A fix and flip loan is a short-term financing product designed for real estate investors who acquire distressed or undervalued properties, renovate them, and sell them for a profit. Unlike a conventional mortgage — which is designed for long-term homeownership — a fix and flip loan is built around the timeline and mechanics of a renovation and resale project.

How It Works

The loan covers both the acquisition cost and, in most cases, the renovation budget. Rather than requiring the investor to pay for all renovation costs out of pocket, the lender sets aside a portion of the loan in a draw account that is disbursed as work is completed and verified.

What Makes It Different

• Short term: Typically 6–18 months, not 30 years
• Based on ARV: Loan amounts are calculated against the after-repair value of the property, not just its current as-is value
• Interest-only payments: Most fix and flip loans have interest-only payments during the project period, with the full balance due at maturity
• Draw schedule: Renovation funds are disbursed in phases as work is completed and inspected
• Asset-based underwriting: The property and deal economics matter more than the borrower’s income

The Exit Strategy

The loan is repaid when the renovated property is sold. The profit — the difference between the all-in cost (acquisition + renovation + financing + selling costs) and the sale price — is the investor’s return.