How would YOU structure this deal? š
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Mechanicsburg, PA Ā· Member since 2013 Ā· 3k+ posts Ā· 2k+ votes
2wIt would depend on the exit strategy: One investor I know who rehabs and flips would borrow purchase costs plus rehab cost Har Money Loan paying about 12% interest until property is sold. Another investor I know buying to buy and hold would borrow as much as possible easily say 80% LTV at lowest interest rate possible fixed term for 10 years or longer. With 20% equity the property would have to be positive cashflow, or its a no deal.
There are deals out there for low fixed rate interst rates, but they apply to new build, which doesn't apply in your case. Last year I got 4.25%, 4.25% and 4.75% interest arranged for the builders pre-development traunche. Saw one new build financing just recently for 3.85% fixed for 10 year rate thru a new home builder.
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At 720 FICO with a $500k purchase and $100k rehab, the structure that preserves the most cash is a hard money or DSCR-bridge loan at 85-90% of purchase plus 100% of rehab drawn in arrears, which puts roughly $50-75k down instead of the $150k an all-cash or conventional path needs. The catch is the draw schedule: you still front each rehab stage before reimbursement, so ask the lender their actual inspection-to-funding turnaround and keep about one draw cycle in reserve. At $800k ARV the total loan sits near 75% LTV, which is comfortable enough that you should be able to negotiate points down or get an interest-only term to protect monthly cash flow.
@Alex S. great points. I agree that the draw schedule and turnaround time are often overlooked when investors are evaluating a rehab loan.
Preserving liquidity isnāt just about the initial cash-ināitās also about making sure the investor has enough capital available to cover the project between draws, unexpected costs, and other obligations.
Iād also add that the exit strategy should be considered upfront, particularly if the investor intends to refinance into long-term financing once the property is stabilized.
Every deal needs to be evaluated based on the property, ARV, scope of work, borrower experience, liquidity, and exit strategy rather than simply targeting the highest leverage available.
Appreciate you adding this perspective, Alex. This is exactly the type of discussion I was hoping to generate. š
For everyone following along: Would you rather have a lower cash-in requirement or a lower overall cost of capital if both structures accomplish the same project?
- 2wDivin KanyamaBusiness MemberAccountant Ā· Seattle, WA Ā· Member since 2025 Ā· 442 posts Ā· 182 votes
@J Castro D ā structure around the refinance and exit strategy, with liquidity preservation as a close second.
The projected numbers are attractive: $600,000 total acquisition and rehab cost against an $800,000 ARV leaves a meaningful spread. However, the best structure depends on how much of that value a lender will recognize, whether rehab funds are advanced or reimbursed through draws, and what the property can realistically support after stabilization.
I would work backward from the exit. If the plan is to refinance, estimate the future loan using a conservative appraised value and the lenderās maximum loan-to-value requirementānot just the projected ARV. Then confirm that the refinance proceeds can repay the acquisition loan, accrued interest, points, and other carrying costs without requiring an unexpected cash contribution.
Maximizing leverage can preserve capital, but the investor still needs enough liquidity for the down payment, closing costs, draw timing, interest, taxes, insurance, cost overruns, and a slower-than-expected sale or refinance. A 720 FICO helps, but experience, reserves, project scope, market conditions, and the exit will likely drive the final terms.
I would favor the highest leverage that still leaves a healthy contingency and does not depend on every assumption going perfectly. Preserving liquidity is valuable because it protects both this project and the next opportunityābut only if the debt structure remains manageable when the timeline or budget changes. Lower cost of capital, but only if the refi exit is already underwritten - if the stabilized DSCR at today's rates doesn't clear 1.20 on the long-term loan, the cheap bridge turns into an expensive extension. The practical test I'd run upfront: price the refi at ARV x 75% and see whether the rent supports that payment at a 1.25 DSCR with a cushion; if it doesn't, take the lower cash-in and keep the dry powder for a longer hold. On a $800k ARV that's a $600k refi, so the stabilized rent has to carry roughly $4,500-5,000 a month before you let the leverage decision ride on the exit.
Lower cash-in, as long as the extra liquidity actually sits in reserve and isn't spent on the next deal. On this one the gap between 80% and 85% of cost is about $30k of cash, while 2 points of rate on a bridge that averages ~$500k outstanding for 9 months is closer to $7-8k, so you're buying $30k of flexibility for $8k. The answer flips when the timeline is uncertain: past 12 months the carry compounds and extension fees show up, and that's exactly when the cheaper capital pays for itself.
Lower cash-in, but only if the freed cash is actually sized to the project: on a $100k scope I'd want roughly 6 months of carry plus about 20% of the budget untouched, call it $50-60k, before the extra leverage is worth anything. Below that line the cheaper capital wins, because one missed draw reimbursement or a surprise foundation bill costs more than the rate spread ever will. On the refi exit you raised, I'd underwrite the stabilized DSCR at 75% of ARV first and let that number cap the bridge, since a takeout that only pencils at 1.05 turns a liquidity win into a forced sale.
- Investor Ā· Member since 2023 Ā· 86 posts Ā· 41 votes2w
At 75% LTV on an $800K ARV, the refi gets you $600K, which is roughly your all-in before costs. I'd underwrite the refi at a 10% ARV haircut ($720K, so $540K out) and make sure you're fine leaving ~$60K plus closing and holding costs in the deal. Also check DSCR at today's refi rate before choosing max leverage on the front end.
- Mechanicsburg, PA Ā· Member since 2013 Ā· 3k+ posts Ā· 2k+ votes2w
It would depend on the exit strategy: One investor I know who rehabs and flips would borrow purchase costs plus rehab cost Har Money Loan paying about 12% interest until property is sold. Another investor I know buying to buy and hold would borrow as much as possible easily say 80% LTV at lowest interest rate possible fixed term for 10 years or longer. With 20% equity the property would have to be positive cashflow, or its a no deal.
There are deals out there for low fixed rate interst rates, but they apply to new build, which doesn't apply in your case. Last year I got 4.25%, 4.25% and 4.75% interest arranged for the builders pre-development traunche. Saw one new build financing just recently for 3.85% fixed for 10 year rate thru a new home builder.
Lower cash-in, as long as you price the extra cost in months rather than as a headline rate. Going from 80% to 90% of total cost on a $600k basis keeps about $60k in the bank, and two extra points on roughly $500k outstanding across a 7 month rehab is only about $6k, so the liquidity is cheap. It flips the other way the moment the timeline slips, which is why I'd ask for the lender's actual average draw turnaround in days before deciding, not their stated maximum.
I'd take the lower cash-in almost every time on a 6-9 month flip, because the extra cost of capital is a one-time hit measured in months while the liquidity is what lets you take the next deal. Rough math on this one: going from 75% to 90% of purchase frees about $75k, and even at a 3-point spread that only costs around $5-6k over nine months - cheap for a second deal's worth of dry powder. The flip side is if the exit is a refi-and-hold, the lower-cost structure wins, since you're carrying that rate long enough for it to actually compound against you.
I voted (Exit is KING) , but really we need to ask an entire bag of questions to make a proper recommendation and really use the "Know your client rule". Financial consultancy is super nuanced, so the first method of approach is to interview the borrower, understand their experience, liquidity and credit and make educated recommendations based on their investing style.
I appreciate the op for starting an amazing discussion.
Devil's advocate!!
What if the borrower completes his/her own labor and runs the rehab show?
Since he/she qualifies for 100% Financing (depending on the state) , the rehab labor portion belongs to the borrower.
That funds his income/asccounts recivables as well correct?
This isn't really the market for 'fast flips', so the strategy must be to work deals at 70% arv to ensure a quick exit.
>Right to a 30 year fixed we go, since we chose a neighborhood that provides tons of vouchers.
>We did our due diligence on the demographics but most importantly supported our 'math' with recent comps.
-"Good thing we focus on projects within a 1hr drive. It allows us to self manage all of these doors!"
Sir/Madam, please don't forget to speak to your cpa since i'm not allowed to give tax advice.
>>Ask him how much you need in losses this year and we'll see if this tax haven get's you a free Cyber truck by December 30th! (Or F-150 with the Supercharged Coyote)
-----And that's just "one multiverse". Proper recommendations start with "Knowing the client".
JMHO!
Still lower cash-in for me, but your draw point deserves a number: the real liquidity floor is the largest single draw plus 10-15% contingency, so on a $100k scope that's roughly $35-40k that has to sit idle no matter how the purchase is financed. If the cheaper structure eats that reserve, the rate saving is irrelevant, because you stall mid-rehab waiting on an inspection and the carry costs more than the spread ever saved. On the refi exit, I'd run DSCR at stabilized rent and today's rate before closing rather than after, since that's what quietly kills deals that pencil fine on ARV.
Lower cost of capital, but only once the cash-in version clears a hard liquidity test: can the borrower cover the largest draw plus carry for 60 days with the deal fully drawn down? If yes, the cheaper money wins, because the rate saving is real every month while the extra cash-in is a one-time timing cost you recover at refi. If no, the lower cash-in isn't a preference, it's the only structure that survives a draw delay, and that's the part borrower experience really prices.
Lower cash-in, because the two costs are not symmetric in risk: a higher rate is a known number you can underwrite, while running short on reserves mid rehab is what actually kills the exit. Here the extra points run about $6k, and the $60k you keep covers roughly four months of carry plus a 15% scope overrun, so I would only trade down to cheaper capital once reserves cover carry through stabilization and seasoning. Your refi point is the real constraint, since a 6 month seasoning window on an $800k ARV means budgeting carry well past the final draw, not just to the end of the scope.
Agreed on the haircut, and I would add one more ceiling: compute the DSCR-constrained loan separately and take the lower of the two, because at today's rates that is usually what binds before LTV does. At $540k on a 30 year DSCR note around 7.25%, P&I is roughly $3.7k, so with taxes and insurance you need about $5.5k in rent to clear 1.20x, and if the unit only pulls $4,800 your real max loan is closer to $470k, which changes how much you can afford to put in on the front end. Also worth confirming whether the lender prices cash-out a few points of LTV below rate and term, since that quietly moves the exit number again.
On the exit point: the refi usually caps out on DSCR before it caps out on ARV, so that is the number to run first. At $800k ARV, 75% is $600k, which covers the $600k all-in, but $600k at today's rates plus taxes and insurance runs roughly $5,100 a month, so you need about $6,100 in stabilized rent just to clear a 1.20. If the rent comes in under that, the real exit is a smaller loan and cash stuck in the deal, which is the liquidity question all over again.
Lower cash-in, but only if the freed cash has a job inside the hold period. Price it out: on a 9 month timeline, two points of extra cost on ~$600k of total capital is roughly $9k, so the cheaper structure wins unless that extra $40-50k is going into another deal that clears more than that. If it is just sitting as reserves, I take the lower cost of capital and cover the cushion with a line of credit instead.
- 1wAshish AcharyaBusiness MemberCPA, CFPĀ®, PFS Ā· FL Ā· Member since 2017 Ā· 5k+ posts Ā· 3k+ votes
I'd probably start with D, structure around the refinance or exit strategy, and then work backward from there. With a $500K purchase and $100K rehab, you're already at a $600K project basis before financing, carrying costs, closing costs, and selling expenses. The $800K ARV gives you a meaningful spread, but the real question is how much of that spread remains after the entire project is completed.
If preserving liquidity is important, Iād look at how much cash is actually required to get through the project without overleveraging it. Higher leverage preserves cash upfront, but the cost of that capital and the required payoff at exit can materially change the final return.
I'd also stress test the $800K ARV and $100K rehab. If the rehab becomes $125K and the ARV comes in at $750K, does the deal still work? One other piece I would bring into the conversation before closing is the tax strategy. If the plan is ultimately to hold the property as a rental, cost segregation and depreciation should be considered early, not after the project is finished and the tax return is being prepared. The acquisition basis, renovation costs, placed in service date, and components of the property all matter.
If the property is going to be flipped, the tax treatment is different, so the intended exit should be clear when evaluating the economics. The financing should support the exit strategy, and the tax strategy should be considered alongside it.
Feel free to DM me, Iād be happy to send over our Flip Analyzer so you can model the financing, rehab, exit, and different scenarios together.
INVESTOR FRIENDLY CPAĀ®5240 Reviews - Real Estate Agent Ā· Ventura County Ā· Member since 2024 Ā· 15 posts Ā· 6 votes1w
D, with C as the result.
At $600K all-in against an $800K ARV, the deal has room to work. I'd size the bridge around the exit, not the day-one leverage: finance most of the purchase and rehab so the investor keeps cash for the next deal, but only to a level where the refi can clearly take it out.
The math I'd check first: does a DSCR refi at roughly 75% of ARV (about $600K) pay off the bridge loan and return some cash? If yes, max leverage is safe. If the rents don't support the DSCR, that same leverage becomes a trap. Rate and points matter less than whether the exit works.
A, B, and C all follow from D.
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