What To Do When Your Flip Is Stuck on the Market

It’s all too common in times like these – your flip is stuck on the market. Here are your options to save your money.

You got a great deal on a property a couple months ago. You worked hard to fix up the house fast. And now… it’s not selling.

This problem is happening to investors daily. We’re getting a lot of calls from our clients (and other people’s clients!) asking for help.

So, what do you do with a sticky flip?

Your Options When Your Flip Is Stuck on the Market

Obviously, the ideal goal with a flip is to sell at a profit, quickly. That may not be possible under current conditions. If your flip is stuck on the market, you might need to strategize a different exit plan.

Your main options are to:

  1. Keep dropping the price until it sells. Cut your losses and just get rid of the property.
  2. Refinance your flip’s loan. Make your lender happy, but keep the house on the market to try to salvage some profit.
  3. Convert the flip into a rental. Refinance your flip, then hold onto the property for a couple more years, until a good market returns. You can keep a tenant and get some rent income in the meantime.

Which option is right for you? That depends on your goals, willingness to rent, and financial situation. Let’s go over some of these options in detail to help you decide.

First Step in Converting a Flip to a Rental

First of all, if you decide you’d rather turn the flip into a rental, stop lowering the market price immediately.

You can’t drag out this decision, lowering the price “just in case” while exploring rental options.

When you refinance your fix-and-flip, the appraiser looks at the market history. They see the last price the house was listed for. They have to base their appraisal off that number, regardless of whether the house sold or not.

If the last listed price is lower than what they would have appraised the house for… they still have to go with the listed number.

So every time you drop the price, it lowers your potential appraisal. This directly hurts your loan-to-value on a refinance.

Loan Options for Your Flip Stuck on the Market

Once you’ve made the (quick) decision to refinance the property, what are your options?

Typically, you’d go to a bank to get a conforming or traditional loan. But banks are slow, and this refinance needs to happen quickly. Also, with money tightening, bank loans are harder to get than ever.

Here are 3 other options we’d steer you toward:

1. DSCR Loans

The DSCR loan is the easiest, fastest way to get a longer-term rental loan. The core requirements for most DSCR loans are:

  • A good credit score – 680 minimum, with a higher score meaning the better the rates and terms.
  • Rent income – If your rent covers your monthly payments on the loan transaction, you’ll qualify. Some DSCR products will still take you if you lose up to 25% on the loan payment with rent.

If you decide you want to turn your flip into a rental, a DSCR loan should be the first option you consider.

Beware the Prepayment Penalty

All DSCR loans have a prepayment penalty. The standard timeframe is 3 or 5 years. The longer the term for your prepayment penalty, the better the rate.

Prepay penalties are like exit fees. For example, if your term is 5 years, and you decide to pay off the loan during year 3, they’ll charge you 3% of the loan as an exit fee.

2. Bridge Loans

If your flip is stuck on the market, but you want a short-term refinance, then bridge loans could be the better option.

Bridge loans typically last about 1 to 2 years. There are a couple directions you could go with a loan like this:

  • You can keep the house on the market and just use the bridge loan to get out of your original flip loan.
  • You can convert it to a short-term rental (think Airbnb) to bring in some cash flow.
  • You can turn it into a traditional rental while you wait out the market.

Bridge loans are good because they’re fast, interest-only, and have no prepay penalty. The downside of bridge loans is that they’re limited to 70% of the value of the home. Plus, they tend to have higher interest rates.

If your flip is stuck on the market for too long, your original lender will start asking for their money back – potentially raising rates or threatening foreclosure. A bridge loan is a great exit.

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

When deciding whether to go with a DSCR loan or bridge loan, you should consider the “tipping point.” Bridge loans have 2% – 4% higher annual rates. DSCR loans have a prepayment penalty.

Depending on how long you want to keep the loan on the house decides which type of loan will be cheaper for you. This tipping point usually lies somewhere between the 14th and 17th month of a DSCR loan. That’s when the pre-pay fee becomes cheaper than the rates on the bridge loan.

3. Real OPM

Lastly, real OPM is always the ideal funding source to get you out of difficult situations.

Real OPM is real people – family, friends, folks in local real estate groups – who want to put their money in a safe place with an easy return.

An OPM lender can get a 6% to 7% rate of return lending to you over a 2% or 3% rate keeping their money in a bank. You can use OPM to pay back your original lender  and free you up to make the best decision for your flip stuck on the market.

OPM is win-win.

More Help for a Flip Stuck on the Market

We’d be glad to help you find the best loan for your needs.

Reach out now! Rates are only going to rise, and now is the perfect time to get prepared for a market with more opportunities.

Email us at Mike@HardMoneyMike.com.

Happy Investing.

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Ways to Secure a Gap Loan & How to Do It

For your lender to feel comfortable, you need to know the ways to secure a gap loan.

When you hear the advice to “secure” your gap loan, what does that mean? How do you secure a gap loan? And why?

Ways to Secure a Gap Loan with Two Lenders

Securing your loan involves both your hard money lender and your gap lender.

Your friend or family member is giving you a fairly large chunk of money. They’ll want to know how you’ll secure it for them.

Securing your gap lender’s loan involves putting a lien on the property. Does your hard money lender allow this? Not all lenders will.

If Your Hard Money Lender Doesn’t Allow a Lien

If your hard money lender does not allow a lien on the property, you’ll have to secure the loan with a different property.

You could either put the lien on your own home, or you could use another rental or investment property.

If They Do Allow a Lien

If your hard money lender does allow a lien on the property to secure a gap loan, it’s best to do during closing with the mortgage and deed. This way title records it, and you have evidence for your gap funder that it’s recorded.

Many gap lenders – especially if they’re family or friends – won’t be educated enough about the real estate world to understand how to secure  their money. As the investor, it’s your responsibility to keep your lenders’ money safe.

Securing the Gap Loan

No matter which property has the lien, you’ll have to take a few important steps to secure the gap loan.

You’ll need a note – a promissory note between you and your gap lender – and a lien, either a mortgage or a deed of trust. And you’ll have to record all this with the county.

To make sure the loan is concerned, be sure to check all these boxes. It’s important to do this thoroughly so your lender will:

  • Get their money back
  • Feel comfortable with the deal
  • Want to lend to you again
  • Recommend you to their network

Read the full article here.

Watch the video here:

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How to Calculate Gap Funding

When your loan doesn’t cover 100% of your project, how do you calculate gap funding?

How much do you need for gap funding? It depends on each project.

Calculating Gap Funding Needed for a Project

The way to figure out the gaps in your project is simple:

(Cost of Property + Rehab Costs) – Hard Money Loan Amount = Gap Funding Amount Needed

If the property costs $200,000, but your lender gives $140,000, there’s a $60,000 gap you’ll need to cover. You can:

  1. Pay the $60,000 out-of-pocket


  1. Bring in a gap lender, enabling you to buy the property with 100% financing. You would likely use part of this loan for the down payment and part for construction costs.

How to Calculate Construction Costs

Most hard money lenders use the ARV (anticipated retail value) rather than LTV (loan in relation to the current sale value).

In case your loan is for LTV only and doesn’t take into account construction costs, here’s how you would calculate those costs for an undermarket home:

ARV  –  Actual Cost of Property  =  Maximum Construction Budget

It’s important for you to work these numbers and know your budget up-front. Keep in mind, it’s always better to err on the generous side with your numbers. You want to be sure you can get done on-time and within the budget allotted by your hard money and gap lenders.

How much you’ll spend on construction is important when you calculate gap funding.

Read the full article here.

Watch the video here:

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How to Use Gap Funding for BRRRR Projects

Gap funding is a way to get $0 down BRRRR properties!

You should use gap funding for BRRRRs the same way you do fix-and-flips. The biggest differences happen at closing.

Similarities to Fix-and-Flips

Gap funding is used very similarly for both BRRRR and flips: for down payments, construction costs, or carry costs.

The bulk of the money not covered by a hard money lenders becomes the down payment. Most lenders require at least 10% for this cost.

Your primary loan does not always cover construction costs – rehab, repair, or anything necessary to bring the house up to the ARV and onto the market.

Also, some investors like to use gap funding for the carry costs of the project: the mortgage payment, the insurance, and all other monthly costs.

Gap funders can (and should) be used for all these phases of your BRRRR project.

Gap Funding Process During BRRRRs

Use BRRRR gap funding like fix-and-flip gap funding: for down payment, construction, or carry costs.

For BRRRR though, you need to close the gap funding loan on the same day as closing. You’ll also need to be sure you close the gap funding at the title company, with your lender. So you’ll need to know in advance that your hard money lender allows gap funding with a lien on the property.

Protecting Your BRRRR Refinance While Using Gap Funding

If you close your gap loan too late or incorrectly, your long-term lender can consider your refinance cash-out, not rate-and-term. This will lower the LTV on your refinance.

It’s important to get the money for your loan back in the refinance. In a good BRRRR transaction, you walk away with a house that’s cash-flowing and little to no money out of your pocket.

Read the full article here.

Watch the video here:

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How to Use Gap Funding for Your Flips

Don’t walk into a loan without a plan – use gap funding for flips!

During a time when lenders are offering less money up-front for investment deals, you might need more money to fill in the gaps on your fix-and-flip projects.

Here are a few phases where you might need gap funding on your project.

Down Payments

Hard money lenders require at least 10% as a down payment. This is a very common use for gap funding.

If you use gap funding for your down payment, you’ll need to find out right away whether or not your hard money lender will accept a secured gap loan on the property.

Construction Costs

Another way to use gap funding for flips is for construction costs – rehab, repair, or anything necessary to bring the house up to the ARV and onto the market. These expenses can rack up fast, and they may not be completely covered by the main loan for the flip.

Carry Costs

Some investors will only use gap funding for the carry costs during their flip.

The lender will pay the mortgage payment, the insurance, or whatever other monthly costs are required during the project. Having a gap lender for carry costs can smooth out a fix-and-flip experience.

The Reach of Gap Funding for Flips

It’s possible to coordinate with your gap lenders to cover all three of these additional costs. This is a common way investors successfully finish fix-and-flips with zero money down.

You can use gap funding however you need, as long as both the hard money lender and the gap lender agree that the loan fits their criteria.

Not all hard money lenders allow you to secure your gap loan with a lien on the property you’re closing on. And not all gap lenders will loan to you unsecured.

Read the full article here.

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What Is Gap Funding for My Real Estate Investments?

In the real estate investment world… What is gap funding?

You should never count on a bank or hard money lender to give you a loan that will cover 100% of your real estate investment property.

What you should be able to someday count on, though, is your gap funding.

So, what is gap funding?

Definition: What Is Gap Funding?

Gap funding is the money you bring in from another source to fill any gap left between the lender and the project costs.

If a lender offers you 70% of the LTV on a property, gap funding is how you fill in the remaining 30%. Usually, you secure gap funding, although unsecured gap funding is possible.

A “secured” loan means that the debt is backed by a piece of collateral. In a typical gap funding scenario, the loan is secured by the property being purchased.

For the most part, you won’t be able to find a gap lender at an institution like you can a bank lender. Instead, gap lenders are family members, friends, or someone you know.

OPM vs Gap Funding

You can use a couple gap funding terms interchangeably:

  • gap funding
  • gap lending
  • OPM (other people’s money)
  • real people’s money

All of these terms get at the same concept. It’s money, not from you and not from an institutional lender, that covers whatever costs of an investment property that your lender won’t fund.

OPM can cover up to 100% of a deal, but for now, we’ll be talking about it in a strictly gap funding sense. These are loans that fill in the holes of a project that a mortgage or hard money loan wouldn’t cover.

Read the full article here.

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