The asset is the application
Hard money comes from private capital, a single investor or a pooled fund, so the file looks nothing like a bank application. Nobody reads two years of tax returns over six weeks. The lender sizes the value, the rehab plan, the ARV, and the exit, usually within days, because the property is the security and foreclosure is the recovery plan. That is why LTV governs pricing: a loan at 65 percent of value can absorb a 35 percent price drop before the lender loses principal. Bring less leverage and you get a better rate, a faster yes, or both. Repeat borrowers with a track record at the same shop get the fastest closes of all, sometimes 3 to 7 business days on a clean deal.
Check the deal against the 70 percent rule
The old flip heuristic still earns its keep: purchase price plus rehab should stay under 70 percent of ARV. On a $300,000 ARV that ceiling is $210,000. Buy at $180,000, budget $30,000 for the work, and project cost before financing lands exactly at the line. The remaining $90,000 spread to the sale price then has to cover financing of $15,000 to $20,000 and selling costs of $18,000 to $24,000, which leaves a gross profit around $46,000 to $57,000 before anything goes wrong. A deal that violates the rule going in has already spent that margin.
Nine months of 12 percent money, itemized
Here is the full cost of a typical project loan. A $300,000 property at 70 percent LTV funds a $210,000 loan at 12 percent with 2 points, and the flip is scheduled to sell in month nine. Points are charged once at closing; interest accrues every month the balance is outstanding. Selling a month early saves $2,100, running a month long costs the same, and the points never change.
| Cost component | Amount |
|---|---|
| Loan amount (70% of $300,000) | $210,000 |
| Origination fee (2 points) | $4,200 |
| Monthly interest-only payment | $2,100 |
| Interest over 9 months | $18,900 |
| Total financing cost (points + interest) | $23,100 |
A 9-month project at 12% with 2 points: total financing cost is about 11% of the loan amount.
Draws front the lender, you front the work
Rehab money almost never arrives as a lump sum. The lender holds it back and releases draws after an inspector confirms each milestone, so in practice you pay the crew, then get reimbursed. Budget for that float: if your framing and mechanical phase costs $25,000 and the draw arrives two weeks after completion, you need $25,000 of working capital in the meantime. Inspection fees of $100 to $200 per draw and a few days of processing lag are standard. Investors who plan the draw schedule against their contractor's payment schedule avoid the mid-project cash crunch that stalls so many first flips.
Exit before the extensions start
A flip exits through the sale. A keeper exits through a refinance into permanent financing, usually a DSCR loan, once the rehab is done, a tenant is paying, and one to three months of rent can be documented. Run the refinance ratio before you buy: if the stabilized rent will not support a DSCR at the permanent lender's floor, typically 1.0 to 1.25, you will be holding 12 percent money with no landing spot. Extensions of 3 to 6 months cost 0.5 to 1 point plus continued interest, and on a $210,000 balance each one burns $1,050 to $2,100 in fees plus $2,100 a month. Stack two of those and a tight flip stops being profitable.