The Quick Read: Most first flips go wrong in three ways, and you can limit all of them before the offer: pay less than a full-cost model says the house is worth, build the budget from real bids, and pick the exit before you choose the property. Hard money loans are short, interest-only, and underwritten to the property, so every extra month and every missed cost lands on you.
- Margins are thin. ATTOM’s quarterly home flipping report puts the typical flip at a 21.5% gross return, before rehab, financing, and selling costs.
- First-time investors typically sit in the lowest leverage tier, 85% of project cost, and every tier is capped at 75% of after-repair value. This varies by lender, property, and experience.
- Terms run 6-18 months, interest-only, so schedule slippage is the cost you feel first.
- Plan your cash around the full loan term, not the schedule you hope to hit.
- Name a backup exit before closing. A stalled flip can become a rental if the numbers support it.
Key Terms Defined
After-repair value (ARV) is what the finished property should sell for, based on comparable sales.
Loan-to-cost is the loan as a percentage of your total project cost, meaning purchase price plus rehab budget.
Draw is a payment of rehab money released in stages after completed work is confirmed.
Carrying costs are what you pay to hold the property: interest, taxes, insurance, and utilities.
70% rule is a screening formula: maximum offer equals ARV times 70%, minus repair costs.
Exit strategy is how the loan gets repaid, usually by sale, or by refinancing into a long-term loan if you keep the property.
DSCR (debt service coverage ratio) compares a property’s monthly rent to its full monthly housing payment: principal, interest, taxes, insurance, and any association dues.
What this loan actually costs to carry.
Hard money is sized against the project and priced by time. Enter the deal and see how much the program will lend, the cash required at closing, the carry while you hold it, and what is left at the exit.
Leverage tiers on the current program: 85% with fewer than 2, 90% with 2 or more, 93% with 5 or more completed projects — every tier capped at 75% of after-repair value. Loan amounts up to $5,000,000, larger by exception; terms of 6 to 18 months, interest-only, no prepayment penalty. The rehab portion funds in draws against completed work, not at closing.
Program parameters shown update from Lendmire’s centralized guideline source. Rate, points, and months are editable assumptions, not quoted terms.
Cost cap sets the loan · positive spread
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. Rate, points, and months are editable assumptions. Hard money is business-purpose financing for real estate investors, not a consumer mortgage. Leverage on the current program tops out at 93% of project cost for investors with a documented track record, capped at 75% of after-repair value, with rehab funding up to 100% of the documented budget released in draws; actual terms vary by lender, borrower experience, property, and exit. Lendmire is a mortgage broker, not a lender.
What Is the Biggest Risk in a First Hard Money Flip?
The biggest risk is time pressing against a thin margin. A gross return on a flip leaves out rehab, financing, taxes, insurance, and selling costs, which ATTOM says experienced flippers put at 20% to 33% of ARV.
Three failure modes account for most first-flip losses. You overpay because you trusted an optimistic ARV. You underbudget the rehab or the schedule. Or the house is finished and does not sell, and you have no backup.
The loan structure makes each of those worse. Hard money terms commonly run 6-18 months, interest-only, with no prepayment penalty. Interest-only means the balance never shrinks while you hold. The missing prepayment penalty helps, because you can sell or refinance early without a fee, but the maturity date is still firm. Terms vary by lender, property, and experience.
How Do You Pick a Safe First Project?
Pick a cosmetic rehab on a one-unit property in a market where you can verify resale prices with recent comparable sales. Hard money programs in Lendmire’s wholesale network lend on non-owner-occupied residential property, generally one to four units, and a single-family house keeps your first project simple.
Avoid structural work on a first deal. Foundation, roof framing, and major system replacements are where budgets break. Cosmetic work (paint, floors, kitchens, baths, fixtures) is easier to bid and easier to finish on schedule.
Price tier matters too. Per the Mecklenburg Times reprint of ATTOM’s release, homes bought between $100,000 and $200,000 produced typical margins of 28%, the $200,000 to $300,000 tier produced 26%, and the $300,000 to $400,000 tier produced 20%. Those are national tiers, not a promise about any one market. They do show that margin shifts with the price of the house you buy.
Then check demand. Look at how many comparable houses sold recently, how long they took, and whether they sold near asking. If you cannot find at least a few clean comps, you cannot trust your ARV. Lendmire’s piece How to Support Your ARV on a First Flip With Hard Money walks through that step.
How Do You Lower Your Risk When Pricing the Offer?
Run the 70% rule first, then check it against a line-item model. FlipperForce shows the math: a $200,000 ARV with $65,000 of repairs gives a $75,000 maximum offer. That is 70% of ARV, or $140,000, minus the repairs.
The 30% you held back is not all profit. Roughly half of it is profit and half goes to buying, holding, selling, and financing costs. Treat the rule as a screen that tells you which deals deserve a deeper look.
It is also not a law. The rule tends to work best on mid-priced homes, and a lower-priced flip needs a deeper discount because there is less room to absorb rehab surprises, as BiggerPockets contributors describe. Once a deal passes the screen, build the real model: ARV, minus purchase price, minus rehab, minus every fee, equals net profit.
Remember that the lender sizes its loan against its own ARV, which comes from an appraisal. In Lendmire’s network, fix-and-flip loans are capped at 75% of after-repair value at every experience tier. If the appraiser lands below your number, the loan shrinks and your cash requirement grows. Price your offer off the more conservative of the two values.
What Happens When a Flip Goes Wrong?
A stress test shows how little slippage a 15% profit can absorb. The table below is a modeled example, not market data. It assumes a $200,000-ARV house bought and rehabbed at the 70% rule, with rehab at 32.5% of ARV and total holding, financing, and selling costs at 15% of ARV, leaving a 15% profit. Each downside is stated as a share of ARV.
| Scenario | Change (modeled) | Profit, % of ARV |
|---|---|---|
| Base case | None | 15.0% |
| Rehab runs 20% over | Adds 6.5 points of cost | 8.5% |
| ARV comes in 5% lower | Removes 5 points of sale price | 10.0% |
| Hold runs 3 months long | Adds 3 points of carry | 12.0% |
| All three at once | Combined | 0.5% |
No single problem wipes you out. Three ordinary problems together do. That is why first-timers should treat a 15% projected profit as a thin cushion, not a comfortable one.
The table also stops at pre-tax profit.
How Do You Build a Budget and Timeline That Survive Surprises?
Budget every layer of cost, bid the work for real, and set a schedule that ends well before loan maturity. Your cost stack should include repairs, monthly carrying costs, buying costs, selling costs, and a contingency line sized to the scope. Older houses and deeper rehabs deserve a bigger cushion.
Get written bids before you close, even from a crew you trust. Forbes Business Council guidance on flipping speed recommends bids from trusted crews as well, because they keep costs aligned with the market. It also advises settling the draw schedule, the check-in cadence, and the reporting before work starts, and ordering long-lead items right away.
Before you hire anyone, confirm four things:
- The contractor is licensed and insured where the property sits.
- You have spoken to references on similar projects.
- The scope of work is written, itemized, and signed.
- Payments are tied to completed milestones, not dates.
Draws deserve their own plan. Hard money programs in the network typically fund up to 100% of the rehab budget in draws against completed work. That is a rehab-budget feature, not a purchase loan. Because draws reimburse work already done, you need cash to carry each stage until the next release. Contractor delays can stall draws, and stalled draws stall the project.
Then work backward from maturity. If the term is 12 months, aim to finish the rehab and list the house with several months still left. Every month of margin you keep in the schedule is a month of carry you can absorb.
How Much Cash Do You Need Beyond the Down Payment?
Plan on more than the down payment. A first-time investor typically lands in the lowest leverage tier in the network: 85% of project cost, meaning purchase plus rehab. That rises to 90% of project cost at two or more completed projects and 93% at five or more, with the top tier reserved for experienced investors. Every tier stays capped at 75% of ARV, and all of it varies by lender, property, and experience.
No program funds 100% of the purchase. The 100% figure applies only to the rehab budget, paid out in draws. Credit matters as well: the network’s minimum score is 620, with additional conditions below 660, though underwriting stays centered on the property, the plan, and the exit.
Size your reserves with a simple method:
1. Add up monthly carrying costs: interest, taxes, insurance, and utilities.
2. Multiply by the full loan term, not your planned schedule.
3. Add your contingency line.
4. Add selling costs.
5. Keep that total in cash, separate from your down payment.
If that number makes the deal uncomfortable, the deal is too big. Borrowing less than the maximum is allowed and often wise. A lower balance means lower carry and a wider cushion for every scenario in the stress test above.
What Should You Check Before Closing?
Check the title, the property, the plan, and the paperwork. Each item below is cheap to confirm now and expensive to discover later.
- Order an inspection and read it against your scope of work.
- Review title for liens and unpaid obligations.
- Confirm permits and zoning allow the planned work.
- Ask your insurer about coverage during a vacant renovation.
- Decide how you will hold title. Many investors close in an LLC, subject to lender program eligibility.
- Read the loan agreement for term, extension options, draw procedures, and fees.
Extension options deserve a direct question. Some lenders allow them, but terms vary, so negotiate that before signing rather than after you need it.
The table below ties the main risks to a warning sign and a control.
| Risk | Early warning | Control | Phase |
|---|---|---|---|
| Overpaying | Few or loose comps | Full-cost model | Pre-offer |
| Rehab overrun | One bid, vague scope | Multiple written bids | Pre-closing |
| Schedule slip | Permits not filed | Work back from maturity | Rehab |
| Cash shortfall | Draws lagging work | Reserves sized to term | Rehab |
| No sale | Stale listing | Price plan, backup exit | Listing |
What Is Your Exit, and What Is the Backup?
Your primary exit is a sale, and your backup should be decided before you make the offer. The backup that many investors use is to rent the property and refinance out of hard money into long-term DSCR investor loans once it is stabilized. Lendmire arranges that path through select lenders in its wholesale network.
That backup only works if the property can qualify on its post-rehab value and rent, so test it before you buy. DSCR compares rent to the full monthly housing payment. It does not count repairs, vacancy, management, or utilities, so clearing the coverage test is not the same as positive cash flow. The complete DSCR loans guide explains the loan itself. Leverage, credit, reserves, and seasoning all apply, and every file is reviewed individually.
Here is a simple decision path for a stalled sale, keyed to the term remaining:
1. Midway through the term, no offers: review price and presentation against recent sales.
2. A few months of term left, still unsold: cut the price, or open the extension conversation with your lender.
3. Close to maturity, still unsold: if rent would cover the full monthly obligation and the property fits a long-term program, begin the refinance.
4. Rent does not cover it: sell at the best available price rather than let the loan mature.
The point of that tree is to decide the triggers now, while you are calm.
When Should a First-Timer Walk Away?
Walk away when the deal needs everything to go right. These conditions are reasons to stop:
- You cannot find solid comps to support the ARV.
- The project needs structural work you cannot price.
- Your reserves do not cover the full loan term plus contingency.
- The margin disappears in the stress test with one modest overrun.
- You have no exit if the house does not sell.
There are lower-risk ways to start. You can borrow below the maximum, bring in a partner, or pick a smaller cosmetic project. A first flip is also optional. Some investors learn the market on a buy-and-hold rental first.
Frequently Asked Questions
Can a first-timer get a hard money loan without a flip history?
A first deal can be reviewed, though it typically lands in the lowest leverage tier, 85% of project cost, capped at 75% of ARV. The network’s minimum credit score is 620, with additional conditions below 660. Underwriting centers on the property, the plan, and the exit. Terms vary by lender, property, and experience, and nothing is a commitment to lend.
How big should my contingency be?
Size it to the scope rather than copying a flat number. Older houses, deeper rehabs, and thin local contractor pools all call for a larger cushion. Test your contingency against the stress test above: if one overrun plus a longer hold leaves you near zero, either the contingency or the offer price needs to change.
What happens if the flip does not sell before maturity?
You have three paths: reduce the price, ask the lender about an extension, or rent the property and refinance into long-term financing. Prepayment is allowed without a penalty, so a sale or refinance at any point in the term costs no extra fee. The extension and refinance options depend on lender guidelines and the property.
Should I use the maximum leverage available?
Not necessarily. The maximum is a ceiling, not a target. Borrowing less lowers your carry and adds cushion if the rehab or the sale goes sideways. The cap at 75% of ARV applies regardless, so a lower appraisal can shrink the loan even if you wanted the full amount.
Does the lender fund the rehab up front?
Rehab money typically arrives in draws, released against completed work, for up to 100% of the rehab budget. You carry early costs until each draw is confirmed, so keep cash on hand.
Next Steps
If you are buying, rehabbing, or refinancing an investment property on a short timeline and want to see how the numbers work, Lendmire can help you compare hard money options based on the project, the exit plan, leverage, and your goals. As a broker, Lendmire arranges financing through select lenders across 41 markets, including Washington, D.C. Whether a loan fits depends on the lender, the property, and your experience.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed around property-level rental income rather than personal income, subject to lender and program guidelines, a fit for self-employed investors and LLC-owned portfolios. Lendmire was recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
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References
1. attomdata.com: Home Flipping Profits Continue Gradual Two Year Decline
2. Mecklenburg Times reprint of ATTOM’s release
3. FlipperForce: the 70% rule formula
4. BiggerPockets: Fix n Flip 70% rule
5. Forbes Business Council: flipping velocity
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Get a Hard Money Loan to Fix and Flip a Triplex? · Does a Hard Money Loan on a Condo Have a Lower Borrowing Limit? · Should You Take a DSCR Loan to Pay Off a Hard Money Flip?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.