Tag Archive for: refinancing fix and flips

How Dropping Listing Price Hurts a Refinance

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Here’s an example of just how much dropping listing price hurts a refinance.

A recent client of ours came across a common issue in today’s market:

He got caught in the market with a big flip project. After weeks on the market, he just couldn’t sell. Negative cash flow pushed him to continually drop his asking price.

Here are the numbers of his deal and what happened to his chances at a refinance.

How Dropping Listing Price Hurt a Refinance

This client listed his property in late July, early August of this year. Everything had been going well for his investments in the last 7 or 8 years, so he took his time on a couple recent flips. But it took him a little too long on this one, and the timing is now killing him.

Let’s look at his numbers.

The First Price

This client owed $425,000 on the loan for this property. His initial listing price for was $769,000.

So far, so good. These numbers are great. He has a low loan-to-value. Sixty-five percent is a major threshold for LTVs. Being under 65%, this would be a great position for a refinance.

He would have had a lot of options available to him at this point, even if his income didn’t suffice for a conventional loan.

Price Drop #1

A couple weeks later, like most people would do when their property hasn’t sold, he decided to lower the price.

The new price was $725,000. His LTV crossed the threshold to above 65%.

Although not as great as before, he still would have plenty of loan options. Everything still looking good.

Third and Fourth Price Drops

One week later, he decided to drop price again. His realtor talked him into dropping below $700,000.

Now at $699,800, he’s lowered the price three times. When the appraiser looks at this, they’re going to see the continual drops, making it clear that the property is not selling at these prices.

Eight weeks in, this client started getting desperate. Remember, he’s making monthly payments on this property. The house has a high negative cash flow. So he drops the price to $649,000 in hopes of selling.

He’s crossed another major LTV threshold into 70-75%. He’s created a big hurdle for refinancing by dropping the property 4 times over the last 8 weeks.

Dropping Listing Price Hurts Refinance

The appraiser will see the property isn’t selling at $649,000. So based on the current market rates, they’ll appraise it 1-10% less than that number. With this low appraisal, our client could get trapped above a 75% LTV. Getting a decent refinance loan just became way harder, with a nearly guaranteed negative cash flow.

The LTV has gone up, so now his refinance rates will go up. Additionally, he’s backed into a corner where he’ll need a higher credit score to get the loan. At a 65% LTV, there are options for almost any credit score. At 75%, you need a much higher score to get anything.

Every time you drop the price, you’re putting yourself at a higher risk of a worse rental refinance loan. Dropping price gets you lower LTVs, worse cash flow, and potentially takes away the option to refinance altogether.

Read the full article here.

Watch the video here:

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Why You Should Refinance a Flip To a Rental

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Your flip isn’t selling? Here’s our view on why you should refinance a flip into a rental.

Have a flip on the market? It probably didn’t sell in a week like it might have this time last year.

Once it’s clear you won’t get the price you need to turn a profit… What do you do? 

Keep dropping the price and take the hit? 

Cross your fingers the market improves in a few months and refinance with a bridge loan?

Or take the hint, turn the property into a negatively cash flowing rental, and wait out the market for another couple years?

None of those options are ideal. But the most effective way to make your money back over time is the rental unit route. Here’s why we believe you should refinance a flip to a rental right now.

How Bad Is the Negative Cash Flow?

The hesitation for many investors in this situation is: if you take the property off the market, it will have negative cash flow. The price is too high, and rent probably won’t cover the costs. Why would you intentionally put yourself in a situation where you’re losing money?

But the reality is: the house is a negative cash-flowing property now. Every month the house is on the market, you pay interest. That money adds no value to the property – you’re just draining your money straight into your lender’s pocket.

Even if you don’t refinance with a rental loan, you already have a negative cash flow property.

Why not take the step to turn your flip into a rental now and reduce the amount of money you’re losing each month?

Refinance a Flip To a Rental

Typically, people spend more money leaving a house on the market for 2 or 3 months than they would turning it into a negative cash flowing rental for 2 years.

Does it make more sense to pay $2,500 monthly on a house with a for sale sign on it? Or get $2,200 in rent and only pay $300 of your own money per month? This is the question you’re left with when your flip isn’t selling in this market.

Turning a Flip to a Rental in Past Down Markets

Take a lesson from 2008 and 2009. Many investors who sold during the crash later realized that if they had waited 3 or 4 years, they could have made their money back on those properties.

Not only would their property values have gone up, but rates would have come down. Those properties would have become major assets. Instead, investors took a big hit selling in a down market.

What Loan Can Refinance Your Flip Into a Rental?

So if you decide to go with this negatively cash flowing property, what are your options for a loan? 

We recommend a negative DSCR or no-ratio loan program.

These loans allow you a 30-year fixed product that’s interest-only. These DSCR loans work even on properties that aren’t cash flowing.

Typically for a DSCR loan, the rent from the property has to at least cover the monthly expenses (principal, interest, taxes, and insurance). Outflow has to equal inflow.

But the negative DSCR and no-ratio options allow you to refinance rental properties even when you bring in less rent than you pay out per month.

Read the full article here.

Watch the video here:

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Stop Dropping Listing Price NOW

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If you want to refinance your flip – stop dropping the listing price!

Will you keep your flip property as a rental? If the answer is “yes” or “maybe,” then STOP dropping the listing price today.

Lowering the listing price kills your deal. It becomes impossible to get the best loan to keep the property as a rental. 

Why? Let’s go over the ways a lower list price affects your ability to refinance – plus a real life example from one of our clients.

How an Appraisal Impacts Real Estate Loans

If you plan on keeping the property, stop dropping the listing price NOW. Otherwise, it will impact the value of your home (and your LTV when you go to refinance).

The appraiser has certain guidelines they have to follow while determining the value of your home.

First of all, they have to go by whatever the current market conditions are. What are like-properties selling for in your market?

It doesn’t matter what properties sold for 3-6 months ago in the same place – they look at current conditions.

Your Price Changes the Appraisal

From the appraiser’s perspective, your price keeps dropping because the house won’t sell there. If the house won’t sell at a price, then it’s not worth that value.

If you dropped the price by $30,000, then $40,000, then $50,000, and it still hasn’t sold… the appraiser can’t give you the original value. In fact, they can’t even use your last list price. It’s clear the house didn’t sell for that much, so it must not be worth that much right now. Typically, your appraisal will come in between 1-10% lower than your last listing price.

Everything in a refinance hinges on the appraisal. If the appraisal is too low, you’ll get a low LTV. With a low LTV, your rates will be high. If your rates are too high, you’ll have negative cash flow. Your loan options can get totally squashed – all because of a lower list price.

Stop dropping the price if you may want to refinance before selling.

How Dropping Listing Price Hurt a Refinance

We had a recent client come across this exact issue. Here are his real numbers and what happened to him.

The First Listing

This client listed his property in late July, early August of this year. Everything had been going well for his investments in the last 7 or 8 years, so he took his time on a couple recent flips. But it took him a little too long on this one, and the timing is now killing him.

Let’s look at his numbers.

This client owes $425,000 on the loan. His initial listing price for this property was $769,000. 

So far, so good. These numbers are great. He has a low loan-to-value. Sixty-five percent is a major threshold for LTVs. Being under 65%, this would be a great position for a refinance.

He would have had a lot of options available to him at this point, even if his income didn’t suffice for a conventional loan.

The Second Price

A couple weeks later, like most people would do when their property hasn’t sold, he decided to lower the price.

The new price was $725,000. His LTV crossed the threshold to above 65%. 

Although not as great as before, he still would have plenty of loan options. Everything still looking good.

Third and Fourth Price Drops

One week later, he decided to drop price again. His realtor talked him into dropping below $700,000.

Now at $699,800, he’s lowered the price three times. When the appraiser looks at this, they’re going to see the continual drops, making it clear that the property is not selling at these prices.

Eight weeks in, this client started getting desperate. Remember, he’s making monthly payments on this property. The house has a high negative cash flow. So he drops the price to $649,000 in hopes of selling.

He’s crossed another major LTV threshold into 70-75%. He’s created a big hurdle for refinancing by dropping the property 4 times over the last 8 weeks.

Dropping Listing Price Hurts Refinance

The appraiser will see the property isn’t selling at $649,000. So based on the current market rates, they’ll appraise it 1-10% less than that number. With this low appraisal, our client could get trapped above a 75% LTV. Getting a decent refinance loan just became way harder, with a nearly guaranteed negative cash flow.

The LTV has gone up, so now his refinance rates will go up. Additionally, he’s backed into a corner where he’ll need a higher credit score to get the loan. At a 65% LTV, there are options for almost any credit score. At 75%, you need a much higher score to get anything.

Every time you drop the price, you’re putting yourself at a higher risk of a worse rental refinance loan. Dropping price gets you lower LTVs, worse cash flow, and potentially takes away the option to refinance altogether.

Other Tips to Help You Stop Dropping Listing Price

If you made the decision to rent the property and you’ll keep it on the market, that’s fine up to a certain point. We recommend a few extra tricks to get the property sold without lowering price:

  • “Accepting all offers.” Putting this in your listing tells buyers you’ll take less. But it doesn’t affect the actual listing price (so it won’t knock down your property’s value in an appraisal).
  • Offer an incentive. You can give an incentive to the buying broker to put your property up front.
  • Buy down. Buying 2 points on a $500,000 loan costs you $10,000. This buys down the rate up to 1 point, which could help a buyer qualify with a new debt ratio.

Help to Stop Dropping Listing Price

We hate to see clients end up with pains from dropping their listing price. Let’s make sure you don’t land in the same spot.

If you have a loan you want us to look at, price out, and calculate cash flow on, send it our way!  Email us at Info@TheCashFlowCompany.com.

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Numbers Don’t Lie: Turn Your Flip into a Rental Now

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These numbers show you when it’s time to turn your flip into a rental.

What do you do with a flip that won’t sell?

The question is: is it smarter to leave the house on the market and keep dropping the price? Or take it off and turn it into a rental now before rates go further up and prices further down?

You don’t want to sell for a price that loses you money. But if you refinance into a rental, you know it’ll be negative cash flow.

It can feel lose-lose. But we can show you the better way out.

Let’s go over the numbers behind this, so you can look at this problem clearly. Here’s what it will look like if you turn your flip into a rental now.

How Bad Is the Negative Cash Flow?

The hesitation for many investors in this situation is: if you take the property off the market, the house has negative cash flow. The price is too high, and the rent probably won’t cover the costs. Why would you intentionally put yourself in a situation where you’re losing money?

But the reality is: the house is a negative cash-flowing property now. Every month the house is on the market, you pay interest. That money adds no value to the property – you’re just draining your money straight into your lender’s pocket.

Even if you don’t refinance with a rental loan, you already have a negative cash flow property.

Why not take the step to turn your flip into a rental now and reduce the amount of money you’re losing each month?

Refinance a Flip To a Rental

Typically, people spend more money leaving a house on the market for 2 or 3 months than they would turning it into a negative cash flowing rental for 2 years.

Would you rather pay $2,500 per month on a house with a for sale sign on it? Or get $2,200 in rent and only pay $300 of your own money per month? This is the question you’re left with when your flip isn’t selling in this market.

Turning a Flip to a Rental in Past Down Markets

Take a lesson from 2008 and 2009. Many investors who sold during the crash later realized that if they had waited 3 or 4 years, they could have made their money back on those properties.

Not only would their property values have gone up, but rates would have come down. Those properties would have become major assets. Instead, investors took a big hit selling in a down market.

Negative DSCR and No-Ratio Loans

So if you decide to go with this negatively cash flowing property, what are your options for a loan? 

Let’s go over the negative DSCR and the no-ratio loan programs.

These loans allow you a 30-year fixed product that’s interest-only. These DSCR loans work even on properties that aren’t cash flowing.

Typically for a DSCR loan, the rent from the property has to at least cover the monthly expenses (principal, interest, taxes, and insurance). Outflow has to equal inflow.

But these negative DSCR and no-ratio options allow you to refinance rental properties even when you bring in less rent than you pay out per month.

Refinancing with Bridge Loans vs DSCR

Getting a DSCR or no-ratio loan from a new lender is typically a better move than continuing to refinance with bridge loans from your current lender.

You don’t know where the market will be in 12 to 24 months. We know that long-term, the markets will come back, but what if that doesn’t happen for 3 years? You could get stuck refinancing with a bridge loan year after year, charging points with each refinance.

DSCR loans are often a better option in this situation. You just have to know your numbers.

Let’s go through an example so you know exactly how to calculate a DSCR loan and see if it’s the smart choice for you.

Using a DSCR Loan to Combat Negative Cash Flow: The Numbers

Let’s look at an example with a $300,000 loan. We’ll assume that both the original flip loan and the DSCR loan you’re refinancing into are interest-only.

This $300,000 flip loan has a 10% interest rate. That means you’re paying $2,500/month just for interest. This is the current negative cash flow of the property.

On the other hand, if you can get a DSCR loan for a 7% interest rate, you’d be paying $1,750/month instead. Plus, you could get a tenant renting for $1,800/month.

At this point, $1,800 would be coming in, and $1,750 would be going out for mortgage payments. This is actually a positive cash flow of $50/month.

However, your mortgage isn’t your only expense on this property. We still have to take taxes and insurance into consideration. Let’s say both of those costs add up to $300 per month. 

This raises the total expenses with a DSCR loan to $2,050 per month, bringing the cash flow to a -$250 every month.

Flip Loan vs DSCR Loan Compared

Obviously, you never like to lose money on a property. But that $250 of negative cash flow multiplied by 12 months is only $3,000. After 2 years, it’s $6,000. That may seem like a lot, but let’s look back at what you’d spend with the original flip loan.

If we go back to our example, remember we’d be paying $2,500 per month in interest, plus $300 in taxes and insurance with the original flip loan. That’s $2,800 spent for 1 month with the flip loan – close to the $3,000 for the full year with a DSCR loan!

If you keep the house on the market with this flip loan for 2 months, it’s $5,600. That’s comparable to 2 years of out-of-pocket costs if the same property was converted into a rental. 

This is how you have to look at the numbers in this scenario. It will help you determine what’s right for your flip. Is it better to wait for the market and shell out thousands of dollars in the meantime? Or rent the property with a little negative cash flow for 2-3 years in hopes of recouping an extra $100k in equity when the markets come back? (Or at least until rates come back down so you can refinance?)

In many cases, it makes more sense to turn your flip into a rental ASAP with a negative DSCR or no-ratio loan.

What Should You Do Next?

If you feel ready to refinance your flip into a rental, act quickly. Rates are going up, prices are going down.

There are some downsides to no-ratio and DSCR loans. Let us know you’re looking, and we’re happy to help you find the best loan for your situation.

The Cash Flow Company looks at hundreds of loans every month to find the best terms for investors, with the lowest down payments, highest LTVs, and best rates. Let us run the numbers on your property, and we’ll let you know what product will be best for your situation.

We want to get you to a place where you reduce negative cash flow and get back into some profitable flips. Email us at Info@TheCashFlowCompany.com.

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How to Refinance with Real OPM

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What are the advantages to refinance with Real OPM?

Refinancing can get you out of some rough situations with your fix-and-flips in this market.

While there are many loan products you can shop for to save your flip, good ol’ OPM (Other People’s Money) can be the easiest, fastest, and cheapest way to refinance.

Let’s look at why you might need to refinance your flip and why you should try to refinance with real OPM.

Why Should You Refinance a Fix-and-Flip?

The most important thing about this market is that you use it to your advantage to prepare for the next market.

We anticipate that over the next 12 months:

  • The Fed is going to continue raising rates.
  • The economy will soften.
  • There will be great real estate deals like we haven’t seen in years.

You want to make sure you’re money-ready for those opportunities. You don’t want properties sitting on the market, taking up your time and energy, and tying up your funds.

So when you have a house that just won’t sell… What are you supposed to do?

Of course, there are traditional refinance methods. You can go to a bank and get a Fannie or Freddie non-conforming loan. But these loans need you to fit into a pretty small box. What if you own too many properties? Or you need your refinance loan fast? What if you don’t fit in the box?

That’s where refinancing with real OPM can come in handy.

Refinance with Real OPM

When it comes to real estate investment funding, OPM is almost always the best choice.

OPM is Other People’s Money. You match up with a real person you know who has money. These are usually retired people, or people nearing retirement.

Inflation is hitting them as bad as it’s hitting you. If they have a lot of cash, they probably want to put it somewhere more stable than stocks and with a better return than a bank account.

If you can offer these people a 5% to 7% return, then they may be willing to become your lender. OPM isn’t as concerned about typical loan qualification requirements. OPM done right is a win-win for both parties.

Overall, the fastest, easiest, cheapest way out of a fix-and-flip that’s stuck on the market is to refinance with real OPM. This form of lending is what you need most now. Prioritize finding these lenders.

What Are Your Next Steps to Refinance Out of a Fix-and-Flip?

If you have a flip that’s in trouble, let us know. We fund some loans ourselves, and we scour the nation looking for all the best loan products available. Let’s find the best debt for your position.

Send your questions to Info@TheCashFlowCompany.com. We’re happy to look at your loan, and if we can’t help you, we probably know someone who can.

Read the full article here.

Watch the video here:

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Refinancing: DSCR Loans vs Bridge Loans

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Refinancing can save you from a bad fix-and-flip. But which is better: DSCR loans vs bridge loans?

This market could force you to sell your fix-and-flip for much less than anticipated. Or – it could not sell at all.

When your lender asks for the money from your flip loan, a refinance could be the solution. Refinancing buys you time. With the right refinancing loan, you can safely wait for a better market to sell the property.

Let’s take a look at DSCR loans vs bridge loans for this type of refinancing.

DSCR Loans

Are you open to keeping your flip for a little longer term? Would you convert it to a rental in the meantime? If so, a DSCR loan is a great way to refinance out of a fix-and-flip.

A DSCR loan is a type of rental loan, based only on:

  • Your credit
  • Rental income from the property (not your personal income)
  • LTV (appraisals, listing price, etc that show the value of the home)

If you’re considering a DSCR loan, let’s look at the pros and cons of shifting gears from a flip to a rental.

DSCR Loan Pros

A DSCR lender will loan you up to 80% of the value of the home.

Cash Flow Opportunity for Your Flip

Your options for a DSCR loan product are broad. You can get anything from an interest-only to a 40-year loan.

With these options, you can spread the payments out. With lower payments and a potential tenant, you can match the cash flow to break even on the property (or maybe even bring in positive cash flow!).

This cash flow frees up your money to buy more flips and keep your business going. With that free money, you can jump on the good deals that will pop up in the next few months.

“Easy” Loan

Some of the biggest advantages of a DSCR loan is how easy it can be to apply and qualify.

For this type of loan, there are no income requirements. You just need good credit and rent that covers the monthly loan payment.

DSCR Loan Cons

There’s one important trick to refinancing a house that’s been on the market:

The appraiser is going to use the last price the house was listed for in their appraisal.

It’s tempting to drop the price when you have a flip on the market to try and attract a buyer. But once you decide to refinance, your house won’t appraise for higher than that lowest listed price.

So, it’s important to decide what you want to do with a flip ASAP. If you know you may want to refinance, you don’t want to keep lowering the list price, or it will negatively impact you.

Pre-payment Penalty

All DSCR loans have some kind of pre-payment penalty. Many are for around 3 years.

This means you have to keep the loan for that period of time, otherwise you’ll be charged a percentage fee for paying off the loan early.

If you want to keep this loan on your property for less than 3 years, you’ll be stuck paying that pre-payment penalty with a DSCR loan.

Not Available for Rural Areas

Also, DSCR loans are not designed for smaller towns. They can be great if you’re in a larger community, but they’re just not available in small ones.

And as money tightens up overall in the real estate lending space, DSCR programs are tightening up too. Rates will go up, LTVs will go down, and they will concentrate more on city centers. 

Most DSCR loan programs go as far as 25 miles from a city. But anything that shows up rural on an appraisal will likely not qualify for DSCR.

Bridge Loans

A bridge loan is a short-term loan that’s designed to give you flexibility on flips that are slow to sell.

With a bridge loan, you’re free to keep the house on the market, or convert it to a rental. The main purpose of a bridge loan is to get you out of a tough situation with the lender of your flip. What you choose to do with the house afterward is flexible with a bridge loan.

Bridge Loan Pros

Bridge loans are designed to help you refinance out of a flip. It gets you out of your original loan quickly –which is crucial when you’re getting calls from your lender. Plus, it helps you from paying high monthly payments with no cash coming in.

Additionally, bridge loans:

  • have no pre-payment penalty
  • can be interest only
  • close very quickly.

Bridge Loan Cons

Too Short-Term?

Bridge loans are short-term – varying between 1 and 3 years. 

In our market, we don’t expect interest rates to trend down for at least another year. If your bridge loan only covers you for a year, that might not be enough time to carry you into a better market.

You’ll want your refinance bridge loan for at least 2 years to give you some flexibility with the property.

You may need to shop around – 3-year bridge loans can be difficult to find, and many are limited to 1 year only.

Low LTV

Bridge loans are usually only 65% to 70% of the house’s current appraised value. 

Again, remember that your listing price will have a direct impact on that appraised value. If you slide the price down on the market to attract buyers, your refinance loan will be lower.

DSCR Loans vs Bridge Loans to Refinance

When we meet with a client about how to refinance out of a fix-and-flip, we weigh DSCR loans against bridge loans.

There’s always a tipping point – usually somewhere between the 14th and 17th month of a DSCR loan – where the pre-pay fee becomes cheaper than a bridge loan.

Bridge loans typically have 2% to 4% higher annual rates over a DSCR loan. Always analyze this tipping point, and choose the right loan (DSCR loans vs bridge loans) for you based on the length you’ll need it.

Read the full article here.

Watch the video here:

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3 Ways to Refinance Out of a Fix-and-Flip

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This market can put your flips in a bad spot – here are 3 ways to refinance out of a fix-and-flip!

As a flipper, you’ve probably noticed the change in the market.

Properties are sitting on the market longer, and price decreases are not helping. When your flip lender comes calling for their money back, what are you supposed to do?

You have two options:

  • Take the price hit, sell, and cut your losses.
  • Refinance.

Often, refinancing can get you out of a bad spot and still let you come out with a profit. Let’s go over your options and review 3 ways to refinance out of a fix-and-flip.

Why Should You Refinance a Fix-and-Flip?

The most important thing about this market is that you use it to your advantage to prepare for the next market.

We anticipate that over the next 12 months:

  • The Fed is going to continue raising rates.
  • The economy will soften.
  • There will be great real estate deals like we haven’t seen in years.

You want to make sure you’re money-ready for those opportunities. You don’t want properties sitting on the market, taking up your time and energy, and tying up your funds.

So when you have a house that just won’t sell… What are you supposed to do?

Of course, there are traditional refinance methods. You can go to a bank and get a Fannie or Freddie non-conforming loan. But these loans need you to fit into a pretty small box. What if you own too many properties? Or you need your refinance loan fast? What if you don’t fit in the box?

That’s where these 3 unique loans to refinance out of a fix-and-flip come in handy.

1. DSCR Loan

Are you open to keeping your flip for a little longer term? Would you convert it to a rental in the meantime? If so, a DSCR loan is a great way to refinance out of a fix-and-flip.

A DSCR loan is a type of rental loan, based only on:

  • Your credit
  • Rental income from the property (not your personal income)
  • LTV (appraisals, listing price, etc that show the value of the home)

If you’re considering a DSCR loan, let’s look at the pros and cons of shifting gears from a flip to a rental.

DSCR Loan Pros

A DSCR lender will loan you up to 80% of the value of the home.

Cash Flow Opportunity for Your Flip

Your options for a DSCR loan product are broad. You can get anything from an interest-only to a 40-year loan.

With these options, you can spread the payments out. With lower payments and a potential tenant, you can match the cash flow to break even on the property (or maybe even bring in positive cash flow!).

This cash flow frees up your money to buy more flips and keep your business going. With that free money, you can jump on the good deals that will pop up in the next few months.

“Easy” Loan

Some of the biggest advantages of a DSCR loan is how easy it can be to apply and qualify.

For this type of loan, there are no income requirements. You just need good credit and rent that covers the monthly loan payment.

DSCR Loan Cons

There’s one important trick to refinancing a house that’s been on the market:

The appraiser is going to use the last price the house was listed for in their appraisal.

It’s tempting to drop the price when you have a flip on the market to try and attract a buyer. But once you decide to refinance, your house won’t appraise for higher than that lowest listed price.

So, it’s important to decide what you want to do with a flip ASAP. If you know you may want to refinance, you don’t want to keep lowering the list price, or it will negatively impact you.

Pre-payment Penalty

All DSCR loans have some kind of pre-payment penalty. Many are for around 3 years.

This means you have to keep the loan for that period of time, otherwise you’ll be charged a percentage fee for paying off the loan early.

If you want to keep this loan on your property for less than 3 years, you’ll be stuck paying that pre-payment penalty with a DSCR loan.

Not Available for Rural Areas

Also, DSCR loans are not designed for smaller towns. They can be great if you’re in a larger community, but they’re just not available in small ones.

And as money tightens up overall in the real estate lending space, DSCR programs are tightening up too. Rates will go up, LTVs will go down, and they will concentrate more on city centers. 

Most DSCR loan programs go as far as 25 miles from a city. But anything that shows up rural on an appraisal will likely not qualify for DSCR.

2. Bridge Loan

A bridge loan is a short-term loan that’s designed to give you flexibility on flips that are slow to sell.

With a bridge loan, you’re free to keep the house on the market, or convert it to a rental. The main purpose of a bridge loan is to get you out of a tough situation with the lender of your flip. What you choose to do with the house afterward is flexible with a bridge loan.

Bridge Loan Pros

Bridge loans are designed to help you refinance out of a flip. It gets you out of your original loan quickly –which is crucial when you’re getting calls from your lender. Plus, it helps you from paying high monthly payments with no cash coming in.

Additionally, bridge loans:

  • have no pre-payment penalty
  • can be interest only
  • close very quickly.

Bridge Loan Cons

Too Short-Term?

Bridge loans are short-term – varying between 1 and 3 years. 

In our market, we don’t expect interest rates to trend down for at least another year. If your bridge loan only covers you for a year, that might not be enough time to carry you into a better market.

You’ll want your refinance bridge loan for at least 2 years to give you some flexibility with the property.

You may need to shop around – 3-year bridge loans can be difficult to find, and many are limited to 1 year only.

Low LTV

Bridge loans are usually only 65% to 70% of the house’s current appraised value. 

Again, remember that your listing price will have a direct impact on that appraised value. If you slide the price down on the market to attract buyers, your refinance loan will be lower.

DSCR vs Bridge Loan to Refinance Out of a Fix-and-Flip

When we meet with a client about how to refinance out of a fix-and-flip, we weigh DSCR loans against bridge loans.

There’s always a tipping point – usually somewhere between the 14th and 17th month of a DSCR loan – where the pre-pay fee becomes cheaper than a bridge loan.

Bridge loans typically have 2% to 4% higher annual rates over a DSCR loan. Always analyze this tipping point, and choose the right loan for you based on the length you’ll need it.

3. Real OPM

When it comes to real estate investing, OPM is almost always the best choice.

OPM is Other People’s Money. You match up with a real person you know who has money. These are usually retired people, or people nearing retirement.

Inflation is hitting them as bad as it’s hitting you. If they have a lot of cash, they probably want to put it somewhere more stable than stocks and with a better return than a bank account.

If you can offer these people a 5% to 7% return, they may be willing to become your lender. OPM isn’t as concerned about typical loan qualification requirements. Done right, OPM is a win-win for both parties.

OPM is the fastest, easiest, cheapest way to refinance out of a fix-and-flip. Real OPM is what you need most now. Prioritize finding these lenders.

What Are Your Next Steps to Refinance Out of a Fix-and-Flip?

If you have a flip that’s in trouble, let us know. We can help you find your tipping point between DSCR or bridge loans.

We fund some loans ourselves, and we scour the nation looking for all the best loan products available. Let’s find the best debt for your position.

Send your questions to Info@TheCashFlowCompany.com. We’re happy to look at your loan, and if we can’t help you, we probably know someone who can.

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