Why Do Lenders Sometimes Reject Your Real Estate Investment?

It’s important to learn about what lenders consider ‘bad deals’ so that you can avoid those pitfalls and get the money you need for your real estate investment!

As a lender, our #1 goal is to make sure our investors are putting money into strong projects with relatively guaranteed returns. It’s in everyone’s best interest to be critical of questionable deals so that no one ends up in the hole.

Especially if you’re a new investor, you can learn a lot by talking to your lenders about what they’re looking for and how they determine the strength and safety of a real estate investment. 

Today, let’s dive into some of the red flags that could get your investment rejected by a lender:

1. Tight Margins

Lenders look for a minimum 15% profit margin

This means you’ll ideally need a loan for somewhere between 70-75% of the After Repair Value (ARV). That gives you a 25-30% buffer to cover interest, closing costs, and maintain that 15% profit margin.

A loan that crosses into 80-85% ARV territory is too close for comfort. With that large of a loan, your margins are slim, and the likelihood you’ll turn a profit gets increasingly unlikely.

Especially if you’re a new investor, you can feel a lot of pressure to get in the door and get moving. However, our 25+ years of investing experience has shown that it’s far better to do 1-2 good deals a year than 4 bad ones that could potentially lose you money. 

Be patient and critical. Selecting projects with a comfortable profit margin of 15% or higher is a much safer investment than one that needs a 85% ARV loan.

Lenders want to see you make money. If you’re not making money, then your investment career will be short lived, and lenders want to see you set up for future projects.

2. Fuzzy on the Numbers

When you meet with a lender, you need to demonstrate that you understand how the numbers and money fit together. Show your lender that you understand…

  • ARVs
  • Scope of the project
  • Purchase price

If you’re fuzzy on the numbers, it’s a red flag for lenders. 

The less you know, the more risk your lender takes on by giving you money. Even if the deal has a good profit margin or ARV, if you can’t articulate and explain that, it’s a bad deal for your lender.

Take time to understand your own numbers. Be able to defend it as a good real estate investment! 

It’s okay to ask questions and do research—you’re always welcome to reach out to us with your questions! 

But do all that learning before you’re in a meeting, asking to borrow money.

3. Dishonesty

If you lie to your lender about anything, expect them to decline your deal the moment they find out.

It’s far better to be honest—about bankruptcy, foreclosure, credit card debt, savings, etc.—than to wait for us to find out.

Lenders need to be able to trust you, so don’t hide information from them.

If you’re a new borrower, it can be tempting to inflate your expertise, even to pretend you’ve done this before. Be honest that you’re starting out, but then show them that you understand the numbers and are prepared.

Dishonesty can ruin your reputation and relationship with a lender. 

Even if there’s information you’d rather sweep under the rug, it’s better to be 100% honest.

The Bottom Line

At the end of the day, most lenders (including us!) want to work with honest people who know their numbers as they build wealth through real estate invesment.

In the current economy, banks are offering fewer loans, so building good relationships with smaller lenders is increasingly critical for successful investing.

If you have a deal you want us to look at, reach out to us at Info@HardMoneyMike.com. We also offer many tools and loan options that can help you learn more about investing.

Our goal is to partner with you so that all parties come out on top.

Visit our YouTube channel for educational videos about real estate investing.

What Makes a Good Real Estate Investment for Lenders?

As an investor, you should know what your lender is looking for when they’re looking for a good real estate investment. 

Recently, we discussed the 15% rule and why that 70–75% ARV is so important to ensure a profit on your deals. 

We want to make sure you’re prepared for all the ins and outs of real estate investing so you’re not surprised by any fees or payments. 

Part of that is understanding what a good deal looks like from the lender’s perspective.

What is Your Lender Looking For?

When we look at deals, we’re looking to fund 70–75% of the ARV. The final 25–30% are taken up with your profits, closing costs, and other fees.

However, when determining our numbers, there are three things we look at:

  • Purchase Price
  • Selling Price (ARV)
  • Rehab Costs

These three elements and the way the numbers balance between them tell us a lot about a property and an investor.

If an investor is looking for an ARV of $200,000, then we’re going to look at the moving pieces under the rehab proposal to make sure that’s a reasonable ask. 

Additionally, a $200,000 market is very different from a $1M market, and your lender wants to make sure all the numbers and features of the property line up for the target market.

As lenders, we also want to know that you understand the relationship between how much you’re going to need, how much we’ll lend, and how much you’ll sell for. Understanding all of this is critical if you want to be profitable.

Returning to our example, here’s where the numbers stand:

  • Purchase Price
  • Selling Price (ARV): $200,000
  • Rehab Costs: $30,000

75% of the ARV would be $150,000, the maximum loan most lenders will offer. 

When your lender looks at a deal like the one above, we want to see a purchase price of no more than $120,000. Combined with the rehab costs, that maxes out that $150,000 loan. Any higher than that, and it will be very difficult for you as an investor to turn a profit.

An unprofitable deal for an investor is a risky deal for a lender.

Of course you could dip into your profit margin and spend more. However, protecting that 15% is what lets you keep going in the real estate game. 

So What’s a Good Real Estate Investment?

A good deal is one where you put all these numbers together and prove that you’re going to make a profit.

Show your lender that you understand what it takes to bring this property up to the market conditions required for your ARV.

Especially if you’re a new investor, don’t feel pressured to take risks. It’s always better to do fewer deals if that’s what it takes to protect your profit margins.

Where We Come In…

We understand that numbers sometimes get confusing. But that’s why we’re here. We’re always happy to run through these numbers so that you understand your project before approaching a lender.

We also have free resources that can help you learn more about your investment options.

If you have any questions, reach out to us at Info@HardMoneyMike.com or fill out a contact card.

Happy investing!

Real Estate Investing for Beginners: The 15% Rule

Over the next few weeks, learn more about real estate investing for beginners. Today we’re looking at the 15% rule…

How can you tell if a deal is “good” or not?

Here at Hard Money Mike, we have a few ‘rules’ that help you make those tough decisions. Not only do these guidelines help you make money as an investor, but they also make you more attractive to lenders. 

So what does a good deal look like?

1. Profit

It all starts and ends with profit.

Every deal should have a minimum of 10% profit for you. However, as a rule, it’s best to aim for 15% of the ARV. This means that the selling price is a minimum of 10%–15% higher than the ARV (After Repair Value).

For example, if the estimated ARV for a property is $200K, you should look for deals that will get you about $30K in profits.

You’ll need to keep in mind other final costs to make sure that 10%–15% actually ends up in your pocket.

2. Cost to Sell

How much is it going to cost to sell the property? Typically, you see costs somewhere between 4%–6%.

Part of that is real estate cost, but hopefully you find a good deal with an agent. You’ll also need to factor in closing costs.

3. Cost to Fund

Leverage costs money. Loans come with interest, and you’ll be using the incoming money from your deals to pay those off.

Typically, you can estimate that your money costs 5%–6% more than the amount of the loan itself.

What do All These Numbers Mean?

When we add together these estimates, we end up with a range:

19%–27% of the cost of your project will not be funded by any of your loans. These costs all come out at the end, but it’s very important that you don’t wait until the end to think about them.

Typically, lenders look to give you 70%–75% of the estimated ARV of the property. Lenders do this because they want to make sure you have accounted for all these other numbers.

You need to know your profits, what it’s going to cost to sell, and the cost of your money. None of these numbers are financed into your loan so they’ll need to come 1) out of the sale, or 2) out of your pocket. 

The Lender’s Perspective

Lenders want you to demonstrate that you understand the costs. If you can show that you have a plan to cover these final costs, lenders are typically fairly comfortable covering between 70% and 75% of the ARV.

You may find hard money loans willing to go higher, but if you’re looking at traditional loans, expect 70%–75%.

If you have the funds in your money bucket, the lower the loan, the higher your profits (and the easier it is to get that 15%!). Anything above 75% and it gets trickier for you to make money on a deal because you’re needing to focus so much of your money on paying back lenders.

Diving Deeper

Over the next few weeks, you can stay tuned on our website or check out our YouTube channel where we’ll be going over more tips on real estate investing for beginners.

Real estate is an investing game. It’s a numbers game. If you have some numbers you want to run by us, just reach out to Info@HardMoneyMike.com or fill out a contact card.

Our goal is to equip you with the tools and knowledge to help you successfully build wealth.

Happy investing!

How to Raise Credit Scores in 30 Days or Less

Everyone in real estate investing knows the power of credit scores. But how can you raise credit scores quickly so you don’t miss out on deals?

The best part of real estate investing is that anyone from anywhere can begin building wealth if they know how to use leverage.

One of the biggest pieces of leverage in an investor’s toolbox is their credit score.

Your credit score can be the difference between a deal that makes you rich and a deal that puts you in debt. With a good score, you’ll likely find better terms, rates, and points.

However, if you’re struggling with a low credit score, what can you do to fix it? And how long is that going to take?

Identifying the Problem

If you’re using your personal credit card to cover the expenses of real estate investing, chances are you have a usage issue.

Your credit score is calculated based on the balance between two items: 1) available funds, and 2) how much of those funds you’re using (usage). If you’re constantly using all—or nearly all—of the available funds, credit companies see you as a risky investor. This lowers your score.

If this sounds like you, that’s great news! There are fairly painless ways to fix usage issues.

Unfortunately, if your score is low because you’ve struggled with late payments, there is no quick fix for that. Only time can remedy the damage caused by bad payment history.

A Quick Fix to Raise Credit Scores: Usage Loans

A usage loan pays off your credit card, transferring the balance to a private loan that doesn’t report to your credit score.

Many companies and individuals, including us, offer usage loans, and we’re happy to talk about your options at Hard Money Mike.

Usage loans have a near-instant affect on your credit score. You’ll see the change as soon as the next report processes. If you want to see how much your credit score could change if you pursued a usage loan, you can use tools on sites like Experian or Credit Karma.

If your score is low, and you’re convinced that the next deal will fix everything, here’s our advice:

Don’t play credit roulette.

Don’t put your credit score at risk while you wait for the next deal to go through. Get ahead by protecting your credit score with a usage loan.

A Long Term Fix: Business Credit Cards

Once you revive your credit score with a usage loan, what can you do to protect your score long term?

It’s pretty simple: Transfer your real estate investing to business credit cards.

Business credit cards (if you find a good one) won’t report on your credit score. Additionally, because their purpose is different, credit card companies sometimes reward high usage on business accounts even though they penalize private accounts for the same activity.

You still need to pay off these cards on time. But as long as you’re doing that, you protect your personal credit score from jeopardizing your deals.

To learn more about business credit cards or how to find the right one for you, check out our sister company, The Cash Flow Company.

We Can Help

If you want to explore a usage loan or have questions about how to raise credit scores, feel free to reach out to us at Info@HardMoneyMike.com.

We’re always happy to walk you through your options. Our goal is to help you find the right loans and solutions that fit your needs.

Happy investing!

Hard Money vs. Private Money Loans: What’s the Difference?

Sometimes these terms are used in similar situations, but what actually makes private money loans different from hard money?

One of the most beautiful and attractive aspects of real estate investing is its accessibility.

Anyone can enter the game and create wealth, provided they understand their available options and use other people’s money (in the form of loans, etc.) to fund their projects. This is called using leverage.

The best leverage for each deal might be a little different. Sometimes you need to close quickly. Sometimes you need to prioritize low interest rates. 

Whatever the top priority, private money and hard money are tools to have in your investing toolbox.

Private Money Loans vs. Hard Money Loans

Hard money loans have been around for a long time, but recently we’re seeing a rise in private money loans.

Knowing the differences between the two can help you find the best deal for the specific needs of your project.

1. Credit Scores

  • Hard Money: Credit scores aren’t typically a factor. 
  • Private Money: Score based.

Instead of looking at your credit score, hard money lenders look at your financial history for things like bankruptcy, foreclosures, etc. 

Additionally, not only is hard money not determined by your credit score, but hard money loans can also be used to help fix your credit score (something that private money isn’t necessarily designed to do).  

If you have concerns about your credit score, check out our information about usage loans.

2. Flexibility

  • Hard Money: Super flexible and great for unique projects! 
  • Private Money: Less flexible, often better for larger communities.

If you have a project that’s a bit outside of the box, hard money is often the way to go since these loans aren’t restricted as much as traditional bank loans.

In contrast, private money tends to be best for projects that are a bit more “typical” in real estate investing. It can be tricky to get private money loans below $125,000, so if you’re looking for a fast, small loan, hard money might be a better deal.

3. Loan to Value

  • Hard Money: Up to 100% financing.
  • Private Money: Typically maxes out at 70% of the repair value and 90% of the purchase.

Sometimes you can find private money loans with great terms, but typically hard money can offer higher LTVs.

4. Markets

  • Hard Money: Local.
  • Private Money: National.

Private money has the advantage over hard money when you’re looking in larger communities. Most hard money lenders have smaller areas (or two or three states) they specialize in, and they like to stay focused on those areas.

5. Pricing

  • Hard Money: More expensive.
  • Private Money: Less expensive.

If you’re in a large city, and you’re looking for the best pricing, private money will typically be less expensive than hard money. 

It’s important to note that the difference in cost between these loans is often in the points, not the rate. 

Often, hard money loans are anywhere between 2 and 3 points, with loans around 6-9 months. In contrast, private money loans are often closer to 1-1.5 and offer longer loans of 12-18 months.

Which Loan is Better?

It depends what you need!

If you need a flexible, quick loan with higher LTVs that isn’t going to penalize you for a less-than-spectacular credit score, hard money is the way to go.

If you need longer terms, better points, and something that’s designed for larger communities and typical projects, check out private money loans. 

Explore Our Resources

Real estate investing is great, and both of these loans should be in your investing toolbox. 

If you want to explore a hard money loan, feel free to contact us at Info@HardMoneyMike.com. We’re always happy to talk through a deal or help you figure out what sort of loans are right for you.

You can also check out the free tools on our website or our YouTube channel where we offer investment tips and tricks. Our #1 goal is that you feel confident and equipped to succeed as a real estate investor. 

Happy investing!

How to Raise Your Credit Score with Hard Money

If you’re struggling with knowing how to raise your credit score, it might be time to check out a hard money usage loan.

Real estate investing is all about creative wealth using available leverage (other people’s money in the form of bank loans, hard money, etc.) to make a profit. It’s an accessible and lucrative field for first-time investors. 

However, a bad credit score can change the game.

Especially if you’re looking for larger, traditional loans, a bad credit score can immediately disqualify you from consideration.

But there is good news! Hard money (sometimes called “private money”) can save the day. 

The Cost of a Bad Score

A bad credit score (anything below 670 is often considered “poor”) can lower the quality of deals you find. If they do approve you for a loan, a bank will likely ask for an additional 10-20% down. 

You might be stuck with higher rates on a DSCR loan.

At worst, you won’t be approved for a loan at all.

This is both frustrating and very expensive.

How do Credit Scores Work?

Your FICO score is essentially based off of 5 categories:

You’ll notice that the vast majority (over 2/3rds) of the score comes down to just 2 components:

  1. Payment History
  2. Amounts Owed (Usage)

If your score is low because of payment history, then there isn’t much we can do to fix that with a hard money loan. That’s a problem that takes time to resolve.

However, if your score is low because of the usage, hard money can provide a very quick fix that can raise your score in as little as 14 days.

What is Credit Usage?

Credit usage (that Amounts Owed section) measures the ratio of total money you could use with how much you do use

Essentially, if you have a total available balance of $1,000 and you’re constantly maxing out that credit card, then you have 100% usage.

Credit card companies typically like to see usage around 30%. If you’re new to the investment game and you don’t have constant cash flow from current properties, it can be really tricky to have optimal credit usage.

How to Raise Your Credit Score Using Hard Money

You can use a hard money usage loan to pay off your credit card. 

This lowers your usage percentage almost instantly which in turn boosts your credit score. Because hard money loans move quickly, you could see your credit score go up in only a few weeks—we’re only waiting for the next statement to be processed!

Once that credit score is back above 700, you shouldn’t have a problem getting your next necessary loan and getting a good deal.

You should also consider opening a 0% business credit card.

The Cash Flow Company encourages moving expenses to business credit cards. This protects those higher real estate investment expenses from reporting on your personal credit score. 

Reach Out if You Need a Usage Loan!

At Hard Money Mike, we offer secure usage loans for investors looking to fix their credit scores.

Also, make sure to check out our free tools. Our loan calculators in particular can help you find the best loan options for your projects. It’s important to shop around as you invest and create wealth.

If you’re looking to raise your credit score fast, reach out to us at Mike@HardMoneyMike.com, and we’d be happy to discuss a deal.

How to Get 100% Fix and Flip Financing

The key to real estate investing is leveraging other people’s money to cover your fix and flip financing.

Getting your fix and flips covered 100% comes down to 3 things:

  • Finding the right money 
  • Striking at the right time 
  • Understanding hard money

Especially for new investors, hard money (also called private money) loans are usually the key. Hard money is flexible and often has less rigid requirements than more traditional loans. This makes them perfect for fix and flips.

3 Ways to Get 100% Financing for Fix and Flips

Especially in today’s real estate climate, using hard money is a crucial link in the chain of building wealth. 

Rates are high and a lot of banks are offering fewer loans. So where are you going to find the money?

There are three strategies that help you leverage hard money to build wealth by covering 100% of fix and flip financing.

1. Find Great Deals

This may seem obvious, but it’s more important to be strategic than ever before. 

Look for properties that have a minimum 70% ARV (After Repair Value). Take your time to make sure you’re finding properties that are going to have a solid return. Don’t take risks on properties that aren’t likely to flip.

Remember: it’s better to have 2-3 solid deals than 6-8 bad or marginal deals.

So look for those 70% ARV properties.

2. Cross Collateralize

Sometimes called “crossing,” this strategy lets you use one property to get another at 100%. 

If you have another rental, a home, or a fix and flip that’s hit the market, you can use that property as leverage to get the next property. 

You will need to have a mortgage on both properties. Doing this basically gives the lender more protection. If you’re confident that you’ve picked good properties with high ARVs, then cross collateralizing is a fairly low-risk move on your part.

As long as you get that flip done and paid off, then both liens are released once you sell the new flip. 

3. Find a Cosigner

Again, this strategy helps lenders feel more secure on their end. If you’re a new investor, it can be helpful to find a guarantor with the assets who’s willing to cosign on a loan. 

As with crossing, as long as you’ve selected strong properties, this is a low-risk strategy that simply allows you to get 100% financing that you can pay off when you resell the property. 

Your guarantor should never need to pay a cent, but it makes it easier for the lender to approve financing. 

Fix And Flip Financing Made Easy

The market is gearing up to be great for real estate investors. Don’t be afraid to start your investment journey. Just remember:

  • Find great deals
  • Cross collateralize 
  • Find a cosigner

Hard money loans are a great place to start. They’re flexible, and you’re more likely to find 100% financing through a hard money lender, especially as a new investor.

If you do end up needing DSCR or other traditional loans, you can check out our sister company, The Cash Flow Company

If you’re interested in discussing a deal, reach out to us at Info@HardMoneyMike.com. We’re always happy to run through deals and answer questions.

How to Finish the Project With a Hard Money Loan

If you have a property that’s draining your cash, look into a hard money loan that can help you finish the project and get it off your plate.

A lot of clients reach out to us who have started a project – a flip, a rental, etc. – and are struggling to reach the finish line. 

Delays in the real estate world can quickly cost thousands of dollars, so how can you avoid those issues with a hard money loan?

The Problem With Stalled Projects

Stalled projects cost money in a few different ways.

1. Payments: 

You have taxes, insurance, and loan payments for as long as you are in charge of that property. The longer you hold onto the property, the longer those payments are coming out of your pocket.

2. Missing the Market:

Real estate markets move fast. Although a delay of a month or two can feel small, missing the market often makes it difficult to sell the property. 

The most common way around this is to lower the asking price by a few percentage points… which is then more money that you’re not making in that deal.

Why Should You Get a Loan to Finish a Project?

Let’s look at some real numbers you might encounter if you were struggling with a stalled project:

For even a two month delay, a project can easily cost $5,700 in payments alone. 

Let’s consider the fact that this investor also likely missed the peak market. If they were hoping to sell this property for $400,000, then decreasing the asking price by 5% would immediately result in a $20,000 market loss. 

That is both discouraging and super costly… but it’s also avoidable with the right kind of loan.

How Does Hard Money Help?

If your project is 60-70% complete and you just need a loan to help you cross the finish line, hard money loans might be right for you.

These loans are flexible. Because you’re not looking to pay off the full amount, only cover the last leg of the project, it’s typically easy to work out a deal with a lender.

A Finish a Project loan does not take over everything. It doesn’t refinance the project. They’re designed to help you complete what you’ve started as quickly as possible. That way you don’t miss out on the market or get stuck with months of additional payments. 

Looking for a Finish a Project Loan?

If you’re interested in a Finish a Project loan, reach out to us! You can check out our page about these particular loans or contact us at Info@HardMoneyMike.com.

We’re more than happy to discuss your options and help you find the right path towards your success.

Happy investing!

Top 5 Hard Money Loan Options

What types of hard money loan options are out there for real estate investors?

Hard money (sometimes called private money) loans are often the key to getting started in real estate investing. 

Most hard money lenders have a lot of options and many even have particular specialties. This article explains what’s out there so you’re equipped to have discussions with lenders.

Here are the top five loans that you’ll encounter in the hard money industry.

1. Fix and Flip Loan

The nice thing about a fix and flip loan is that it has everything to do with the property. Even if you’re less experienced as an investor, if the property has potential, hard money lenders will listen.

If the value is there, hard money lenders could fund up to 100%.

2. Bridge Loans

You’ll typically use a bridge loan to either purchase or refinance a project. There are a few places where they generally show up:

Bridging Gaps Between Projects

If you’re currently working on a project but you come across another great deal, a bridge loan can tap into that equity. You can use this money this as an opportunity to efficiently line up your next project.

A bridge loan would put a small lien on a property that’s about to go up for sale (or is currently being sold) which gives you money to purchase your next project.

Finishing and Buying Properties

Hard money moves more quickly than large, standard bank loans. If the clock is ticking and you need to either pay or lose the deal, a hard money bridge loan can save the day.

Wholetailing

Bridge loans can also work as a crucial part of wholetailing. Wholetailing involves anything from purchasing a discounted property and performing basic fixes to outsourcing renovations altogether. 

Typically, wholetailing only requires simple funding, often 60-90-day loans.

3. Gap Loans

You can explore gap funding to cover all sorts of money holes that might show up as you go through a project:

  • Down payments
  • Getting a project started (consider funding for escrow draws)
  • Completing a project
  • Carrying project expenses (like HOA fees)

You can even use gap loans to pay off old investors if you have someone who’s ready to move on. Treat your investors well and make sure you have the financial flexibility to let them out if they need.

4. Usage Loan

A usage loan is a private non-reporting loan that helps you pay off your credit card balances. If you’re using your personal credit card for business, this can be an important way to raise your credit score.

Real estate investing is all about leverage, and a lot of banks see your credit score as a reflection of your ability to use leverage well. 

The higher your credit score, the better terms you’ll often find for loans. 

5. BRRRR “Buy” Loan

The two big ticket items in the BRRRR method are 1) the purchase, and 2) the refinance.

Hard money loans come into play on the purchase side of a BRRRR. Because hard money is so flexible, it can also often fund a good portion of the rehab. 

Questions?

These are the top five hard money loan options, but if you’re looking for something else, just ask! Remember, hard money lenders are often smaller companies and individuals. They all have preferences and specialties, so get to know them and let them get to know your project.

If you’re interested in learning more, check out the free tools on our website or our YouTube channel where we discuss other tips and tricks for successful investing.

You’re always welcome to reach out to us at Info@HardMoneyMike.com if you have any questions or would like to discuss a deal.

Happy investing!

Why You Shouldn’t Use a DSCR Loan for a Fix and Flip

A DSCR loan is great for rentals, but why don’t they work for flips?

DSCR loans definitely have their place in the real estate investor’s arsenal. But if you’re trying to do a fix and flip, this loan might not be the right fit for you.

How Does a DSCR Loan Work?

DSCR stands for Debt-Service Coverage Ratio and is a loan particularly suited for rental properties. Like any other traditional loan, a DSCR is able to fund up to 80% of the purchase price or appraisal, whichever is lower.

For example, if you have a $200,000 property, the DSCR will cover up to $160,000 (80% of the total purchase price). This leaves $40,000 left for you to cover on your own.

As mentioned above, this loan is very well-suited for properties that generate steady cash flow (like a rental), but they can be more difficult to work with in the fix and flip game.

Why You Shouldn’t Use DSCR for Flips

You Need to be Rent Ready to Get a DSCR

In order to qualify for a DSCR appraisal, a property must be rent ready. This creates a lot of hurdles in the fix and flip world since many flippers are doing more than basic cosmetic repairs. 

DSCRs Have Prepayment Penalties

Most DSCR loans come with prepay penalties. These penalties typically come in 3- or 5-year plans. Again, in a rental market where you’ll be holding onto the property for longer amounts of time, you typically don’t need to worry about the prepay. 

However, the fix and flip market moves quickly. DSCRs penalize investors who pay off these loans quickly, something fix and flip investors often work towards.

You’ll Pay More For Rehab

In addition to the remainder of the purchase price, DSCRs don’t cover renovation costs. This means that even more money will need to come out of your pocket. 

Make Sure Your Loan Fits the Project

DSCRs are a great product for rental properties. However, if you’re looking at doing a fix and flip, take a look at other types of loans.

The most flexible loans are going to be hard money (also called private money) loans. 

We have a ton of free tools on our website that can help you find the right loan to fit your project. We’re also happy to chat with you about any particular deals or questions you have. 

Just reach out to us at Info@HardMoneyMike.com.