1. What is a Fix and Flip Loan?

A Fix and Flip loan is a short-term, asset-based financing solution specifically designed for real estate investors. Unlike traditional 30-year mortgages, these loans focus on the property's potential rather than just the borrower's personal income.

Objective: To provide capital for the acquisition and renovation of distressed properties.

Loan Term: Typically 6 to 36 months.

Payment Structure: Most are Interest-Only payments, meaning you only pay the interest monthly, and the full principal is paid back (the "balloon payment") when you sell or refinance the property.

Speed: These can often close in 7–28 days, allowing investors to beat out traditional buyers.

2. Key Financial Metrics

To train your bot, it needs to know these three acronyms inside and out:

ARV (After Repair Value): The estimated value of the home after all renovations are complete. Lenders typically lend up to 70–75% of the ARV.

LTC (Loan to Cost): The ratio of the loan compared to the total project cost (Purchase + Rehab). Many lenders cover up to 85–90% of the purchase and 100% of the rehab.

As-Is Value: The current value of the property in its "dirty" or distressed state before you touch it.

💰 How the "Draw Process" Works

This is usually the most confusing part for new investors. A "Draw" is simply a disbursement of the renovation funds that the lender is holding in escrow. Lenders do not give you the full renovation budget upfront; you have to "earn" it.

1. The Staged Disbursement (In Arrears)

Most Fix and Flip loans work "in arrears." This means you (or your contractor) do the work first, and then the lender reimburses you.

Example: You complete the "Demo and Rough-in Plumbing" phase using your own cash or a credit line. You then request a draw to get that money back from the lender.

2. The Step-by-Step Draw Cycle

Milestone Completion: You finish a specific stage of the Scope of Work (SOW) (e.g., Roof and Windows).

Draw Request: You submit a request via the lender’s portal with photos and/or invoices.

Inspection: The lender sends a 3rd party inspector to the property to verify the work is actually done.

Verification: The inspector confirms, for example, that the "Kitchen Cabinets" are installed and not just sitting in boxes on the floor.

Funding: The lender wires the funds (minus a small inspection fee) to your account—usually within 1-3 business days.

3. Draw Best Practices

Contingency Fund: Always keep a 10–15% cash buffer. Since draws are reimbursements, you need "float" money to pay your workers while waiting for the lender's wire.

The Scope of Work (SOW): This is your "bible." If the SOW says "Quartz Countertops" and you install "Laminate," the inspector may fail the draw.

Lien Waivers: Smart investors collect "Lien Waivers" from subcontractors before paying them. This proves to the lender that the people doing the work have been paid and won't put a legal claim on the house.