From hard money loans to partnerships — understand every financing option available to new investors.
One of the biggest barriers for new house flippers isn't finding deals — it's funding them. Most people don't have $200,000 in cash sitting in a savings account. The good news is that you don't need to. Multiple financing options exist, each with different requirements, costs, and trade-offs. Understanding them is essential to choosing the one that fits your situation and your deal.
Hard money loans are the most common financing method for house flippers. These are short-term loans (typically 6 to 18 months) issued by private lending companies, secured by the property itself rather than your personal creditworthiness.
Fast closing (often 7-14 days), credit score is less important, many lenders will fund renovation costs as part of the loan, and the approval process focuses on the deal's profitability rather than your personal income.
Expensive — on a $200,000 loan at 12% with 3 points, you'll pay $6,000 upfront in points plus $2,000 per month in interest. If your project takes six months, financing costs alone are $18,000. You also need cash for the down payment, which typically runs $20,000 to $50,000.
Private money comes from individuals — family members, friends, colleagues, or people in your real estate network — who lend their personal funds in exchange for a return. This is relationship-based lending, not institutional.
More flexible terms than hard money, lower rates, negotiable structure, and faster decisions. A private lender who trusts you might fund 100% of the purchase and renovation, eliminating the need for a down payment entirely.
Mixing money and personal relationships creates risk. If the deal goes sideways, you could damage an important relationship. Always formalize the arrangement with proper legal documents — a promissory note, deed of trust, and clear repayment terms — even with family.
Traditional mortgages from banks and credit unions are the cheapest form of financing, but they come with significant limitations for flippers.
Lowest interest rates available, no points on most products, and predictable monthly payments.
Slow closing timelines mean you'll lose competitive deals to cash buyers. Banks require strong credit scores (typically 680+), documented income, and low debt-to-income ratios. Most banks will not lend on properties in poor condition, which is exactly the type of property flippers buy. Many conventional loans also have seasoning requirements that prevent you from selling within 90 days of purchase.
If you own a primary residence with significant equity, a HELOC lets you borrow against that equity to fund your flip.
Low interest rates, flexible draw schedule (you only pay interest on what you use), no origination points, and the ability to reuse the line of credit across multiple flips as you pay it down and draw again.
Your primary residence is the collateral. If the flip fails and you can't repay the HELOC, you risk losing your home. This is a serious risk that should not be taken lightly. Additionally, HELOCs have variable rates, so your borrowing costs can increase if interest rates rise during your project.
A partnership splits the responsibilities and the profits. Typically, one partner provides the capital (the money partner) and the other provides the labor, expertise, and project management (the working partner).
No personal capital required from the working partner, shared risk, and access to deals you couldn't fund alone. For money partners, it's a way to invest in real estate passively with higher returns than traditional investments.
You're giving up 50% of the profit. On a flip that nets $50,000, your share is $25,000 for potentially the same amount of work. Partnerships also require clear operating agreements, defined roles, and an exit strategy for disagreements. Without these, partnerships can dissolve badly.
In seller financing, the property seller acts as the lender. Instead of paying the full purchase price at closing, you make payments directly to the seller over an agreed-upon term.
No bank qualification required, creative structuring is possible, potentially lower down payments, and fast closings. Seller financing is particularly useful for properties that banks won't lend on due to condition issues.
Not every seller is willing or able to offer financing. Sellers who need the proceeds from the sale to buy their next home won't consider it. The best candidates for seller financing are estate sales, absentee owners, and landlords looking to exit without a large tax event.
Your financing choice depends on your capital, credit, timeline, and risk tolerance. If you have no capital and no track record, a partnership is likely your best entry point. If you have good credit and a primary residence with equity, a HELOC offers the lowest cost of capital. If you have some cash for a down payment and need to close fast, hard money is the industry standard.
Whatever you choose, always calculate the total cost of financing — not just the interest rate — and build it into your deal analysis before making an offer. The cheapest money isn't always the best money if it comes with strings that slow you down or add risk you can't afford.