Eight weeks ago, in the issue about loan lanes, I said flip financing works differently and that we would come back to it. This is that issue.

The timing turned out better than planned. The most recent flip data reversed a seven-quarter slide, and the number being quoted everywhere is a 25.4% profit margin. That number is real. It is also gross, which means it leaves out most of what a flip actually costs you. The firm that publishes it says so directly.

The gap between that headline and your bank account is mostly financing. Here is how it works, and how to price it before you commit.

What it signals: Flip margins stopped falling, which is genuinely good news after two years of compression. But the improvement is thin, it is concentrated in one price band, and it arrived in a market where buyer absorption is slipping and builders are discounting into your exit. This is not a green light. It is a narrow lane, and the financing is what determines whether you fit inside it.

What's happening:

In June we covered the rental lane, where three inputs decide your terms: your credit, your cash, and the deal's DSCR. Two of those three are about you.

Flip financing inverts that. A hard money or bridge lender is underwriting the property and the timeline, not your W-2. They are asking one question: if you disappear, can they sell this thing and get their money back? That single question sets your rate, your leverage, and your ceiling.

Translation:

Three costs decide a flip loan, and only one of them is the interest rate.

The rate runs roughly 9% to 12% for residential fix-and-flip borrowers with a track record in 2026, higher for first-timers and for ground-up work. It is usually interest-only, charged on what you have actually drawn.

The points are the part beginners forget. Lenders commonly charge 1 to 3 origination points, paid at closing. One point is 1% of the loan. On a $228,000 loan, two points is $4,560 gone before a single contractor shows up.

The ARV cap is what usually kills the deal. Residential lenders commonly cap at about 70% of after-repair value, sometimes stretching to 75%, no matter how good your purchase price looks. That cap, not your down payment, is typically the binding constraint. Run it first.

Then there is the cost nobody quotes you, because it is not on the term sheet: time. Interest, taxes, insurance, and utilities keep running every day the property sits. On a typical project that is well over $2,000 a month, and an extension fee at the end is often another full point.

Your play this week:

Why you care:

The investor who shops the rate signs at 10% and finds out in month seven that points, draws, carry, and an extension fee ate the whole spread. The investor who prices the full cost of the money up front knows the real number before committing, and walks away from the deals that only work on paper.

Setup: An investor finds a cosmetic flip that matches this quarter's typical numbers almost exactly. Purchase price $260,000. Realistic resale $326,000. That is a $66,000 gross profit, a 25.4% margin, identical to ATTOM's Q1 figure. Light rehab: $20,000 in paint, flooring, and fixtures. She expects six months start to finish.

Trap: She reads the headline margin as her return. It is not. ATTOM's gross profit is resale price minus purchase price, and nothing else. It does not subtract rehab, financing, holding, or the cost of selling. Those are exactly the costs a flip is made of.

Reality: Here is the same deal with every cost counted.

Her lender caps the loan at 70% of resale value. Multiply $326,000 by 0.70 and the ceiling is $228,200. Total project cost is $260,000 plus $20,000, or $280,000. Subtract the loan from the project cost and she is bringing $51,800 of her own cash before fees.

The interest line is worth walking through, because it is the one people guess at. Her average drawn balance across the project is roughly $205,000. Multiply that by 10.5%, then divide by 12, and monthly interest is about $1,794. Multiply by six months and you get $10,764.

Resale of $326,000 minus all-in of $321,988 leaves $4,012. Divide that by her $321,988 of cost and the real return is about 1.2%, on a deal the headline called 25.4%.

Now add the delay. The house takes nine months, not six. Three more months of interest is $5,382. Three more months of holding is $1,800. The extension fee, one point, is $2,282. That is $9,464 more, and her $4,012 profit becomes a $5,452 loss.

Worth noting how generous this example is to the flip. Everything above rehab, financing, holding, closing, and selling adds to about $62,000, which is roughly 19% of the $326,000 resale. ATTOM says veterans put those costs at 20% to 33% of after-repair value. This deal is priced better than the typical flip and still nets 1.2%.

Fix: Underwrite the gross margin down to a net number before you make an offer, and stress the timeline before you fall in love with the spread. On this deal she needed either a purchase price near $235,000 or a rehab under $10,000 to clear a real double-digit return. The headline was never the deal. It was the starting point of the arithmetic.

Every term above, plus 35 more, lives on the Investor Glossary.

Flip returns rose this quarter for the first time since 2024, and that is worth knowing. But the number in the headline is gross, and the gap between gross and net is almost entirely the cost of the money and the cost of time. Price both before you offer, and the flips worth doing separate themselves from the ones that only look good on a listing.

Not every property is worth your time. The edge is knowing which ones are.

The fuller version of this, the loan-lane routing from June, how to build a lender stack before you need one, and the pre-approval that holds up when a seller's agent calls to verify it, is written down in Fund the Deal First, attached at the end of the June 16 issue.

Educational only. Not financial, legal, or tax advice. Loan terms, rehab costs, and market conditions vary by lender, property, and location. Verify all assumptions with qualified professionals before investing.

Until next time,

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