Hard Money Loans for House Flipping: How Financing Changes ROI
Direct answer
A hard money loan can fund a flip, but points and interest belong in the deal model before you bid. Enter the lender's actual principal, rate, points, loan term, and payment timing, then add non-financing holding and selling costs. Compare the resulting net profit and ROI with your minimum return instead of treating the loan quote as a separate decision.
Hypothetical six-month flip at 12% interest and 2 points
| Purchase price | $120,000 |
|---|---|
| Rehab budget | $50,000 |
| Six months of simple interest on $170,000 | $10,200 |
| Two points on $170,000 | $3,400 |
| Other holding, purchase, and selling costs | $29,000 |
| Projected sale price | $250,000 |
Hypothetical net profit: $37,400. ROI on modeled project cost: 19.42%.
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Convert the lender quote into dollars
Points are an upfront percentage of the loan amount. Interest depends on principal, rate, time outstanding, and the lender's calculation method. Ask for the lender's complete fee and payment schedule, then enter those dollar costs in the House Flip calculator instead of relying on the headline rate alone.
Keep financing separate from other holding costs
Loan interest and points are not the whole carry. Add property tax, insurance, utilities, security, lawn care, permits, and any extension charge that can apply if the project runs late. Stress-test a slower sale and a higher rehab budget before you commit.
Compare the same deal under more than one quote
Use the same purchase, rehab, sale price, and non-financing costs for each lender scenario. Change only the rate, points, and loan terms. The comparison table below uses hypothetical rates to show the mechanism; it is not a claim about current market pricing or an offer of credit.
Hypothetical rate sensitivity
The same six-month flip under three interest rates
Each row uses a $170,000 principal, two points, a $120,000 purchase, $50,000 rehab, $250,000 sale, $3,000 purchase closing cost, $1,000 monthly non-financing carry, and 8% selling cost. The rates are scenarios, not current market quotes.
| Annual rate | Six-month interest | Interest + two points | Net profit | Modeled ROI |
|---|---|---|---|---|
| 10% | $8,500 | $11,900 | $39,100 | 20.48% |
| 12% | $10,200 | $13,600 | $37,400 | 19.42% |
| 14% | $11,900 | $15,300 | $35,700 | 18.37% |
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Frequently asked questions
- How do points affect a hard money loan?
- One point equals 1% of the loan amount. On a $170,000 loan, two points cost $3,400 before any separate origination, appraisal, legal, draw, or extension fees.
- How should I model hard money interest for a flip?
- Use the lender's actual principal, annual rate, accrual method, payment timing, and expected months outstanding. A simple scenario can use principal multiplied by annual rate multiplied by months divided by 12, but the signed loan terms control the real cost.
- Does a hard money loan make a flip a good deal?
- No. Financing only changes how the purchase and rehab are funded. ARV, repairs, title, holding time, selling costs, lender terms, and required return still have to support the deal.