend you. Sloppy SOW, smaller loan. Learn to build it right before your first deal, not during it.
Here's what surprises everyone: the rehab money doesn't land in your account on day one. The lender holds it back and releases it in draws as work gets completed. You finish the painting or the tile, an inspector comes out, or you upload photos to the lender's app, and they release the money for that stage.
Which means you need enough cash to float each stage before you're reimbursed. First-timers who don't know this run out of money in month two. Now you know.
Two more things nobody mentions. First, draws aren't free. Each one costs roughly $250 to $300 for the inspection. Five draws is over a thousand dollars, so plan a draw schedule instead of drawing every week. Second, lenders want reserves, typically 3 to 6 months of your monthly payments sitting in your bank account before they close. They need to see you can carry the loan while the work happens.
On top of interest, hard money lenders charge points, an origination fee of typically 1 to 3% of the loan amount, due at closing. On a recent deal of ours: 2 points on a $280,500 loan = $5,610, day one. Add underwriting, processing, servicing, and legal fees, and loan costs alone can approach $9,000 before any renovation starts. This is why your cash-to-close is always bigger than "the down payment." Budget for it, or it will find you at the closing table.
Most hard money loans are 12 months, interest-only, no prepayment penalty. That's friendlier than it sounds: you're only paying interest while you own it, and if you finish and sell in month four, you stop paying in month four. Nobody punishes you for being fast. Speed literally saves you money.
What rates look like: with experience and a track record, think roughly 9 to 9.5% today. As a first-timer, expect 11 to 12%. That spread is the price of your education, and one more reason the partner route on deal one can pencil out better than going solo.
Here's something that still happens to us, even with all our experience: a lender quotes 90%, and somewhere between the term sheet and the closing table, it becomes 85%. Maybe the appraisal came in different, maybe underwriting tightened, maybe their guideline shifted that month. On one of our deals, that surprise meant tens of thousands more cash to close, and we found out too late to switch lenders without blowing up the timeline. The seller and the agent were waiting on us.
The lesson: a quote is not a commitment. Read the actual term sheet. Ask what could change the leverage between now and closing. And always know your number: the maximum cash you can bring if the lender moves on you. If a 5% shift kills your deal, your deal was too thin to begin with.
There's a second kind of lender nobody advertises: local private money. Real people, often found through a mortgage broker or title company, lending their own capital to local investors. My first loan came this way: a broker introduced me to a private lender, she funded 80% of the purchase, and I brought the rest plus all the rehab. No app, no big company. A relationship. Five loans later she funds 90%, some deals with no monthly payment at all, and we can close in ten days.
That's the honest picture of private money: worse terms at the start, better than any hard money lender once you've proven yourself. The catch is you don't find these lenders on Google. You find them through relationships: brokers, title companies, and investors who already borrow from them.
Every lender is different. Some lend nationwide, some won't touch your state, some pull credit every deal, some once a year, some hard pull, some soft. There is no universal rulebook. This guide gives you the pattern. The specific box, you learn lender by lender. Or you borrow the relationships of someone who already knows which lender fits which deal.
Your first deal gets the worst terms you'll ever see.
Read Part Two again and notice the pattern: 90% leverage, 9% rates, gap lenders, private money that closes in ten days. All of it is priced off a track record. You don't have one yet. So deal one looks like this: maybe 70% leverage instead of 90. Rates at 11–12% instead of 9. Gap lenders mostly won't touch you. Private lenders don't know you exist.
Nobody is punishing you. The market just prices unknowns higher. Every investor you admire paid this same toll. You have three ways through it:
Plan on roughly 20–30% of the purchase, plus rehab float, plus reserves, plus closing costs. It's the simplest path and the most expensive one. It works if you have the money and a deal strong enough to survive beginner terms.
Sometimes the situation, not the bank, is the financing. Seller financing, taking over payments, a novation. When the seller's problem is bigger than their price, structure replaces leverage. This is its own education (and its own guide), but know the door exists.
When an experienced investor is in the deal, with their entity, their name, and their lender relationships, the loan gets priced off their history, not your lack of one. The difference between 12% at 70% and 9% at 90% on a $250,000 project isn't small. It can be the entire profit margin.
A real partnership isn't a service you buy. It's closer to dating. When we consider coming into a first-timer's deal, we underwrite everything. The property has to fit our buy box (not bent to fit, fit) and we have to believe we can move it. And we underwrite you: what are you actually bringing? Boots on the ground? Managing the rehab? Just the deal itself? The split, whatever it ends up being, reflects the answer.
We've learned this the expensive way. We once partnered on an out-of-state project where our partner handled the ground game, until she stopped communicating and disappeared on us mid-rehab. A six-month project became a year. It cost us fifteen thousand dollars. That lesson is why we're a lot more careful about who we partner with now, and why you should be too, with anyone, including us.
The honest sequence for most first-timers: start with a deal review. Get real eyes on your numbers before you're emotionally committed. If the deal is strong and you bring something real to the table, bigger conversations happen naturally. That's the last page of this guide.
Nobody shows beginners a settlement statement. Here are two of ours.
These are real numbers from our own recent Florida deals: one from the day we bought a flip, one from the day we sold a different one. Names and addresses removed, figures rounded. This is where the theory in Part Two becomes actual money on an actual table.
| Purchase price | $220,000 |
| Total loan (purchase + rehab) | $280,500 |
| Of which: rehab hold-back (released in draws) | $90,000 |
| Points (2% of loan) | $5,610 |
| Underwriting, processing, servicing & legal fees | $2,500 |
| Prepaid interest to end of month | $626 |
| Title, recording, doc stamps & intangible tax | $5,800 |
| Insurance premium (required before closing) | $1,634 |
| Survey, permit search & other fees | $1,450 |
| Cash from buyer at closing | $70,500 |
Notice: the loan was 90%+ of the purchase price, and we still wired seventy thousand dollars to close. "90% financing" never means you show up with 10%. The rehab hold-back sits at the lender until draws release it.
| Sale price | $452,000 |
| Hard money lender payoff (principal + interest) | −$315,300 |
| Gap lender payoff | −$67,000 |
| Agent commissions (listing + selling side) | −$20,340 |
| Doc stamps on the deed (Florida) | −$3,164 |
| Title, recording, settlement & misc. fees | −$6,760 |
| Tax prorations & utilities | −$850 |
| Cash to seller at closing | $38,700 |
Two lenders stacked on one deal: hard money for the purchase, a gap lender covering closing costs and reserves. Everything disclosed, everything on the statement. That's how experienced investors get into six-figure projects with a fraction of the cash: not by hiding numbers from lenders, but by knowing which lenders fund which piece. The stack only works when everyone at the table can see it.
Every line on these statements is a line your deal will have too. If your profit only exists when you ignore half of them, you don't have a deal. You have a hope. Run the full math before you offer, never after.
Reading is free. Deals are where I come in.
Everything in this guide, I give away, because the costliest lessons in this business are the ones nobody warns you about, and I'd rather you learn them here than at a closing table. But general conversations don't move you forward. A real property does. So here's exactly how working with me goes, so neither of us has to guess. It starts free, and it grows only when there's a real deal on the table:
We get to know each other and I point you in the right direction. Fifteen minutes flat, calendar-enforced. This is not a deal review and I won't run numbers on this call. It's a handshake, so when you do have a property, you're not calling a stranger.
You send me the address and your numbers: purchase, rehab estimate, ARV. I run it the way I run my own deals and tell you straight: is it a deal, what would I offer, and where's the risk. Delivered over a call or a recorded video. This is the starting point for everyone. Run your deal through my free deal tools first, and we start the review from real numbers instead of guesses.
When the deal is real and you want me deeper in: structuring the financing, working the seller, negotiating the price down. Priced based on what the deal needs, agreed before I start.
Lenders, gap lenders, contractors, title, agents. The relationships that took me years to build, plugged into your deal. A connection fee, paid only if your deal closes. Zero risk to you.
My entity in the deal, my track record pricing your loan, my team on your project, for a share of the profit. This isn't a product; it's earned. It starts with a deal review, a property that fits our buy box, and you showing me what you bring to the table.
Fifteen free minutes to meet, or bring a live property to the deal review. That second one is the conversation I never say no to.
Not at a live deal yet? Start with the Fix & Flip Walkthrough Guide — how I read a property before I ever make an offer.