Fix and Flip Loan Costs and Draws: Plan the Full Cash Cycle

Create one complete cost schedule

Request a written list of lender and third-party charges with the basis for each calculation. An origination point equals one percent of the applicable loan amount; confirm which amount the quote uses. A fee based on total commitment can differ from one based on the initial funded balance.

Keep financing expenses separate from renovation expenses and selling costs, while including all three in the project model. Otherwise a low-rate proposal can look attractive because important expenses sit outside the comparison. Record whether a charge is paid out of pocket, deducted from proceeds, or added to a balance.

Understand the balance that earns interest

Under an interest-as-drawn structure, a renovation draw increases the outstanding balance and subsequent interest. Other structures differ; obtain the actual interest provision for the loan you are considering.

Illustrative comparison only: assume a $300,000 commitment, $240,000 initially funded, and a hypothetical 12% annual simple-interest rate using a monthly approximation. Interest on $240,000 would be $2,400 for a month; interest on the full commitment would be $3,000. After another $20,000 is advanced, the drawn-balance approximation becomes $2,600. Actual billing may use daily accrual, different day-count conventions, minimum interest, reserves, or other contractual provisions. Ask for a sample statement showing how your proposed structure works.

Model a draw as a process, not immediate cash

A renovation holdback is money allocated for approved work; it is not automatically available in your operating account at closing. Published draw procedures illustrate that work verification and documentation can be prerequisites to disbursement. Requirements differ across lenders and programs.

Before scheduling trades, agree on the sequence: work performed, invoice paid or submitted, inspection requested, evidence reviewed, and funds released. Confirm treatment of deposits, stored materials, change orders, partial completion, and retained amounts. Keep photographs and records by budget line so a reviewer can connect each request to the approved scope.

For planning, suppose a contractor needs $12,000 before inspection and the next trade needs a $4,000 deposit before that reimbursement arrives. Your temporary cash need is $16,000, even if the approved draw ultimately covers the first invoice. That timing gap matters independently of projected profit.

Compare full holding-period costs

Illustrative six-month model: assume a $300,000 commitment with a 2% origination fee, four draw charges of $150 each, $3,000 in other financing-related closing costs, and a $270,000 average funded balance at a hypothetical 12% annual simple rate. Origination is $6,000, draw charges total $600, and estimated interest is $16,200. These financing items total $25,800.

This is a cash-cost illustration, not an APR calculation or loan offer. It excludes property taxes, insurance, utilities, renovation, selling expenses, and any charges not listed. Add those separately. A two-month delay at a $300,000 outstanding balance would add approximately $6,000 of interest under the same assumption, before extension fees or additional operating costs. Test a delay while comparing offers; the cheapest planned timeline may not remain cheapest when work takes longer.

Use a simple weekly funding tracker

Maintain columns for opening cash, owner contributions, invoices due, interest and carrying costs, expected reimbursements, and ending cash. Mark expected reimbursements as provisional until approved. The lowest ending balance tells you more about execution risk than the total approved loan amount.

Review the tracker when the contractor changes sequencing or a permit is delayed. Obtain written approval before assuming a change order will be financed. Ask the servicer how incomplete work, an approaching maturity date, payment delinquency, or title issues affect access to remaining funds. The objective is a workable construction schedule supported by cash that will actually be available.