Transforming a distressed property into a profitable investment requires both vision and capital. For many investors, the question “what is a rehab loan?” becomes crucial when securing funding for renovation projects. Hard money rehab loans are a top choice for serious real estate investors seeking fast, flexible financing in competitive markets.
In this guide, we’ll explain how these loans work, why they’re often better suited to real estate investors than traditional financing, and what strategies help you get approved and stay profitable.
A rehab loan is short-term financing used to buy and renovate a property. Unlike conventional loans for move-in ready homes, these hard money loans account for both the current condition and the future value of the property after improvements.
Hard money rehab loans, offered by private lenders like Groundfloor Lending, typically finance both the purchase and renovation in one package. These lenders evaluate the property's after-repair value (ARV) to determine your loan amount. Groundfloor typically lends up to 70% ARV to help preserve your project’s profitability.
These loans differ significantly from bank financing:
This structure helps investors move quickly, preserve liquidity, and align payments with construction progress.
Hard money rehab loans dominate the fix and flip market because they’re built for speed, flexibility, and value-add opportunities. Traditional lenders often reject distressed properties, but hard money lenders specialize in funding these types of deals.
Properties often receive multiple offers within hours of listing. Fast pre-approvals and short closing timelines allow you to:
These advantages can lead to purchase discounts of 5 to 15 percent.
Distressed properties often trade for 20 to 40 percent below market value. Since hard money lenders aren’t constrained by conventional loan requirements, they’re more likely to approve financing for properties in poor condition.
Instead of putting all your capital into one property, rehab loans let you spread funds across multiple fix-and-flip opportunities. For example, $100,000 might cover five 20 percent down payments rather than a single all-cash deal.
This use of leverage can significantly increase your return on investment, especially if your renovations generate strong resale value. Many real estate investors use this model to scale their operations, diversify their portfolios, and manage risk across several properties rather than just one.
Qualification focuses more on the deal than the borrower. However, investors still need to demonstrate capacity to execute.
Lenders prioritize:
Loan amounts are typically capped at 65 to 70 percent ARV. Submitting realistic budgets, bids, and comps strengthens your application. Because the property itself is the primary collateral, this portion of the loan application is where you'll want to focus most of your effort.
Most lenders expect:
A solid business plan for your investment helps demonstrate credibility. Investors who have experience with loan application processes, accurate cost estimation, and appropriate loan amounts typically have higher success rates.
Typical terms include:
Hard money financing usually comes with a higher interest rate than a traditional loan. However, the fast access to capital and ability to close on distressed properties that require significant work can make the total cost worthwhile.
When evaluating offers, consider your full range of financing options—including traditional lenders and private lenders—and how each structure supports your project’s cash flow.
Delivering successful projects builds trust. Over time, lenders may offer better terms, lower fees, or faster closings. Stay communicative and professional from start to finish.
Account for permit delays, supply issues, and labor shortages. Add a 15 to 20 percent buffer to your renovation budget and timeline. This protects profitability and avoids costly extension fees.
Don’t just default to the first offer you receive. Explore short term loan options, private capital sources, and equity lines of credit. The best fit depends on your risk tolerance, timeline, and overall project goals.
Groundfloor Lending typically offers up to 70 percent of the after-repair value (ARV).
Most rehab loans require investors to contribute 15 to 25 percent of the total project cost.
Yes. First-time investors can qualify but may be asked to provide additional equity, reserves, or documentation to offset lack of experience.
No. Groundfloor rehab loans are structured with no monthly payments. Interest accrues during the loan term and is paid at payoff.
Build a buffer into your renovation plan. If needed, Groundfloor may offer extensions on a case-by-case basis depending on project performance.
Single-family homes and small multifamily properties (up to 4 units) are generally eligible. The property must be non-owner occupied and in a market Groundfloor serves.
Start by estimating the total project cost, projected ARV, and timeline. Then use Groundfloor’s Fix and Flip Loan Calculator to model potential returns and identify funding needs.
Understanding what a rehab loan is and how it differs from other real estate financing options is critical to maximizing return on investment.
At Groundfloor Lending, we specialize in flexible fix and flip financing with no monthly payments, streamlined approvals, and up to 70 percent ARV lending for qualified borrowers. Explore more in our loan calculator blog or learn how to flip houses profitably.
Need help mapping out your next deal? Connect with a Groundfloor Lending expert to review your renovation strategy and funding options.