Map Acquisition and Renovation Capital
A flip has two funding needs: buying the property and completing the renovation. A lender may advance part of the purchase price at closing and hold renovation funds for later draws. The total commitment is therefore not the same as cash delivered on day one. Read the funding schedule alongside the term sheet so you understand when your own cash is required.
Purchase leverage, loan-to-cost and the after-repair-value limit can each restrict proceeds. The accepted budget may exclude selling costs, financing fees or work the lender does not approve. Your renovation estimate should identify individual tasks, quantities and contractor pricing. A single line labeled renovation makes both underwriting and cost control harder.
Experience and property condition also matter. A cosmetic renovation differs from structural work, major additions or a full rebuild. Explain completed projects honestly and provide an appropriate contractor and permit plan. Before signing a purchase contract, estimate the equity required at acquisition, the money needed before the first reimbursement and the cash cushion remaining afterward. A loan that finances most of the budget can still fail operationally if the investor cannot fund the first stages.
Worked example
Purchase price is $200,000 and renovation is $50,000. An illustrative commitment funds $160,000 at closing and holds $50,000 for draws. Total financing is $210,000, but acquisition equity is $40,000 before fees. The borrower must also fund early work until eligible draws are released.
Mini glossary
- Commitment
- Maximum loan funding under agreed conditions.
- Holdback
- Funds reserved for later approved disbursements.
- Acquisition equity
- Investor cash covering the unfunded purchase amount.
Put it into practice
Sketch a cash timeline from contract through sale. Show the purchase deposit, equity, closing fees and first contractor payment. Compare day-one proceeds with total commitment, then ask the lender which renovation expenses are eligible and what cash must be available before the first draw.
Recommended reading
Use these primary sources for context. Individual lender requirements can change; confirm the current program for your transaction.