The Quick Read: The loan on a 2-4 unit flip is the lesser of a cost-based cap and a value-based cap, and the lender runs both tests before it offers a number, with the rehab portion held back and released in draws as work is completed and inspected.
- Cost-based sizing typically runs 85% to 93% of project cost, tiered by how many projects the investor has completed.
- Every tier is also capped at 75% of after-repair value (ARV), and that cap is often the one that sets your cash to close.
- Up to 100% of the rehab budget can be funded through draws against completed work. That is a budget figure, not a purchase LTV.
- On 2-4 units, the ARV comes mostly from sales comps, so a thin comp pool is the biggest sizing risk.
- All figures vary by lender, property, and experience, and nothing here is a commitment to lend.
Hard money flip loans are business-purpose loans on non-owner-occupied investment property. They are reviewed on the property, the plan, and the exit rather than on personal income.
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.
Why Two Caps Instead of One
The lender wants to be repaid even if the project goes badly, so it tests the loan from two angles. A cost test limits how much of your own money the lender is replacing. A value test limits how much the loan can be as a share of what the finished building is worth.
Whichever test produces the smaller loan wins. An advertised leverage number only describes the cost test, which means it is a ceiling and not a promise.
Across the wholesale network Lendmire works with, the flip programs follow this structure. The cost-based tiers are the headline, and the ARV cap is the quiet limiter. Investors who only look at the headline tend to be surprised at the closing table by how much cash they need.
Key Terms Defined
As-is value: What the property is worth today in its current condition, which supports the purchase side of the loan.
After-repair value (ARV): The appraiser’s estimate of what the property will be worth once the renovation is finished.
Loan-to-cost (LTC): The loan as a share of total project cost, meaning purchase price plus the rehab budget.
Loan-to-ARV: The total loan divided by the after-repair value, which acts as the value-based cap.
Initial advance: The part of the loan funded at closing, which pays for the purchase.
Holdback: The rehab money the lender keeps in reserve and releases in draws as work is finished.
Draw: A release of holdback funds after the lender confirms that a stage of the work is done.
How Underwriting Sizes the Loan, Step by Step
1. The lender collects the deal inputs. These are the purchase contract, the scope of work and budget, and the borrower’s track record. Documentation is built around the project and the borrower’s assets, not around traditional personal-income documentation.
2. The property gets valued twice. One value is as-is and the other is after repair. The ARV is built from sales of comparable renovated properties, and the appraiser usually sees the rehab budget so the value reflects the finished scope.
3. The cost test runs. Total project cost is the purchase price plus the rehab budget. The lender applies the tier that matches your experience. On the program Lendmire places files with, that is typically 93% of project cost at five or more completed projects, 90% at two or more, and 85% with fewer than two.
4. The ARV test runs. The total loan is capped at 75% of the appraised ARV on every tier. This is the same cap whether you are a first-time flipper or a veteran.
5. The lender takes the lower result. That figure is the maximum loan.
6. Your cash is derived. It is total project cost minus the loan, plus closing costs, carry, and the reserves the lender wants to see. These costs sit outside the loan.
7. The rehab money is held back. The initial advance funds the purchase, and the rehab portion is released in draws against completed work.
Credit also matters. A 620 score is the typical minimum, with added conditions below 660, and first-time investors generally qualify at the lower leverage tiers. Loan sizes run up to $5,000,000, with larger loans by exception. Terms run 6 to 18 months, interest-only, with no prepayment penalty. All of this varies by lender, property, and experience.
Worked Example: Which Cap Binds?
Dollar amounts would only hide the logic here, so the table expresses everything as a share of projected ARV. Assume the investor sits in the 90% tier.
| Scenario | Cost test (90%) | ARV test (75%) | Binding test |
|---|---|---|---|
| Purchase 50 + rehab 20 = cost 70 | 63 | 75 | Cost test |
| Purchase 60 + rehab 25 = cost 85 | 76.5 | 75 | ARV cap |
| Same deal, appraisal 10% lower | 76.5 | 67.5 | ARV cap |
In the first row, the cost test is the smaller number, so it sets the loan amount and the investor funds the remaining share of ARV, plus closing costs and reserves.
In the second row, the project eats up 85% of the finished value. The cost test would allow 76.5, but the ARV cap holds the loan to 75. The investor funds 10 points of ARV out of pocket, more than the 90% tier suggests at first glance.
The same second building changes again for an investor with fewer than two completed projects. At 85% of cost, the cost test gives 72.25, which is below the ARV cap, so the cost test binds and the investor funds 12.75 points of ARV. A five-project investor at 93% would reach 79.05 on cost, but the ARV cap still holds the loan at 75.
The third row shows the appraisal risk. If the appraiser lands 10% below the projection, the 75% cap shrinks to 67.5 in the original ARV terms, and the investor’s cash requirement rises to 17.5 points. The purchase price and budget never changed. Only the value did.
A simple screen follows from this. The 75% ARV cap only binds once purchase plus rehab costs pass roughly 80.6% of ARV at the 93% tier, 83.3% at the 90% tier, and 88.2% at the 85% tier. Below those levels, the advance rate on cost sets the investor’s cash need, and past them the value sets it.
Why 2-4 Units Are Valued Differently
On a 2-4 unit property, the ARV is a sales-comparison number first and a rent number second. Appraisers generally treat one-to-four unit buildings as residential, so Appraisals Unlimited notes they are mainly valued through comparable sales, with rental analysis in a supporting role. Rents that sit below market or rely on concessions get normalized rather than taken at face value. Five units and up shift to commercial, income-driven valuation, which is a different product.
The appraisal form reflects this. The Fannie Mae Selling Guide lists the Small Residential Income Property Appraisal Report, Form 1025, for two- to four-unit properties. Form 1025 includes rental comparables and a rent schedule, so the appraiser reconciles market rent for each unit. Flip loans are not agency products, but this is the standard appraisal vehicle for the property type, so the paperwork looks familiar.
The practical problem is the comp pool. Duplexes, triplexes, and fourplexes sell far less often than single-family homes, so comps can be older, farther away, or imperfect matches on unit mix. When the appraiser widens the search radius, the ARV can come in lower than the investor’s projection.
Features that move rents, such as bedroom counts, finishes, and separate utilities, affect value through the return the building produces. A renovation may support a higher appraised value, depending on comps and underwriter review. It never raises value one-for-one with the rent bump.
Rehab Holdback and Draws
The rehab piece works like a reimbursement cycle. The lender holds back the budget and releases it as stages are completed. Up to 100% of the rehab budget can be funded this way, subject to the overall loan cap, and an inspection usually confirms each stage before a draw goes out.
Three planning points matter on a multi-unit building:
- Early work needs liquidity. Either the investor funds the first stage or the contractor carries it until the first draw.
- Scope is per building, not per unit. The budget should show how work is split across units, especially when only some units are being renovated.
- Interest follows the drawn balance. Interest-only payments rise as draws are released, so a full-gut rehab carries more late in the term than a light cosmetic one.
Where the General Rule Breaks
Thin or mismatched comps. This is the most common edge case. A heavy rehab on a stretched ARV can shrink the loan more than the investor expects.
Heavy rehab relative to price. When the budget is large against the purchase, the project cost climbs toward the ARV cap. The cost tier stops mattering, and the 75% ARV cap sets the loan.
Occupied units. Existing tenants and leases affect the as-is value and the rehab timing. A building with in-place leases may be renovated unit by unit, which changes the draw schedule.
Unit legality. A second or third unit that is not legal or permitted can complicate the appraisal and the comps. Lenders vary in how they treat it, so confirm before relying on the unit count.
Five-plus units. A five-unit renovation is a different financing conversation.
Owner-occupancy. These loans are for non-owner-occupied property. A buyer who plans to live in one unit needs a different product.
Availability. The program is offered in 41 markets, including Washington, D.C., so the property’s location can still be a limiting factor.
What the Decision Looks Like in Practice
Work backward from the loan before you commit. Start with the ARV you think the comps will support, take 75% of it, and see whether your purchase plus rehab leaves a gap you can fund. If the gap is wider than your liquidity, the deal is too stretched at that price, and no leverage tier will fix it.
Then stress the ARV. Ask what happens if the appraisal lands 5% to 10% under your number, because the table above shows how fast that eats into your cash. A deal that only works at your best-case ARV is a deal that depends on the appraiser agreeing with you.
Finally, check the carry. Interest, closing costs, and reserves reduce profit after the loan is sized, so a loan that fits can still leave a thin margin.
Exit planning is where a 2-4 unit has an advantage over single-family. If the rents on the rent schedule support a later hold, many investors refinance out of hard money into long-term rental financing once the property is stabilized, and Lendmire brokers that path. Rental coverage depends on the rent compared with the full monthly obligation, and clearing 1.00 is where select programs start, not a guarantee. Lendmire’s complete DSCR loans guide walks through that exit. Investors weighing the sale route against the hold route will also find that Lendmire’s piece Can You Flip a 2-4 Unit Property With a Hard Money Loan? covers the property-type side of this.
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Frequently Asked Questions
Does the lender size on purchase price or on after-repair value?
Both, and then it takes the lower result. The cost test uses purchase price plus the rehab budget, and the ARV test caps the total loan at 75% of the appraised finished value. On heavier rehabs, the ARV cap is usually the one that sets the loan.
What happens if the appraisal comes in below my projected ARV?
The ARV cap shrinks with it, so the maximum loan falls and your cash requirement rises. The usual responses are putting in more cash, trimming the scope, renegotiating the purchase price, or supplying stronger comps for review. A decline is possible if the gap is large.
How much does experience change the leverage?
It moves the cost-based tier, typically 85% of project cost with fewer than two completed projects, 90% at two or more, and 93% at five or more. The 75% ARV cap applies to all of them. Experience helps most on deals where the cost test is the binding one.
Is the rehab money paid at closing?
No. The initial advance covers the purchase, and the rehab portion is held back and released in draws as completed work is confirmed. Up to 100% of the rehab budget can be funded this way, subject to the overall caps and to lender review.
Can I get 100% financing on a 2-4 unit flip?
No true 100% purchase program exists. The closest thing is the rehab holdback, which can cover up to 100% of the rehab budget in draws, while the purchase side still requires the investor’s own cash. The top cost tier is reserved for experienced investors.
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. For the long-term side of the exit, the team’s explanation of how a DSCR lender sizes down payment on a 2 to 4 unit is the natural follow-up. Lendmire’s phone line is 828-256-2183.
A 2-4 unit flip rewards the investor who sizes the ARV conservatively, because the building’s thin comp pool is what decides the loan far more often than the advance rate does.
For current guidelines and terms, see Lendmire’s DSCR loan programs page.
About Lendmire
Lendmire — NMLS# 2371349 — is a DSCR and non-QM mortgage brokerage with investor loan programs in 41 markets, including Washington, D.C. DSCR eligibility is commonly reviewed by the lender around property-level rent rather than personal income documentation, subject to lender guidelines, and the brokerage helps arrange financing for LLC-owned portfolios beyond conventional financed-property limits. Recognized by Scotsman Guide as a Top Mortgage Workplace in 2025 and 2026.
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References
2. Fannie Mae Selling Guide B4-1.2-01
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Does a Hard Money Fix-and-Flip Loan Need Full Documentation? · Hard Money for a Six-Unit Rehab vs. a 2-4 Unit Bridge Loan · Can an Out-of-State Investor Qualify for a Fix-and-Flip Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.