Fix and flip to DSCR exit: the two loan play that lets you keep the house and your cash
Every flipper hits the moment where the finished house is nicer than anything they could buy at that price, the rent would cover the payment with room to spare, and selling means paying 7% to a buyer's agent, the title company and the county. The alternative is to keep it. That takes two loans, planned together from the start. Here's how the play works.
Loan one: fix and flip or bridge
Short term money built for a property that doesn't qualify for a long term loan yet. It funds the purchase and the rehab budget, pays out the rehab in draws as the work gets done, and runs 6 to 18 months interest only. Leverage on strong deals runs up to 90% of the purchase and 100% of the rehab, capped around 70% of the after repair value. Experience, credit and liquidity move those numbers.
- Fast closing, often competitive with cash offers
- No minimum credit score programs for experienced investors
- Rehab budget funded in draws after inspection
- Balloon at maturity, which is why loan two gets planned on day one
Loan two: the DSCR take out
Once the rehab is done and the property rents (or has a market rent from the appraisal), a DSCR refinance replaces the short term loan with a 30 year loan based on the new appraised value. No tax returns. Close in your LLC. Cash out up to 80% of the value with strong credit, which is usually enough to pay off the flip loan and return your rehab money and most of your down payment.
The full timeline
| Month | What happens |
|---|---|
| 0 | Fix and flip loan funds the purchase. Rehab starts. DSCR exit already quoted so you know the target value and rent. |
| 1 to 4 | Rehab draws. Keep receipts, photos and the scope of work. Start marketing for a tenant before the last coat of paint. |
| 4 | Rehab complete. DSCR application signed, appraisal ordered the same week. |
| 5 | Appraisal back, payoff ordered from the flip lender, conditions cleared. |
| 5 to 6 | DSCR loan closes. Flip loan paid off. Cash out wired. Rental cash flows on a 30 year loan. |
Running the numbers before you buy
The exit only works if the finished property rents for enough to cover the new payment and appraises high enough to pay off the flip loan with room. Before you make the offer, know three numbers:
- ARV, supported by sold comps, not listings.
- Market rent, from comparable rentals, not hope.
- All in cost, purchase plus rehab plus financing. Under 70% of ARV is a strong deal. Over 80% is thin.
Run them on the fix and flip estimator and the cash out estimator and you'll see both halves of the play on one screen.
Costs to plan for
- Points and interest on the flip loan for the months you hold it
- A second set of closing costs on the DSCR refinance
- Six months of reserves on the new loan, which cash out proceeds can cover
- A prepayment penalty on the DSCR loan if you want no seasoning and the best rate
Where investors get stuck
- No exit quoted up front. They find out at month five that the rent doesn't cover the payment. Quote both loans before you buy.
- Over improving. A $90,000 kitchen in a $3,000 rent neighborhood doesn't appraise or rent for more. Rehab to the comps.
- Letting the flip loan mature. Extensions cost points. Start the refinance 90 days before maturity, finished or not.
- Draining reserves. Keep enough liquid to show six months of the new payment, or plan to use the cash out for it.
Questions investors ask
Can one lender do both loans?
Irving quotes the fix and flip or bridge loan and the DSCR take out together, so the exit is built into the purchase. The short term loan is placed through lending partners and the DSCR refinance is a HomeMac loan.
How long do I have to own it before the DSCR refi?
With a prepayment penalty on the DSCR loan, no seasoning is required and the new appraised value is used. Without a prepay, six months from the note date.
What if I decide to sell instead?
Then the flip loan is paid off from the sale proceeds and there's no second loan. The point of planning the exit is having the choice.
Do I need a tenant in place?
Not necessarily. Market rent from the appraisal works on most programs. A signed lease strengthens the file.
Does my credit score matter?
For the flip loan there are no minimum score programs. For the DSCR take out, 700 plus gets the best leverage and lower scores reduce the LTV.
Educational content, not legal, tax or financial advice, and not a commitment to lend. Programs, guidelines and leverage change without notice and depend on credit, property, reserves and occupancy. DSCR, fix and flip and bridge loans are business purpose loans on non owner occupied property.
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