How does fix and flip financing actually work?

Hi, this is Jason Skelton with Pacific National Lending.

Welcome to another Q&A session where I answer mortgage questions from you all on the internet.

Today's question is:

"How does fix and flip financing actually work?"

Summary:

Jason reveals that his team moved away from conventional lenders for fix and flip financing because those loans were expensive and carried strict guidelines. Instead, they partnered with local investors — individuals with capital who are specifically seeking short-term placements because they do not want funds tied up for long periods. He describes the arrangement as mutually beneficial: the capital partners are satisfied with the short duration, and the flippers receive materially better terms, including much lower fees and easier terms to work with. It is a different structure than most borrowers expect when they inquire about fix and flip lending, but the practical result is that projects tend to pencil out better than they would through a conventional route.

Answer:

We actually stopped using conventional lenders for the fix and flip loans, because they were so expensive and had such strict guidelines. So we have actually partnered up with some local investors — people who have money who are looking for short-term investments for that money because they don't want to tie it up for a long period of time. So it ends up being a win-win. They're really happy with it, and the flippers get a much better deal, much lower fees, and much easier terms to work with. It's a different structure than most people expect when they come in asking about fix and flip financing, but from the borrower's side it usually means the project pencils out a lot better than it would going the conventional route. The conventional route was costing our flippers too much and putting too many restrictions on them, so we went and found a better way to fund those deals.