What kind of loans can you get when you have no cash flow on a property?
You have a flip. The only way it will sell is at a steep loss. Carry costs are draining thousands from your bank. What’s your other option? Turn it into a rental.
This is a typical scenario where you end up with no cash flow on a property. Rent isn’t set up as a source of cash flow here. Rather, it’s a last-ditch effort to hold a house in a bad market.
Let’s look over your options for loans if you have no cash flow on a property.
Why You’d Need a Loan for No Cash Flow on a Property
There are a couple other common reasons real estate investors need a negative cash flow loan on their properties:
- The property can’t be rented yet, so there’s $0 coming in.
- People want to lock in an interest rate. Although rates are much higher than they were earlier this year, they’re still anticipated to rise another 4 or 5% in the next year or so. Properties that are in a bad spot now will only get worse and worse. Opting for certain, planned payments now over uncertain future ones is choosing the lesser of two evils.
- If a property has equity but no cash flow, you can get money from that equity by using a loan. We’ve helped people get cash to put back into their real estate investments or business this way.
- Banks might start calling loans soon. So a new loan for a property that isn’t cash flowing could keep you out of an uncomfortable payoff on the old loan.
Overall, flip owners want to get locked in to a longer-term loan before it’s too late. Banks are tightening more and more. Soon, they’ll turn down loans for properties that don’t cash flow, or refuse to extend their loans.
Working with a property that isn’t cash flowing comes down to one question: How can I get certainty while I wait out the next two or three years?
Best Loan Options for Negatively Cash-Flowing Properties
There are three main types of loans you can get for a property that doesn’t cash flow: traditional, bridge, or DSCR loans.
Using a Traditional Loan for a Property That Isn’t Cash Flowing
You can still get into a traditional loan in this market for a property that doesn’t cash flow.
This could look like a 30-year fixed Fannie or Freddy, or even a regular bank loan. Many banks are offering, three, five, or seven year fixed products. That term length could get you past the anticipated market downturn, into an environment where rates start improving.
Bridge Loans for No Cash Flow Properties
Bridge loans span just one or two years. These loans are fast, flexible, and easy, but they’ll likely cost you more money.
Additionally, you’ll have to be careful about the length of a bridge loan for your non-cash-flowing property. One or two years won’t guarantee to carry you into a time of better interest rates.
No-Ratio DSCR Loans
DSCR loans are designed for properties with rental payments. To use a DSCR loan, you don’t necessarily need to have active rent income on the property. DSCRs can be based off the market rent for the area of the property, rather than the literal rent income.
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