Fix and Flip Leverage: How Your Loan Amount Actually Gets Sized

One of the most common questions we get is, "How much will you lend me?" The answer is not a single percentage. A fix and flip loan is sized by several tests at once, and the lowest one wins. Once you understand those tests, you can predict your loan amount and the cash you need before you ever submit a deal.

The three numbers that set your loan

• Loan-to-cost (LTC). Your loan as a percentage of total project cost, meaning purchase price plus rehab budget.
• Loan-to-ARV. Your loan as a percentage of the after-repair value. This protects both of us if the project runs over budget.
• As-is loan-to-value. How much of the purchase we fund at closing, measured against the property's current value.

Your loan is the lower of the LTC and loan-to-ARV results. The as-is test then decides how much is funded at closing and how much is held back for the rehab.

A worked example

At PK, fix and flip loans go up to 92.5% of total cost and 75% of ARV. At closing, we fund up to 90% of the purchase price, and the rehab budget is held back for draws.

Say you are buying a house for $200,000 with a $60,000 rehab budget. Total cost is $260,000, and the ARV is $380,000.

• At 92.5% LTC: $260,000 x 92.5% = $240,500
• At 75% of ARV: $380,000 x 75% = $285,000
• At closing: $200,000 x 90% = $180,000, plus the $60,000 rehab holdback = $240,000

The lowest number is $240,000, so that is your loan. You bring $20,000 plus closing costs.

Now say the appraisal comes back with an ARV of $300,000 instead.

• At 75% of ARV: $300,000 x 75% = $225,000

Your loan drops to $225,000, and your cash to close rises to $35,000 plus closing costs. Same house, same budget, $15,000 more out of your pocket. This is why realistic ARV comps matter so much.

How the money is split

Your loan is funded in two pieces:

• Purchase advance. Funded at closing to buy the property.
• Rehab holdback. Held by the lender and released through draws as work is completed and inspected.

In the first example, you receive $180,000 at closing toward the purchase, with $60,000 held back for construction. You pay for the first phase of work, request a draw, and get reimbursed after inspection. Our guide to construction draws walks through that process step by step.

Ask every lender how interest is charged on the holdback. Some charge interest on the full loan from day one. Others charge only on funds actually drawn. At PK, you pay interest only on funds that have been drawn, not on the full holdback.

What moves your leverage up or down

• Experience. Borrowers with a documented track record of similar projects typically qualify for higher leverage.
• Scope. A cosmetic refresh carries less risk than a gut rehab or an addition, and leverage reflects that.
• Location and marketability. Properties in areas with steady sales activity support stronger terms.
• Credit and liquidity. Stronger profiles get better pricing and more room on leverage.

How to get the most out of your loan

1. Buy right. Leverage cannot fix a purchase price that is too high. The best deals are made at acquisition.
2. Support your ARV. Send three to five recent, close comps with similar size and finish. Explain why your property will sell in that range.
3. Build a real budget. A line-item scope of work gets taken seriously. A single lump-sum number does not.
4. Document your track record. A simple spreadsheet of past deals with purchase, rehab, and sale numbers can move you into a better tier.

Run your numbers with us

If you have a deal under contract or in your pipeline, send us the purchase price, rehab budget, and your ARV comps. We will size the loan and tell you how much cash you need to close, so there are no surprises at the closing table.