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Gap Funding Carrying Costs: Why Carrying Costs Kill Deals
When you take on a fix-and-flip or value-add project, hard money lenders usually release funds in draws.
That means:
- You front rehab work
- Inspector verifies progress
- Lender releases next draw
But in the meantime, carrying costs pile up:
- Monthly interest on loans
- Utilities and insurance
- Property taxes
- Contractor deposits
Without cash reserves or funding, many investors stall mid-project.
As Than Merrill, founder of FortuneBuilders, explains:
“Most flips don’t fail because of the deal. They fail because investors can’t carry the property long enough to realize the value.”
What Is Gap Funding for Carrying Costs?
Gap funding is short-term capital that covers operating and carrying costs until the next draw hits or until the property sells.
- Fills the cash flow gap
- Paid back when the project refinances or sells
- Typically comes from private lenders or JV partners
Real-Life Story: Atlanta Fix & Flip
A new investor in Atlanta, Georgia bought a single-family flip with a $210,000 hard money loan.
- Rehab budget: $60,000
- First draw: $20,000 released after closing
- Contractor demanded $15,000 deposit for demo and materials
The investor didn’t have the cash.
They secured gap funding for $25,000 to cover contractor deposits and carrying costs until the first draw reimbursed them.
The project finished in 4 months. After selling for $320,000, the investor repaid the gap loan and still netted $47,000 in profit.
Without gap funding, the project would’ve stalled before demo.
Gap Funding Carrying Costs: How Gap Funding Works
- Investor closes with hard/private money lender.
- Gap funding provider advances capital to cover carry costs and deposits.
- Project continues until draw inspections release funds.
- Gap loan repaid when flip sells or refinance closes.
Benefits of Gap Funding
- Keeps contractors paid and on-site
- Covers monthly holding costs without draining reserves
- Reduces delays caused by lender inspections
- Lets you take on more projects at once
Gap Funding Carrying Costs: Challenges & Risks
- Short-term → often higher interest rates
- Must be repaid quickly
- Requires trustworthy contractors and realistic budgets
Our Solution: We provide structured gap loans for carrying costs with clear repayment terms, helping investors avoid stalls and keep projects moving.
FAQs About Gap Funding Carrying Costs
Q: Is gap funding only for down payments?
No. It also covers carrying costs, contractor deposits, and expenses between draws.
Q: How fast can I get gap funding?
Our company provides approvals in as little as 24–48 hours.
Q: Is gap funding expensive?
It costs more than bank loans, but far less than losing a deal mid-project.
Q: Can your company help with gap loans?
Yes. We provide gap loans for down payments, carry costs, and flips nationwide.
