What Is a Fix and Flip Loan and How Does It Work in Texas?
Fix and flip investing has been popular in Texas for years, and for good reason. Strong population growth, diverse housing markets, and steady demand for renovated homes make the state attractive to both new and experienced investors. But one thing often stands between a good deal and a closed deal: financing. That’s where fix and flip loans come in. If you’re thinking about flipping houses in Texas, or you already are and want to scale, understanding how fix and flip loans work is essential. This article breaks it down in plain language. We’ll cover what a fix and flip loan is, how it works specifically in Texas, what lenders look for, and what investors should watch out for.
What Is a Fix and Flip Loan? A fix and flip loan is a short-term real estate loan designed specifically for investors who buy properties, renovate them, and sell them for a profit. Unlike traditional mortgages, fix and flip loans focus more on the property and the deal itself than on your personal income. These loans are commonly offered by hard money lenders and private lenders rather than banks.
Most fix and flip loans are used to finance: ● The purchase price of the property ● Renovation or rehab costs ● Sometimes part of the closing costs
Because these loans are short-term and higher risk for lenders, they usually come with higher interest rates than conventional loans. In exchange, investors get speed, flexibility, and fewer hoops to jump through.
Why Fix and Flip Loans Are So Popular in Texas Texas is uniquely well-suited for fix and flip investing, and that’s why Fix and Flip loans Texas investors use are in high demand. Here’s why these loans work well in Texas markets: ● Fast-moving deals: In cities like Dallas, Houston, Austin, and San Antonio, good deals don’t last long. Fix and flip lenders Texas investors work with can close in days, not months. ● Investor-friendly rules: Texas allows non-owner-occupied investment properties to be financed without many of the restrictions seen in other states. ● Wide range of price points: From affordable rural homes to high-end urban flips, Texas offers flexibility for different budgets. ● Strong resale demand: A steady stream of buyers keeps exit strategies realistic when projects are done right.
How Fix and Flip Loans Work in Texas The basic structure of fix and flip loans is similar across the country, but there are some Texas-specific details worth understanding.
1. The Loan Is Based on the Deal, Not Just You Fix and flip lenders in Texas focus heavily on: ● Purchase price ● Rehab budget
● After Repair Value (ARV) ● Local market conditions
Your credit score matters, but it’s usually not the deciding factor. Many lenders care more about whether the numbers make sense and whether the property can sell for a profit after renovations.
2. Loan Amounts Are Tied to ARV Most Fix and Flip loans Texas lenders offer are based on a percentage of the property’s ARV, not just the purchase price. A common structure looks like this: ● Up to 70% of ARV ● Purchase price + rehab costs must fit within that limit
For example: ● ARV: $300,000 ● Maximum loan (70% ARV): $210,000
If you buy the property for $150,000 and plan $40,000 in renovations, the deal fits within the lender’s guidelines.
3. Rehab Funds Are Typically Disbursed in Draws In Texas, fix and flip loans usually release rehab funds in stages, called draws. Here’s how that works: ● You fund the purchase at closing ● Renovation funds are held by the lender ● As work is completed, the lender releases funds after inspections
This protects both the lender and the investor by ensuring the rehab stays on track.
4. Short Loan Terms
Fix and flip loans are short-term by design. Most Fix and Flip lenders Texas investors work with offer loan terms of: ● 6 months ● 9 months ● 12 months
Some lenders allow extensions, but those often come with extra fees. The goal is to renovate and sell quickly.
Typical Rates and Costs in Texas Fix and flip loans cost more than conventional loans, but they’re built for speed and flexibility. While rates and fees vary by lender, here’s what Texas investors often see: ● Interest rates: Typically higher than banks, often charged monthly ● Points: Usually 1 to 3 points upfront ● Closing costs: Lower documentation costs compared to banks ● Draw fees: Some lenders charge inspection or draw fees
Savvy investors focus less on the rate and more on the overall deal. A higher-rate loan that closes fast can still be cheaper if it helps you secure a profitable property.
What Fix and Flip Lenders in Texas Look For While every lender is different, most Fix and Flip lenders Texas investors work with evaluate deals based on a few key factors.
The Property ● Location and neighborhood ● Condition and scope of work ● Comparable sales in the area
The Numbers
● Purchase price ● Rehab budget ● ARV ● Expected profit margin
The Investor ● Prior fix and flip experience (not always required) ● Credit history ● Liquidity or reserves
First-time investors can still qualify, especially if the deal is strong and conservative.
Credit and Experience Requirements One of the biggest advantages of fix and flip loans is flexibility. Many Fix and Flip loans Texas lenders offer: ● Accept lower credit scores than banks ● Do not require tax returns or W-2s ● Focus on asset-based lending
Experience helps, but it’s not always mandatory. Some lenders are open to first-time flippers, especially if: ● The deal has strong equity ● The rehab plan is realistic ● The investor has some cash reserves
How Fast Can You Close in Texas? Speed is a major reason investors choose fix and flip loans.
Traditional loans can take 30 to 60 days or more. In contrast, Fix and Flip lenders Texas investors use can often close in: ● 7 to 14 days ● Sometimes even faster for repeat borrowers
This speed is especially valuable when competing with cash buyers.
Exit Strategies: Selling or Refinancing Texas investors typically use one of two exit strategies.
1. Sell the Property This is the classic fix and flip model. Once renovations are complete: ● List the property ● Sell to an end buyer ● Pay off the loan at closing
2. Refinance Into a Rental Loan Some investors decide to keep the property as a rental. In that case, they: ● Use a fix and flip loan to purchase and renovate ● Refinance into a long-term rental or DSCR loan after rehab
Texas markets often support both strategies, depending on the neighborhood.
Common Mistakes Texas Investors Should Avoid Even experienced investors can make costly mistakes when using fix and flip loans. Some common ones include: ● Overestimating ARV ● Underestimating rehab costs ● Choosing the wrong lender
● Not budgeting for holding costs ● Rushing the renovation timeline
Working with experienced Fix and Flip lenders Texas investors trust can help avoid many of these pitfalls.
How to Choose the Right Fix and Flip Lender in Texas Not all lenders are created equal. When comparing Fix and Flip lenders Texas investors should look at more than just rates. Key questions to ask: ● How fast can you close? ● How are rehab draws handled? ● Do you lend in my specific Texas market? ● Are there extension options? ● Do you work with first-time investors?
A good lender acts more like a partner than just a funding source.
Is a Fix and Flip Loan Right for You? Fix and flip loans aren’t for everyone, but they’re a powerful tool when used correctly. They make sense if you: ● Want to move quickly on deals ● Don’t want bank-level documentation ● Are comfortable with short-term financing ● Have a clear renovation and exit plan
For many real estate investors, Fix and Flip loans Texas lenders provide are the gateway to scaling a profitable portfolio.
Final Thoughts Fix and flip investing in Texas continues to offer strong opportunities, but success depends heavily on financing. Understanding how fix and flip loans work, what lenders expect, and how to structure deals can make the difference between a profitable flip and an expensive lesson. Whether you’re flipping your first house or your fiftieth, working with the right Fix and Flip lenders Texas investors rely on can give you speed, confidence, and flexibility in a competitive market. If you approach each deal with solid numbers, realistic timelines, and the right loan structure, fix and flip financing can be one of the most powerful tools in your real estate investing toolkit.
