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Why Gap Funding Rehab Costs Kill Good Deals
If you’ve been in real estate long enough, you’ve seen it:
- The contractor runs over budget.
- Material costs spike.
- City permits delay your timeline.
Hard money lenders don’t cover these “surprise” expenses. If you don’t have cash sitting around, the deal can stall — and every month you hold costs you thousands in interest, taxes, and insurance.
That’s where gap funding rehab costs comes in.
Real-Life Story: Columbus, Ohio Flip That Almost Failed
A local investor in Columbus locked up a 3-bed home for $150,000 with a $240,000 ARV.
- Hard Money Loan: $120,000 purchase + $30,000 rehab (total $150,000).
- The Problem: Rehab actually came in at $45,000 because of foundation work.
- Investor was short $15,000 and the project stalled.
He called around and finally secured a gap loan for $20,000 — enough to cover the extra rehab and 2 months of carrying costs.
- Exit: Sold at $245,000.
- Profit after lenders paid: $40,000.
Without that small gap loan, he would’ve either lost the deal or been forced to fire-sale at a loss.
What Is Gap Funding for Rehab?
Gap funding is short-term capital that covers:
- Rehab budget overruns
- Change orders from contractors
- Material cost increases
- Permit delays that stretch carrying costs
It’s not designed for full projects — just the “missing piece” when budgets break.
Why Investors Use Gap Funding for Rehab
- Keep contractors moving – No delays waiting on funds.
- Protect your timeline – Carrying costs stack with every delay.
- Avoid walking away – Keeps deals alive when surprises hit.
- Scale faster – Investors don’t tie up personal savings in every project.
Gap Funding Rehab Costs: Risks & Challenges (Where We Help)
- Overleveraging – Borrowing too much can eat profit.
- Short timelines – Gap loans are high interest, meant to be repaid quickly.
- Finding lenders who understand flips – Many only want to fund purchases, not “messy” rehab gaps.
Our Solution: We provide gap loans for rehab and carrying costs, structured around your ARV and timeline, so projects don’t stall when surprises hit.
Best Practices for Gap Rehab Loans
- Always budget at least 10–15% contingency for rehab.
- Use gap funding only when the ARV margin supports it.
- Communicate with lenders early when budgets shift.
Keep strong contractor agreements to minimize overruns.
FAQs About Gap Funding Rehab Costs
Can gap funding cover unexpected rehab costs?
Yes — gap loans are commonly used for budget overruns.
What if my project goes over budget again?
You may need a second funding injection or to adjust scope. Always budget contingency.
How fast can I get rehab gap funding?
In most cases, within 24–48 hours if the deal numbers work.
Does your company fund rehab-related gaps?
Yes — we provide gap loans for rehab, carrying costs, and down payments nationwide.
Do I need experience to qualify?
Not always — new investors may qualify with loan sponsorship or JV partners.
