What would you do if the market changed after you bought your flip?
Lender · Metro Detroit · Member since 2024 · 22 posts · 6 votes
What would you do if the market changed after you bought your flip?
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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesA protege is on his first flip. It is not a good rental or good STR. No desire and likely not best market for Rent By Room. There really is not a plan B. He either makes money or he does not.
Ideally there are multiple escape paths. The reality is sometimes there are not. If the market drops 10%, he is unlikely to make money to justify the effort.
I have been clear with him on many things that he has not done. I wanted him to start at about half this cost to minimize potential losses. I told him I would not offer the price he paid. He indicated he would be disappointed if he did not get it, I told him I was confident that others could not make their required profit on what he offered, he did not care. I told him on properties I offer on I spend many hours across at least 2 days doing underwriting of various scenarios. He spent less than 2 hours.
Now that he has purchased (after ignoring many of my suggestions) I told him worst case is he loses a little money and learns a lot. Best case is he learns a lot and gets paid to be educated.
My point is sometimes (often?) there is no plan b. If you can rent without bleeding cash it may be a viable alternative. It is my belief that, especially if you are not trying to flip class c or below (which I recommend not flipping class c of below), they are unlikely to make good rentals meaning they will bleed cash if properly allocating for vacancy and sustained expenses. In addition, the financing associated with a flip is typically not ideal for long hold. This likely implies renting requires a second finance with associated restrictions (may not be able to get 80% LTV) and costs. Final, is the freshly rehabbed property now has a tenant causing wear and tear probably lowering the condition and possibly the value.
Sometimes the best option is to take the loss and exit better educated for the next attempt.
Good luck
14 Replies
- Accountant · San Francisco, CA · Member since 2026 · 92 posts · 48 votes4d
One thing worth flagging before you decide, because it usually moves more money than the price cut: these two options are taxed completely differently.
Sell the flip now and the IRS likely treats it as dealer property. The profit is ordinary income plus self-employment tax, and no 1031. Worst tax rate there is.
Rent it and do the cash-out instead, and the money you pull is tax-free, because a loan isn't a sale. You also start depreciating the house, which shelters some of the rent. Hold it as a real rental long enough and a future sale can even shift from flip income to capital gains.
That last part depends on your facts, so check with your CPA. But the point is these aren't just different cash flow, they're different tax brackets. Worth running the after-tax numbers on both.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes4d
I think the answer is it depends. How bad has it changed from your initial outlook?
One thing I always recommend for investors is to plan for the worst and hope for the best. If the average day on market is 30 days, in my proforma, I would carry it 60 days. If we thought the renovation would take 3 months, I would most likely carry it for 5 to 6 months. It's always best to be conservative to make sure the numbers work. If things take longer or there's some softening, it is easier to absorb.
It is difficult to answer the question without actually knowing the figures to provide an answer, because at the end of the day, it will depend on your personal financial situation. Whether you can keep it as a rental and lose money potentially every month and afford it, or have to sell it
7e investments53 Reviews - 3dAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Brook, I’d avoid making the decision based only on whether the house will sell quickly. I’d first rerun the deal based on where the market is today.
If the property still produces an acceptable profit at a realistic sale price, I’d compare selling now against holding it as a rental. If you go the rental route, I’d want the property to make sense as a rental on its own rather than using the rental strategy simply as a way to avoid taking a lower sale price.
The tax side is important here too. If this property was acquired with the intention of flipping it, the tax treatment can be very different from a property acquired and held as an investment rental. If you ultimately convert it to a rental, I’d want the CPA involved before making that decision so the change in strategy and the property's costs are properly documented.
I'd also be careful with the idea of pulling 80% of your cash back through a DSCR loan. The actual loan amount will depend on the appraisal, lender requirements, DSCR, property performance, and other factors. More importantly, I'd compare the new debt service against realistic rental income and expenses.
For me, the decision comes down to three numbers: what I can realistically net by selling today, what the property can realistically produce as a rental, and what return I can earn on the capital if I redeploy it elsewhere.
Feel free to DM me, I’d be happy to send over our Flip Analyzer so you can compare the sell versus hold scenarios.
INVESTOR FRIENDLY CPA®5241 Reviews - Real Estate Consultant · Ann Arbor, MI · Member since 2022 · 466 posts · 256 votes3d
Hi Brook from Metro Detroit-
You have a flip project and the market seems to have shifted on you and are having trouble exiting by selling at the price you originally planned and asked what to consider doing.
Ideally, you have enough room to rent the property and cover your expenses. If not, you can try renting spaces like the garage separately for extra cashflow. When planning a flip, try to have more than one exit strategy, like renting, and keep your all-in expenses under conservative market rents.
You could also try a form of seller financing like a lease option or a land contract to attract more buyers at the price you had originally planned.
To Your Success!
- 3dJ CastroBusiness MemberLender · Florida · Member since 2025 · 698 posts · 253 votes
Quote from @Brook Janis:
If you bought a flip a few months ago, started the rehab, and are now getting close to completion —what’s your move?
Seems like the market has slowed down and things are staying on longer. If the house isn't selling, what would be the best plan of action?
Would you:
• Keep lowering the price and wait for a buyer?
• Rent it out instead and move forward with a DSCR loan, potentially pull up to 80% of your cash back out, and continue investing while you wait for a better time to sell?• Open to any other suggestions or options.
What would you do—and why?
From a lender’s perspective, I’d be careful about automatically lowering the price just because the property hasn't sold yet. The first thing I would do is determine why it isn't selling.
If the rehab is nearly complete and the property is priced correctly relative to the actual current comps, there are several ways to approach it.
What I've seen work for investors
1. Re-underwrite the flip today.
Forget what you expected when you purchased it. Look at the property as if you were buying it today:
Current market value – selling costs – remaining rehab/carrying costs = realistic net proceeds.
Then compare that number with your actual basis.
If you're going to lose $40K by selling today, don't assume that holding it automatically saves the $40K. Calculate exactly what another 6–12 months of interest, taxes, insurance, utilities, maintenance and opportunity cost will cost you.
2. If the rental numbers work, consider the DSCR exit.
This is where a DSCR refinance can make sense.
If the completed property supports the rental income and meets the lender's requirements, refinancing into a long-term DSCR loan can potentially convert a short-term flip into a rental asset and give you access to some of the equity.
But I would not automatically assume you'll get 80% of your cash back.
The actual cash-out will depend on:
Current appraised value
Loan-to-value limits
Rental income/DSCR
Property type
Borrower profile
Existing debt
Seasoning requirements
Lender guidelines
Closing costs and reserves
The important question isn't simply “Can I pull 80% out?”
It's:
If the answer is yes, you've potentially converted a completed flip into a performing rental while recovering a significant portion of your invested capital.
3. Don't ignore the possibility of a strategic price adjustment.
Sometimes investors become emotionally attached to the number they need to get out of the property.
The market doesn't care what we have invested.
If dropping the price by $15K gets the property sold in 30 days, while holding it costs $4K/month, the price reduction might actually be the more profitable decision.
The right question is:
“What produces the highest net return from today forward?”
—not—
“How do I get back everything I've already spent?”
4. I'd also consider a third option.
If the property is in a strong rental market, you could potentially rent it temporarily, stabilize the property, establish rental history, and reassess the sale later.
That can give you more flexibility instead of being forced to sell into a slower market.
But I'd only do this if the rental fundamentals actually work. Don't turn a bad flip into a bad rental simply because you're reluctant to take a loss.
My decision tree would be:
Strong resale demand + reasonable profit → Sell.
Weak resale market + strong rental economics → Consider DSCR refinance and hold.
Weak resale + weak rental economics → Take the loss sooner rather than adding more capital to the problem.
And before choosing the DSCR route, I'd have a lender run both the refinance and sale scenarios side by side.
I'd want to see:
Current value → maximum loan → cash-out → new payment → taxes/insurance → rental income → DSCR → monthly cash flow → cash left in the deal.
That's the analysis that tells you whether you're actually preserving capital or simply moving the problem from a flip into a rental.
As a lender, I'd much rather help an investor make that decision before they spend another $20K–$30K trying to force a sale. The best investors I've worked with aren't necessarily the ones who never have a bad deal—they're the ones who recognize when the original exit strategy no longer makes sense and pivot early.
- 3dHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
OP change my logic to yours.
Rent:
Is this an A/B/C market? How bad will it get beat up?
How much to prep to sale?
Say you rent for 3 years then sale. Will he interest rate be higher or lower? I’m going with higher. The higher it goes the more pressure on your asking price and time on market.
What is your REI model? If flip/appreciation then pull your cash and sweat equity out and move on to the next deal. If buy and hold then decide if this is a good rental property.
Say $200 per month profit after everything. 3 year hold. Assume great renter stays with you 3 years. $7,200 profit. Little principal pay down. Say $10,000 rehab to sale and repairs during rental.
Sale:
Pull your cash out. Move on to your next project. You’re in control versus the rental situation.
Or; can you move into? Sale your existing house and use the $250k tax free capital gain. Use that cash to pay the loan down?
All depends on the numbers, life options, economic outlook and REI approach.
- 3dDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@Brook Janis, a BRRRR strategy may be worth considering if the property will cash flow as a rental. You could refinance with a DSCR loan, recover some invested capital, and hold the property until market conditions improve—but only if the appraisal, rent, loan terms, reserves, and monthly cash flow make sense.
If you do transition to more of a buy-and-hold strategy, a 1031 exchange would let you defer taxes while moving the equity into a stronger rental or investment property. I'd compare the net proceeds from selling, the projected BRRRR cash flow, and the tax benefits of a 1031 before deciding which option is best for you.
The 1031 Investor5137 Reviews - MD/DC · Member since 2024 · 1k+ posts · 1k+ votes3d
I would launch plan B and if necessary then plan C.
Hope it works out!
- 3dSeth McGatheyBusiness MemberReal Estate Agent · Milwaukee WI · Member since 2024 · 320 posts · 254 votes
I have not yet done a flip myself. But I am considering it for future deals. One rule I know of that I would follow is to only flip a deal if I have multiple exit strategies. So for me I would not start a flip if I didn't think the property could cashflow as a rental. That is the obvious solution. One thing to keep in mind is that you want to avoid dropping the price significantly before making the decision to refinance and keep it as a rental. Because some loan products will actually take your last list price into account for the loan.
Seth McGathey - Shorewest Realtor4.912 Reviews - 2dDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
A protege is on his first flip. It is not a good rental or good STR. No desire and likely not best market for Rent By Room. There really is not a plan B. He either makes money or he does not.
Ideally there are multiple escape paths. The reality is sometimes there are not. If the market drops 10%, he is unlikely to make money to justify the effort.
I have been clear with him on many things that he has not done. I wanted him to start at about half this cost to minimize potential losses. I told him I would not offer the price he paid. He indicated he would be disappointed if he did not get it, I told him I was confident that others could not make their required profit on what he offered, he did not care. I told him on properties I offer on I spend many hours across at least 2 days doing underwriting of various scenarios. He spent less than 2 hours.
Now that he has purchased (after ignoring many of my suggestions) I told him worst case is he loses a little money and learns a lot. Best case is he learns a lot and gets paid to be educated.
My point is sometimes (often?) there is no plan b. If you can rent without bleeding cash it may be a viable alternative. It is my belief that, especially if you are not trying to flip class c or below (which I recommend not flipping class c of below), they are unlikely to make good rentals meaning they will bleed cash if properly allocating for vacancy and sustained expenses. In addition, the financing associated with a flip is typically not ideal for long hold. This likely implies renting requires a second finance with associated restrictions (may not be able to get 80% LTV) and costs. Final, is the freshly rehabbed property now has a tenant causing wear and tear probably lowering the condition and possibly the value.
Sometimes the best option is to take the loss and exit better educated for the next attempt.
Good luck
- 2dAaron ZimmermanBusiness MemberAccountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
I would be looking to see if the property works as a rental and if you like the area, why not? You’re avoiding the income hit with the flip.
If it’s not a good rental, I’d put the property at just below comps of the market to get more eyeballs on it .
Brick House CPAs53 Reviews - 2dShiloh LundahlPro MemberRental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
@Brook Janis I buy properties that are below the median price point so that if the property doesn’t sell as a flip then I can rent it out on a 3 year lease option and still make money without needing to lower the price to the point that I lose money. The only thing is that I end up leaving more money in the deal than I would like but I also make about 2-3 times more money on a lease option than a flip..
- 2dV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
I would underwrite with the original draw down in my math. Cannot predict, but I can prepare.
If you didn't, you learned your lesson. I have no solution for you that the other 99% of buyers aren't also facing and since the wall has come with extend & pretend--- join the crew that doesn't know what they're doing. You need to get out at cost basis.
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