Overview

A $1,000,000 construction loan on a single-family fix-and-flip in Los Angeles sounds straightforward until you try to place it. The numbers are too small for most institutional desks, too complex for a conventional lender, and too dependent on two variables that are genuinely difficult to underwrite in this market: a defensible after repair value and a realistic permit timeline. Getting this deal closed required finding a lender who could underwrite to the actual risk rather than a product sheet.

The Deal

The sponsor had a single-family residential property under contract in Los Angeles and needed renovation financing to execute a fix-and-flip strategy. The total capital requirement was $1,000,000, structured as a construction facility with staged draws tied to project milestones. The hold period was short by design. The sponsor needed to close quickly to win a competitive acquisition, then move through renovation and resale before carry costs compressed the margin.

The exit was a retail sale to an end buyer, which meant the entire return on the project lived inside the spread between the acquisition basis plus renovation cost and the final sale price. There was no rental income to stabilize, no long-term hold thesis, and no refinance path. The underwriting had to get the after repair value right.

The Challenge

Three problems made this placement difficult.

First, the check size. At $1,000,000, this loan is below the threshold where most debt funds and private bridge lenders deploy meaningful attention. Conventional banks and credit unions had no appetite at all: no stabilized income stream, a non-owner-occupied short hold, and draw-heavy construction exposure that does not fit a portfolio lender's product box. The deal needed a private lender comfortable with residential construction risk, but many of those lenders work at higher loan amounts or outside California entirely.

Second, the after repair value in Los Angeles is genuinely hard to pin down. Comparable sales in this metro can move block to block, and a lender relying on citywide averages or a broad radius pull will either overshoot or undershoot the true exit value. The sponsor's margin required a conservative but accurate ARV, which meant the appraisal methodology had to use tight, recent, radius-restricted comps rather than a softened market average. A lender with shallow LA submarket experience would either kill the deal with an overly conservative ARV or create future problems by underwriting to a number that would not hold at resale.

Third, any renovation scope touching square footage, a garage conversion, or an ADU addition in Los Angeles runs directly into LADBS plan check. Permit timelines in this city can stretch a six-month renovation budget into nine or ten months of carry with no warning. A lender who sized the interest reserve to a clean six-month schedule was going to create a capital shortfall for the sponsor if the city slowed down. The structure had to anticipate that risk at closing, not after the fact.

The Solution

We placed the loan with a private debt fund that specializes in residential bridge and construction financing in California. The structure addressed each of the three problems directly.

  • Loan-to-cost was underwritten conservatively, with a loan-to-ARV cap in the range of 65 to 70 percent based on a restricted comparable set pulled from within the immediate submarket, not a broader LA average.
  • Draws were staged and tied to inspected completion milestones, so the lender controlled disbursement and the sponsor had a clear roadmap from acquisition through final draw.
  • The interest reserve was sized to cover a nine-month hold rather than the sponsor's target six-month schedule, explicitly accounting for the possibility of LADBS plan check delay without requiring the sponsor to inject additional capital mid-project.
  • The loan term was set at twelve months with an extension option, giving the sponsor room to execute without a forced sale at the wrong time in the resale cycle.
  • The rate was fixed for the term, which mattered given the carry sensitivity on a deal where every basis point of overage comes directly out of the sponsor's net.

Closing speed was also a structural requirement here. A sponsor competing in the Los Angeles acquisition market cannot win deals on a 30-day timeline if their financing requires a 45-day process. The lender's underwriting and draw management infrastructure allowed us to close on a timeline that kept the acquisition competitive.

The Outcome

The sponsor closed on the acquisition, entered the renovation phase with a fully funded construction facility, and had an interest reserve in place that reflected the actual risk environment rather than an optimistic projection. The deal was structured so that a permit delay would not become a liquidity crisis. That is the job: not to find the cheapest capital, but to find the capital that fits the deal as it actually exists, including the parts that can go wrong.