Why Fix-and-Flip Deals Fail Before Funding | Michael Gabriel
I work with about 300 lenders. Only a handful are the ones I call first when a deal gets messy.
Brett is one of them.
He's a private money lender, and fix and flip loans are his bread and butter. He's also the guy who helped me close a deal when the appraisal came in about $100,000 short. My borrower was not happy. Brett didn't flinch. He asked how we could get it done, and we did.
So I sat down with him to answer one question: why do so many fix and flip deals fail before they ever get funded?
Here's what we covered.
1. The valuation is a dream, not a comp
Every investor thinks they have the hottest deal in town. Brett has seen investors insist a house will sell for $1.9 million while the house two doors down has been on the market for 118 days.
The market always gets the final say. Before you bring a deal to a lender, pull real comps. Look at what actually sold, how long it sat, and what condition it was in.
If the numbers don't work at a realistic price, the deal doesn't work.
2. The rehab budget is gold-plated
New investors want the nicest everything. Top-tier appliances. Designer finishes. A $600,000 rehab budget on a house that can't support it.
Brett's advice is simple. Trim what the buyer won't pay extra for. Go modern and clean, not luxury. Sometimes you can also negotiate a lower purchase price to make the numbers fit.
Ask yourself who your next buyer is. Even if you plan to rent it, someday you'll probably sell it.
3. You're shopping for a rate instead of an exit
First-time flippers get stuck on two numbers: interest rate and cash to close.
Those matter. But they're not the main event. The main event is your exit. Are you selling the house? Refinancing it into a rental? What will it rent for after the work is done?
Plan the exit first. Then structure the loan to get you the most profit at the end.
Watch the full conversation
Brett tells these stories better than I can type them. Hit play to hear the whole thing, including how he turned around a bad appraisal with one phone call.
Now, back to the deal killers.
4. The as-is value surprise
This one catches a lot of experienced investors.
One of Brett's borrowers bought a house, then spent about $80,000 gutting it to prep for a big addition. On a refinance, the as-is value decides whether you bring cash to closing or the loan covers your costs.
The appraisal gave a great ARV, since the plans were solid. But the as-is value dropped about $120,000. To the appraiser, it was a shell. He valued it like an empty lot.
The borrower went from bringing about $10,000 to closing to bringing over $60,000. He was livid.
Here's what Brett did. He called the appraiser and thanked him first for a fast turnaround. Then he asked how he got the number. After the call, he sent two nearby lot sales that went for two and three times more.
The appraiser sent in a reconsideration of value. The new as-is value came back higher than the purchase price. The borrower brought nothing to closing.
The lesson? A low appraisal isn't always the final word. Good comps and a respectful ask can change the outcome.
5. The borrower goes quiet
This one is painful because it's so avoidable.
Brett had a file come in with no documents. It took about a month to get them. Meanwhile, his managers kept asking why the file was still sitting there.
Lenders and brokers can fight for your deal all day. But if your bank statements and rehab budget aren't in, nobody can move. You want to close fast? Answer fast.
6. The credit and cash aren't ready
Asset-based lending is still about you, too. Here's what Brett looks for at his shop:
Money in the deal. About 10% of the total project cost.
Reserves. Enough savings to show you can handle payments during the project.
Credit. 700 and up is the sweet spot. He can go down to 640, but expect a deeper look.
And one big myth: closing in an LLC doesn't make your personal credit disappear. It still matters.
Every lender is different, so treat these as one lender's guidelines, not a universal rule.
Myth: the cheap house is the safe house
A lot of new investors start with a $50,000 house because it feels like less risk.
Brett says those are often the riskiest deals. A small 2 bed, 1 bath has very little room to grow. A $200,000 3 bed, 2 bath can feel scarier, but the spread is usually much bigger.
I'd add one more thing. Look at the neighborhood, not just the house. What happens on that street at night or on weekends? Is new industry moving into the area? Someone is going to live in that home, so the location has to make sense for them.
Myth: zero down is easy to find
I get it. Everyone wants zero down, the seller paying all the costs, and a big credit at closing. I'd want that too.
100% financing does exist for flips. I have a lender who offers it. But the bar is high. They usually want 10 completed deals in the last 24 months in that state, an 800+ credit score, a market that isn't declining, and a minimum loan of $150,000.
For most investors, this is a pay-to-play business. Expect to put some money in.
Why risk decides your terms
Here's the idea that answers almost every question I get. Lending is about risk.
Your credit, your experience, your cash, the type of rehab, and the market all add up. Less risk gets you better terms. More risk means more money down or tighter conditions.
Think about it like it's your own money. You'd want the same thing.
What a lender calls a layup
I asked Brett what deal he'd fund all day long. His answer:
An investor on their second flip or later
A 700+ credit score
A solid house that needs $50,000 or more in rehab
His favorite deal is refinancing a ground-up construction project. There's often enough equity to cover the closing costs, so the borrower brings nothing to closing.
And for first-timers, good news. Brett is first-time friendly. He loves walking new investors through the process. That first flip teaches you more than any course ever will.
Frequently asked questions
What credit score do I need for a fix and flip loan?
It depends on the lender. For Brett's shop, 700 and up is ideal, and 640 is possible with a closer review. Your personal credit counts even if you buy in an LLC.
How much do I need to put down on a fix and flip?
Many private lenders want you to put in part of the total project cost. With Brett's shop, it's about 10%. You'll also need reserves.
What is the difference between ARV and as-is value?
The as-is value is what the property is worth today. The ARV, or after repair value, is what it should be worth once the work is done. On a refinance, the as-is value can decide how much cash you bring to closing.
What can I do if my appraisal comes in low?
Ask your lender about a reconsideration of value. Send recent, nearby sales that support a higher number. Be respectful. It can make a real difference.
Can first-time investors get a fix and flip loan?
Yes. Many lenders work with first-time flippers. Come in with solid credit, savings, reserves, and realistic comps.
Let's get your deal funded
Whether it's your first flip or your fifteenth, I'd love to look at your numbers before a lender ever sees them.
