Want to rehab but concerned about market risk

Real Estate Professional · Las Vegas, NV · Member since 2013 · 225 posts · 74 votes

So I’m eyeing a property and I’m really thinking about a fix and flip loan.

I’m just really concerned about the market risk. For example, if there was something like a global pandemic or credit market crash, I might not be able to get a refinance loan. That’d force me to sell the property early (my specialty lender that I use only has a 12-18 month term). That’d force me to sell the property, and there’s a good chance that the RE market would be crashing at this time.

I know the chances of this is slight, but I’d love to hear your comments on this.

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
4y
If the market is crashing after you've bought at the top, you're probably losing money any way you look at it. That's what reserves are for. If you can't afford to hold the property and ride out a downturn, then it probably doesn't make sense to do it. I lost a bundle of money 20+ years ago when I ended up in a similar situation, with a new build I couldn't afford to hold until the market improved. In my case I had enough reserves to avoid bankruptcy but not by much.
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Alex Silang
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Real Estate Professional · Las Vegas, NV · Member since 2013 · 225 posts · 74 votes
4y
@JD Martin Right. But I’m usually buy and hold. My main property cash flows pretty well. I wouldn’t sell and just wait it out.
The thing is with a fix and flip loan is that the term 12-18 months. It’d be interest only so I might even cash flow. I’d be fine kicking the can down the road but it looks like the company wouldn’t allow me to do that.
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
4y
Originally posted by @Alex Silang:
@JD Martin Right. But I’m usually buy and hold. My main property cash flows pretty well. I wouldn’t sell and just wait it out.
The thing is with a fix and flip loan is that the term 12-18 months. It’d be interest only so I might even cash flow. I’d be fine kicking the can down the road but it looks like the company wouldn’t allow me to do that.

If it's still a good buy and hold candidate, the I would just draw a different loan. Either a traditional and self-fund the rehab or run everything cash and then cash- out when you're finished with a higher value.
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Dave Schmidt
Lender · Member since 2018 · 46 posts · 34 votes
4y
@Alex Silang How good of a deal are you getting on the property? If you have an excellent deal then selling and moving on shouldn't be a problem.
If you are buying the property at a steep discount of let's say 70% of the ARV minus repairs, then the prices would need to crash 30% in a matter of months. Just to give you some context from the last recession it took several years for prices to change 30% in many markets.
If you are planning on refinancing, is there any reason you plan on waiting so long? Depending on the project you should be able to move towards a refinance in the next 6 months or so.
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Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
4y
Rehab...Hold...Rent....REPEAT...GET RICH!
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