Overview
Short-term repair loans are purpose-built loans for real estate investors who buy, renovate, and resell properties (fix-and-flip). They deliver capital quickly for acquisition and rehabbing—often within days—by underwriting the loan against the property’s current condition and its projected after-repair value (ARV). These loans typically carry higher interest rates and fees than traditional mortgages but offer smoother, faster closings and tailored draw schedules for renovation work.
In my 15+ years advising real estate investors, I’ve seen these loans enable otherwise viable flips to close in competitive markets and protect projects from costly delays. That speed is the tradeoff for higher cost and greater operational discipline.
(Authoritative sources: Consumer Financial Protection Bureau: https://www.consumerfinance.gov, IRS: https://www.irs.gov)
How short-term repair loans work
Short-term repair loans are generally structured to cover some combination of:
- Purchase price (a percentage of the acquisition cost)
- Renovation budget (funded using draw schedules)
- Carry costs (sometimes included or accounted for separately)
Key underwriting elements:
- Loan-to-Value (LTV) or Loan-to-After-Repair-Value (LTV/ARV): Lenders often lend up to 65–75% of ARV for hard-money loans; bridge products from institutional lenders may go higher depending on borrower and market.
- After-Repair Value (ARV): The lender uses comparable sales and contractor estimates to project the property’s post-renovation market value.
- Draws and inspections: Renovation funds are typically disbursed in stages after inspections to confirm completed work.
- Term: Most short-term repair loans range from 6 to 24 months.
Typical parties and roles:
- Borrower: Investor or rehab company.
- Lender: Private individual (hard money), specialty lender, or institutional bridge lender. See our related glossary posts: Hard Money Short-Term Loans: Use Cases for Real Estate Investors (https://finhelp.io/glossary/hard-money-short-term-loans-use-cases-for-real-estate-investors/) and Hard Money Loan (https://finhelp.io/glossary/hard-money-loan/).
Typical costs and fees (what to expect)
Costs vary by market, lender type, and borrower profile. The table below summarizes typical ranges as of 2025.
| Cost component | Typical range | Notes |
|---|---|---|
| Interest rate | 6% – 14% annual | Depends on lender type and borrower experience; private lenders may be toward the lower end for repeat borrowers, small specialty lenders toward the higher end. |
| Origination / upfront fees | 1% – 5% of loan amount | Also called points; may be rolled into the loan if agreed with the lender. |
| Closing costs | 1% – 4% | Title, escrow, recording, and third-party reports. |
| Inspection/draw fees | $250 – $1,000 per draw | Charged for on-site inspections tied to disbursements. |
| Interest reserve / carrying costs | Varies | Some lenders require an interest reserve to be funded upfront. |
| Broker fees | 1% – 3% | If using a loan broker to source debt. |
Note: Rates and ranges above reflect active market levels in 2024–2025 for private/bridge lending and may vary by state and borrower credit. Always request a written Good Faith Estimate or loan estimate from the lender.
Exit strategies: how loans are repaid
Picking a reliable exit strategy before closing is fundamental. Common exit plans include:
- Quick resale (flip): Sell to a retail buyer; proceeds pay off the loan. This is the most common exit for flips.
- Refinance to a long-term mortgage: If the investor chooses to hold and rent, a refinance into a conventional buy-to-rent loan or Fannie/Freddie rental product can replace the short-term loan.
- Bridge to a buy-and-hold investor or DSCR (debt-service-coverage ratio) loan: Sell or refinance to an investor lender when the property reaches stabilized rents.
Each exit path affects allowable renovation budgets, timelines, and taxation. For example, selling within one year may produce ordinary income for dealer activity; consult a tax advisor for specifics (IRS guidance: https://www.irs.gov).
Eligibility and lender types
Eligibility differs across the loan spectrum:
- Private hard-money lenders: Emphasize collateral and ARV; personal credit matters less but still relevant.
- Specialty bridge lenders: May require stronger borrower experience and financial documentation; can offer lower rates and higher LTVs.
- Institutional short-term lenders: Tend to focus on experienced investors and may underwrite like a small construction lender.
Common eligibility factors include:
- Experience: Track record of successful flips improves terms.
- Borrower liquidity: Cash reserves for unexpected overruns and carry costs.
- Property condition: Very poor condition may reduce LTVs or require higher reserves.
- Local market comparables and ARV credibility.
Underwriting details investors must know
- ARV must be defensible: Use multiple comparable sales and local market data.
- Contractor bids: Lenders often require signed contractor agreements and line-item budgets.
- Permitting: Unpermitted work can jeopardize exit options; get permits when required.
- Insurance and escrows: Lenders usually require hazard insurance and may want a reserve for taxes and insurance.
In my experience, projects fail when ARV is overstated or timelines slip—both increase carrying costs and erode profit margins.
Tax considerations and recordkeeping
Tax treatment depends on whether the investor is a dealer (inventory) or an investor (capital asset). Flips are commonly treated as dealer activity, making profit taxable as ordinary income rather than capital gains. Do not assume favorable capital gains rates for quick flips—get guidance from a qualified tax professional. (See IRS resources: https://www.irs.gov)
Maintain meticulous records: purchase documents, contractor invoices, draw requests, inspection reports, receipts for materials, and sales documentation. These records support deductions for repairs, interest, and carrying costs.
Case study (numbers-based example)
A practical illustration clarifies the flow:
- Purchase price: $200,000
- Renovation budget: $50,000
- Lender funds: 70% of ARV; projected ARV = $350,000 → lender offer = $245,000 (70% of ARV).
- Loan structure: $200,000 acquisition + $45,000 renovation draws; 12% interest, 2 points origination, 6-month term.
- Carrying costs and fees estimate: $10,000.
- Projected sale price: $350,000
If the investor completes the project on time and sells for $350,000, after paying interest, fees, contractor costs, and closing costs, the net profit can be attractive. But if comps are weaker or work-overruns occur, profit can disappear quickly.
Risk management and common mistakes
Common investor errors include:
- Overstating ARV or underestimating renovation scope.
- Failing to build a contingency reserve (at least 10–15% of renovation cost).
- Neglecting permit requirements.
- Using a lender without renovation-draw experience; this can create payment delays.
Mitigation steps:
- Use conservative ARV assumptions and multiple comps.
- Get firm contractor bids and permit timelines before closing.
- Hold contingency funds in cash, not credit.
- Ask lenders for a sample draw schedule and inspection checklist.
How to choose the right lender
Evaluate lenders on these points:
- Speed of funding and truthfulness about timelines.
- Experience with rehab draws and local municipalities.
- Transparent fee schedule and examples of similar projects.
- References from local investors; consider lenders who work regularly with local contractors and title companies.
Related reading on financing strategies and loan types: Investor Property Financing Strategy (https://finhelp.io/glossary/investor-property-financing-strategy/) and Private Mortgage Investor (https://finhelp.io/glossary/private-mortgage-investor/).
Practical checklist before you close
- Confirm ARV with 3 comparable sales.
- Get fixed contractor bids and signed work scope.
- Verify lender’s draw process, inspection frequency, and timing.
- Confirm all fees, prepayment terms, and any penalty clauses in writing.
- Fund an adequate contingency account (10–15% of renovation costs).
Frequently asked operational questions
- Funding speed: Many private lenders can fund within 3–10 business days if documentation is complete; institutional bridge loans take longer.
- Prepayment penalties: Some lenders include them; always verify in the loan agreement.
- Can you roll fees into the loan: Sometimes, but it increases the amount of capital at risk.
Final recommendations and professional disclaimer
Short-term repair loans are a practical tool for experienced investors who plan carefully and maintain conservative underwriting assumptions. They unlock opportunities in fast markets but require rigorous cost control, defensible ARV estimates, and a disciplined exit plan.
This article provides general information and educational guidance only; it is not individualized financial, tax, or legal advice. Consult a licensed attorney, CPA, or mortgage professional to evaluate your specific situation before taking or structuring any loan.
Resources
- Consumer Financial Protection Bureau: Mortgage and home loan information — https://www.consumerfinance.gov
- IRS: Tax information for businesses and self-employed taxpayers — https://www.irs.gov
- FinHelp related glossary: Hard Money Short-Term Loans: Use Cases for Real Estate Investors — https://finhelp.io/glossary/hard-money-short-term-loans-use-cases-for-real-estate-investors/
- FinHelp related glossary: Hard Money Loan — https://finhelp.io/glossary/hard-money-loan/
- FinHelp related glossary: Investor Property Financing Strategy — https://finhelp.io/glossary/investor-property-financing-strategy/
(Updated 2025)
