Paying on a LOC or Loan With No Current Cash Flow

5 Replies

I'm new to rentals and fix & flips, and am currently just exploring my options, in terms of getting a loan or Line of Credit to help fund the purchase & renovation of future properties. 

My question is, after being approved for a business LOC or a loan through a hard money lender, private investor, or something similar, how do you ensure payments are made back on the LOC/Loan, without having cash flow from the property? Is it better to buy higher for a property with little to no work needed, so cash flow can come in quicker? Or, is it better to buy lower for a property that needs more work, but cash flow is postponed until renovations are finished?

This is pretty much the only thing really holding me back from moving forward, as I don't want to get stuck in a situation where I have payments of $600+ a month, with no way to comfortably make them.

Hi, Briannan Burns!  Most investors who use our hard money loans for their rentals and/or flips are using their reserves to pay monthly fees.  If you don't have income and want to use a loan of some sort, I'd highly suggest calculating what your monthly payment would be and making sure you have 6 months or 12 months worth of debt service(monthly payments) in your business account or checking account, savings etc.  A good rule of thumb is to always make sure you have 6 or 12 months worth of payments on each of your investments in case something comes up(more often than not, something will.)  I hope this helps!  If you have more questions about hard money, please feel free to contact me!  I am available anytime. 

If you can't make the payments, you need to find a partner who can. You could go with a higher-priced property with fewer repairs needed, but if a surprise comes along and delays your cash flow, you're in trouble. Same with a cheaper property that needs more repairs. Your payments will be lower starting out, but as those repairs start getting paid, it's going to increase fast, and if the reno takes longer than anticipated, you're in trouble again. 

@Shere Hansell Thank you so much! I just saw where you work with funding in Alabama, as well, so would it be okay if I contact you once I get closer to needing funding, or if I have any questions along the way?