Fix-and-Flip Loans: 6 Things Every Borrower Should Know

Home renovation and flipping shows on TV highlight some of the challenges of completing these types of projects, but until you have done one yourself, you don’t really know what's in store. Although you should always prepare for surprises when flipping a home, the more research you do, the better prepared you will be for the unknown. Understanding the potential challenges that might arise will also serve you well when pursuing fix-and-flip loans.

6 Lessons Learned from House Flipping

Here are pro tips to avoid some of the most common pitfalls of fix-and-flip projects.

1. Expect the unexpected.

Renovations are guaranteed to come with surprises. Always conduct a professional inspection and budget for hidden issues. You never know what’s hiding behind the walls of a home, so be prepared to encounter:

• Roof leaks
• Electrical issues
• Mold
• Structural problems
• Hidden water damage
• Pests

Budgeting for unexpected fix-and-flip costs can help keep a project on track, even when those curveballs keep coming.

2. Build extra funds into the budget.

Even the most experienced flippers will face unexpected expenses. Add a buffer to your budget so you have extra funds to use while still making a profit on the flip. If you don’t have to use these funds, it’s just a bonus.

Projects almost always go over budget, not under, so make sure you have sufficient funds on hand to cover overages if they occur. Many fix-and-flip investors plan on a 10-20 percent financial contingency to protect their profits.

3. Build extra time into the timeline.

Factor in non-negotiable delays. In addition to costing more than initially budgeted, many fix-and-flip projects also take longer than expected, even with an experienced contractor. Plan on extra time for the various challenges out of your control, such as:

• Delayed materials
• Overbooked subcontractors
• Weather delays
• Permitting issues
• Poor time estimates

4. Pay attention to the market.

Be ready to pivot your strategy to adapt to changing market conditions. The renovation landscape is in constant fluctuation, including changes in interest rates and access to labor. What was a good value when you purchased the home could change by the time you’re ready to sell it. 

Depending on the situation, some of your options might include:

• Selling the home before the renovations have been completed to avoid a loss.
• Reducing the budget and shortening renovation time if you're trying to get the property on the market in time to respond to seasonal fluctuations.
• Completing the renovation, converting the loan to a regular mortgage, and maintaining the home as a rental property.
• Adjusting the scope of the renovation to account for unexpected costs.
• Building out the house to follow trends. For example, multi-generational homes and accessory dwelling units (ADUs) have become a popular way for buyers to reduce the cost of living.

5. Keep an eye on the bottom line.

Every unexpected cost eats into your potential profit. Have a solid understanding of all your costs and the financial impact of every decision you make. This includes decisions that will delay the timeline, as every month you delay means another month of loan payments, resulting in a further reduction in potential profit.

6. Remember that conventional financing isn't always an option.

Even if you have great credit and a solid history of paying down debt, you might not be able to get a fix-and-flip loan from a conventional lender. Much of the time, the reasons why conventional banks deny fix-and-flip loans have nothing to do with your relationship with the lender but rather the limitations on the types of loans they can finance. Other factors, such as the condition of the property, also play a role, and fix-and-flip projects don’t always meet the criteria for conventional lenders. 

How to Secure Fix-and-Flip Financing

Moving quickly to lock down a fix-and-flip opportunity requires fast access to financing. If you have bad credit or difficulty providing proof of income through tax returns, getting a conventional loan can be challenging, not to mention slow. Fortunately, you have options. 

When traditional lenders won't fund the project due to the property condition or borrower profile, hard money lenders can provide the necessary equity-based financing. Because the loan is based on equity, if you own property, you can likely access funding for your fix-and-flip project. Plus, you get the bonus of being able to move faster than the competition.

Fund Your Fix-and-Flip Project with Socotra Capital

Socotra Capital offers flexible rehab loans to fund your fix-and-flip project. As a direct lender, we service our loans from start to finish and work with borrowers to ensure their projects are successful.

To learn more about how to get financing for your next flip, read https://www.socotracapital.com/the-borrowers-guide-fix-and-flip-hard-money-loans today.

This blog was originally published February 2022 and updated October 2025