New Construction vs Fix and Flip Loan: Which is Right for Your Clients?

If you've worked with investor clients recently, you've likely witnessed that they’re searching for ground-up developments, while others seek out swift-rehabbing opportunities to combat the ongoing housing shortage. Both methods can be lucrative, but the way you finance can make or break the transaction.

In today’s market, deciding on a new construction loan or a fix-and-flip loan is a matter of timeline, capital requirements, and risk tolerance. With mortgage applications decreasing 6.2% year-to-date, investors are seeking methods to work around limited resale inventory. At the same time, building costs have stabilized following almost two years of ups and downs, and distressed property stock is creeping up in most major metros. That sets up two very different-but-lucrative avenues for brokers who understand how to place the correct solution.

The reality is, the success of your client may rely heavily on whether or not you match them with the appropriate loan right from the start. Competitors may provide you with one or the other product, but very few provide you with both products that provide the speed and flexibility you require to secure repeat business.

At RCN Capital, we've provided more than $8.2 billion in funding for 37,000+ transactions since 2010, providing you with a one-stop lending partner for either strategy. While other lenders ask you to fit into their single-product box, we offer you competitive programs on ground-up deals and rehab deals—supported by quick approvals, open terms, and a broker-first process that keeps you in control from submission through close.

Differences: new construction loans compared to fix-and-flip loans

Below is a side-by-side look so you can quickly assess which product fits a borrower’s situation.

Timeframe

• New construction: Medium to long time frame. The construction period generally lasts 12 to 24 months, with possible conversion to permanent funding.
• Fix-and-flip: Shorter term. Projects usually close out in 6 to 18 months.

Collateral and underwriting focus

• New construction: Underwriting focuses on budgets, cost-to-complete, contractor qualifications, and risk of entitlement. Lenders consider the overall project cost and sponsor capacity.
• Fix-and-flip: Underwriting focuses on after-repair value, rehab budgets, proper comps, and sponsor flipping experience.

Capital structure

• New construction: Often larger overall project costs and more intricate capital structures, typically necessitating staged financing and subordinated debt.
• Fix-and-flip: Generally acquisition plus rehabilitation financing, frequently sized to ARV percentages.

Cashflow and returns

• New construction: Can provide high total returns at scale but involves more carry and active management.
• Fix-and-flip: Provides faster turnover, rapidly realized profits, and repeated transactions more often for veteran investors.

When to recommend new construction to a client

Choose new construction when the client or sponsor demonstrates these strengths:

• The sponsor has construction experience or is a vetted general contractor.
• The exit strategy involves the sale of newly constructed products at a premium, or conversion to permanent financing will be probable.
• The site has entitlements or a clear path to permits.
• The borrower requires financing for ground-up projects with staged draws and cost coverage.

New construction provides scale advantages. When a client is able to handle extended timelines and larger budgets, the overall dollar returns and repeat contractor accounts make the project appealing. RCN Capital provides construction programs that are formulated to accommodate these necessities with in-house underwriting and competitive draw mechanics, allowing brokers to offer customized solutions.

When to recommend fix-and-flip to a client

Recommend a flip when:

• The sponsor has a credible track record of completing similar rehab projects.
• The property’s ARV is supported by comps and a realistic renovation scope.
• The investor needs faster liquidity and prefers shorter-term exposure.
• The deal’s economics show a clear profit after rehab and sales costs.

Fix-and-flip transactions are generally completed quickly, allowing investors to capitalize on short-term market opportunities. Flips provide brokers with consistent revenue because investors cycle through projects several times each year. To protect the sponsor's returns and your fee, present the ARV case clearly and within a reasonable budget.

The economics comparison: fix and flip vs new construction profit

Compare the two in client conversations using these practical points:

• Turnover rate: Flips generate faster results. When assessed in terms of ROI per year, this can translate into a larger annualized return on equity than longer periods of construction hold.
• Absolute dollar return: New developments have potential for greater total returns per asset based on scale and new unit premium pricing.
• Carry and holding costs: Building has higher interest, insurance, and carrying expense risk; flips have less carry but can experience cost overruns more easily.
• Market sensitivity: A new construction product can more readily reflect buyer preference where the market prefers new stock; flips are at the mercy of demand for remodeled resale houses.

In a pitch, be sure to review these items. For example, show projected hold time, anticipated gross profit, contingency cushion, and net return after fees. Brokers who provide side-by-side pro formas enable clients to select a strategy with confidence.

Underwriting and packaging: what lenders require for each product

New construction submissions should include:

• Detailed total project budget and cost-to-complete.
• GC contract, proof of licensing and insurance, and GC track record.
• Permits status or a clear plan to obtain permits.
• Capital stack showing equity, subordinate debt, and contingency reserves.
• Construction timeline and draw schedule with inspection triggers.

Fix-and-flip submissions should include:

• Purchase agreement or proof of site control.
• Itemized rehab budget with contingency.
• Contractor bids and contractor profile.
• Comps supporting projected ARV.
• Clear exit plan and projected timelines for sale.

RCN Capital's white-labeled Loan Management System simplifies document uploads and maintains broker branding while providing underwriters with the transparency they require. That speeds up review cycles and accelerates pre-approval.

Practical steps to convert opportunities into closed loans

• Niche down to a market segment or product mix so your outreach resonates.
• Prepare a standardized submission template for both new construction and fix-and-flip deals.
• Use RCN Capital’s white-label materials to position competitive financing under your brand.
• Train origination teams with RCN’s Amplify learning modules to get them up to speed on the loan submission process.
• Run test submissions to validate pricing and execution timing.

These actions make it easier to win more wholesale business and build long-term relationships with repeat borrowers.

Pricing and broker economics

Brokers must balance client objectives with a compensation approach. Key points to cover:

• Interest and fees will differ based on program, sponsor experience, and leverage. At RCN Capital, interest is only applied to drawn funds, with funds held in escrow not subject to loan interest.
• RCN Capital accommodates yield spread, points, and flat referral fees, flexible broker compensation models. All compensation is disclosed on the commitment documents and settlement statement to prevent surprises.

When making offers, show the client the money received after paying for the financing and your suggested commission.

How to frame the recommendation: sample checklist for brokers

When advising clients, run a quick checklist:

• What is the projected timeline to completion and sale?
• Is the sponsor experienced with this product?
• How robust are the budgeting and contingency plans?
• Is the capital stack realistic and replicable?
• What exit financing or sales strategy is in place?

In the case the answers to loan timeline and investor experience lean towards quick cash, a flip will be preferable. If project size and a longer building schedule are needed, suggest new construction.

Market conditions, local laws, and contractor supply levels also influence strategy choices. Be up to date with these variables in order to give effective advice and realistic expectations.

Why partner with RCN Capital for either product

The choice between new construction vs fix and flip loan solutions involves exhaustive client analysis, market research, and project analysis. Successful brokers formulate methodical strategies for aligning clients with suitable financing solutions.

RCN Capital provides in-house underwriting, quick pre-approvals on full submissions, broker-first protection, and flexible compensation. Leverage RCN Capital's white label marketing materials and resources to demonstrate to clients that financing capacity and execution are aligned with their project aspirations.

Sign up for RCN Capital's broker program, to get the access to the loan programs and resources you need to begin closing more new construction and fix and flip loans in 2025.