The direct answer
Flip financing cost includes more than stated interest. Depending on the loan, the project can incur origination points, interest on outstanding principal, lender or third-party fees, extension charges and payoff-related costs. Model each item from the actual term sheet rather than using a generic hard-money percentage.
Separate points from interest
A point is commonly expressed as a percentage of the relevant loan amount, while interest accrues according to the note’s balance, rate and time convention. They are different costs and should not be combined into a single unexplained rate.
To apply the approach to an editable scenario, use the House Flipping Calculator. For the neighboring question, explore Maximum Allowable Offer Calculator.
Model the balance and project duration
If rehab draws increase the outstanding balance over time, interest may differ from a simple annual rate multiplied by the maximum commitment. Delays can increase interest and may trigger extension or renewal charges, making time a major flip-risk variable.
Read the actual loan documents
Hard-money and bridge structures vary. Confirm which amount points are charged on, when interest starts, whether unused funds accrue interest, minimum-interest provisions, draw fees, extension terms and payoff charges. This guide is financial modeling, not a statement of any lender’s terms.
Worked example
A $250,000 loan with 2 points creates a $5,000 point cost if points are charged on the full $250,000. At a hypothetical 12% simple annual interest rate, six months on an unchanged $250,000 balance would be $15,000 of interest before other fees. Actual loan documents can calculate these amounts differently.
Common mistakes and limitations
Do not multiply the headline annual interest rate by the full loan commitment for the entire project unless that matches the actual balance and contract method.
Does not estimate construction quantities or guarantee ARV/sale price. Taxes are excluded unless user includes them in costs.
Frequently asked questions
Are points the same as interest?
No. Points are an upfront or financed charge defined by the loan terms; interest is the cost accruing under the note’s rate and balance rules.
Why does project delay matter so much?
Additional time can add interest, holding costs and possibly extension fees while postponing the sale.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
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