Fix & flip loans: the structure
A typical 2026 flip loan funds a large share of the purchase price at closing plus up to 100% of the rehab budget in draws — with the total loan capped around 70–75% of the after-repair value. Pricing lives in hard money territory: roughly 9–12% interest and 1.5–3 points for most borrowers (see the hard money guide for the full cost anatomy), on 6–18 month terms.
Worked example, illustration only: buy at $500,000 with a $100,000 rehab budget and a supportable $800,000 ARV. A 72%-of-ARV cap allows a $576,000 total loan — enough to fund, say, ~$476,000 of the purchase plus the full rehab in draws, with you bringing the balance plus costs. The two numbers doing all the work are the ARV and the budget — which is why lenders order an as-is and after-repair appraisal, and why padding your own numbers only borrows trouble at resale.
How draws actually pay out
- Draws are reimbursement-style at most lenders: you complete a stage (demo, rough plumbing/electrical, drywall), an inspector verifies it, then the money releases — typically in days. You need working capital to front each stage; the draw schedule is not a checking account.
- Interest usually accrues only on funds drawn, not the whole commitment — a real cost saver on longer rehabs.
- Know the mechanics before closing: how many draws, inspection turnaround, per-draw fees, and what documentation each release needs. Slow draws break more rehab schedules than slow contractors.
Ground-up construction for investors
Building instead of renovating changes the leverage math and adds two line items nobody budgets the first time:
- Loan-to-cost: private construction lenders commonly go to 80–85% of total project cost (land + hard costs + soft costs); banks are more conservative — often 60–65% LTC at better rates. Bank construction money in early 2026 has run roughly 7–8.5%, floating; private money prices above that for the extra leverage and speed.
- Interest reserve: most lenders build 6–12 months of interest into the loan at closing so the project pays its own interest during the build — convenient, but it consumes part of your leverage, because the reserve counts inside the loan-to-cost cap.
- Contingency: expect a required 5–10% of the construction budget held for overruns. If your budget only works without a contingency, it doesn't work.
- California timeline reality: permit and inspection timelines vary enormously city to city, and your lender's clock starts at closing, not at permit issuance. Builder's-risk (course-of-construction) insurance is its own quote — and in fire-zone areas, get that answer before you buy the lot.
The timeline math that decides everything
Take the flip example above: roughly $5,300 a month of interest at 11% on a $576,000 loan, plus taxes, insurance, and utilities — call it $7,000+ a month of carry. A project that slips from 8 months to 14 costs an extra ~$42,000 plus an extension fee, against a sale price that didn't move. Budget the schedule as carefully as the rehab: permit lead times, contractor availability, and a sale period measured from your market's actual days-on-market, not your optimism. Experience is also priced in directly — first-project borrowers typically see lower leverage and higher rates until they've closed a few; bring a licensed, insured GC with a track record and your file reads better.
The exit is the underwriting
Every short-term construction dollar needs a destination:
- Sell — the classic flip exit. Know your resale comps cold; the sold data is public and your buyer's agent will know it too.
- Refinance and rent — the build-to-rent / BRRRR exit: replace the construction note with a DSCR loan once the property is stabilized and renting. Underwrite that exit before you start: today's DSCR math on tomorrow's rent, with honest numbers, plus seasoning requirements some DSCR lenders impose after construction.
- Hold with a bank take-out — construction-to-permanent structures exist (mostly bank-side, and for owner-occupied builds there are consumer one-close products); if that's the plan, line up the take-out before breaking ground.