Most house flippers don’t pay for the entire project out of pocket. They use some combination of borrowed money, investor capital, and personal funds to cover the purchase price, renovation costs, and carrying expenses until the property sells. The right funding strategy depends on how much cash you have available, your credit profile, your experience level, and how quickly you need to close.
Hard Money Loans
Hard money loans are the most common financing tool for house flips. These are short-term loans issued by private lending companies that focus on the property’s value rather than your income or employment history. A typical hard money loan runs 6 to 18 months, which aligns with the timeline of most flip projects.
Interest rates currently range from 9.5% to 12% for a first-position loan, with second-position loans running 12% to 14%. On top of the interest, expect to pay origination fees (called “points”) of 1 to 4 points upfront. One point equals 1% of the loan amount, so on a $200,000 loan, 2 points costs you $4,000 at closing. Lenders also typically require a down payment of 20% to 30% of the purchase price.
What hard money lenders evaluate most closely is the property’s after-repair value, or ARV. That’s the estimated market price once renovations are complete. Most lenders will fund up to 65% to 75% of the ARV, which means the deal itself needs to have enough margin built in. They’ll also look at your real estate experience, your renovation plan, and your exit strategy, meaning whether you plan to sell the property or refinance into a longer-term loan. First-time flippers can still get approved, but you may face higher rates or need a larger down payment.
The advantage of hard money is speed. Many lenders can fund a deal in one to two weeks, which matters in competitive markets where sellers want fast closings. The downside is cost. Between interest, points, and fees, hard money is expensive, so your project needs healthy profit margins to absorb the financing costs and still leave you with a worthwhile return.
Private Money From Individuals
Private money lending works similarly to hard money but comes from individual investors rather than lending companies. These are people with capital to deploy, often friends, family members, colleagues, or contacts you meet through local real estate investment groups, who lend you money secured by the property.
Interest rates on private loans typically range from 8% to 15%, depending on the deal’s complexity, the borrower’s track record, the property location, and the loan term. Points usually fall in the 1 to 4 range, just like hard money. The key difference is that terms are negotiable. You and the lender agree on a rate, a repayment schedule, and collateral terms directly. Some private lenders prefer a flat interest return, while others may want a share of the profits in exchange for a lower rate or no interest at all.
Finding private money takes relationship-building. Local real estate investor meetups, online forums, and real estate investing associations are common starting points. When approaching a potential lender, come prepared with a detailed project budget, comparable sales that support your ARV estimate, a realistic renovation timeline, and a clear explanation of how and when they’ll get their money back. Private lenders are betting on you as much as the deal, so demonstrating competence and transparency goes a long way.
Home Equity on Your Primary Residence
If you own a home with significant equity, a home equity line of credit (HELOC) can be one of the cheapest ways to fund a flip. HELOC rates are tied to the prime rate and typically run several percentage points lower than hard money. You draw funds as needed, pay interest only on what you use, and repay the balance when the flip sells.
Most lenders cap your combined loan-to-value ratio (CLTV) at 85%, though some allow up to 90%. CLTV combines your existing mortgage balance with the HELOC limit and measures that against your home’s appraised value. So if your home is worth $400,000 and you owe $250,000 on your mortgage, an 85% CLTV cap means your total borrowing can’t exceed $340,000, leaving up to $90,000 available through a HELOC. Your debt-to-income ratio also matters. Most lenders want your total monthly debt payments (including the new HELOC) to stay at or below 43% of your gross monthly income, though some will stretch to 50% for strong borrowers.
The risk here is real: you’re putting your primary residence on the line for an investment project. If the flip goes badly and you can’t repay the HELOC, your home serves as collateral. This approach works best for experienced flippers who have confidence in their numbers and a financial cushion to handle surprises.
Business Lines of Credit
Once you’ve completed a few flips and have an established business entity, a business line of credit can give you revolving access to capital without needing to secure a new loan for every project. You draw funds when you find a deal, repay after the sale, and the credit line replenishes.
Qualifying is harder than with hard money. You’ll generally need 12 to 24 months of business credit history, along with business bank statements, profit and loss statements, and balance sheets covering that same period. Most lenders run a personal credit check and may require a personal guarantee, meaning you’re personally liable if the business can’t repay. Interest rates vary widely based on your credit profile and business financials, but they’re often lower than hard money for borrowers with strong track records.
This option is better suited for flippers who are scaling up and doing multiple projects per year. For a first or second flip, hard money or private lending is more accessible.
Partnerships and Joint Ventures
If you have the skills to manage a renovation but lack capital, partnering with an investor is a common path. In a typical arrangement, one partner provides the funding and the other handles the project: finding the deal, managing contractors, overseeing the renovation, and selling the property. Profits are split according to whatever terms you negotiate upfront.
Profit splits vary widely. A 50/50 split is common when the money partner funds the entire project and the managing partner does all the work. If you’re contributing some capital or bringing a particularly strong deal, you might negotiate a larger share. The structure matters less than having a clear, written agreement that spells out each partner’s responsibilities, how expenses are handled, what happens if the project goes over budget, and how profits (or losses) are divided.
Many flippers start with joint ventures on their first deal or two, then transition to hard money or private lending once they have a track record and some capital of their own. The tradeoff is straightforward: you give up a portion of your profit in exchange for not needing to qualify for a loan or put up your own money.
Self-Directed Retirement Accounts
A self-directed Solo 401(k) or self-directed IRA can legally invest in real estate, including fix-and-flip projects. The profits flow back into the retirement account tax-deferred (or tax-free with a Roth account), which can accelerate long-term wealth building.
The rules are strict. All income from the property must be deposited back into the retirement plan, and all expenses, including property taxes, contractor payments, and materials, must be paid from plan funds. You cannot mix personal funds with the account’s money. You also cannot personally perform work on the property (known as “sweat equity”), live in it, or let disqualified persons like close family members use it. Breaking these rules can trigger penalties and potentially disqualify your entire retirement plan.
One advantage of the Solo 401(k) over a self-directed IRA is tax treatment. IRAs that generate more than $1,000 in annual income from certain activities can trigger Unrelated Business Taxable Income, with rates as high as 37%. Solo 401(k) plans are exempt from this tax under the tax code, making them more favorable for active real estate investing. If your Solo 401(k) holds more than $250,000 in total assets, you’ll need to file IRS Form 5500-EZ annually.
This strategy works best for people who already have substantial retirement savings and want to invest in real estate within a tax-advantaged structure. It’s not a way to fund your first flip if you’re starting from scratch.
Combining Multiple Funding Sources
Most flippers, especially early on, piece together funding from more than one source. A common approach is using personal savings for the down payment and closing costs, then financing the rest with a hard money loan. Another is securing a HELOC for the purchase and using a credit card or personal savings for renovation costs. As you gain experience and build capital, you might fund acquisitions with a business line of credit while using cash reserves for renovations.
Whatever combination you choose, run your numbers before committing to any deal. Add up the purchase price, estimated renovation costs, carrying costs (loan interest, insurance, property taxes, utilities), and selling costs (agent commissions, closing costs, transfer taxes). Subtract all of that from your realistic ARV. The number left over is your potential profit. If it doesn’t leave a comfortable margin after accounting for surprises and cost overruns, the financing terms don’t matter because the deal itself doesn’t work.