Same deal, both exits: the flip pencils at 13.9%, the rental is $500 a month underwat
An investor posted this one in a lending group and asked what the financing would look like. I ran both exits and the gap between them was wider than I expected, so I am posting the numbers.
Texas metro, single family. $183,000 purchase, $46,000 rehab, $330,000 ARV. All-in $229,000.
FLIP EXIT
Financing models at $243,908, which is 73.9% of the after-repair value. Because it is sized against the finished value rather than the purchase price, it absorbs the purchase, the rehab and $14,908 in closing costs, and the borrower brings nothing to the table at closing.
That number gets quoted a lot and it misleads people, so here is the part that does not fit on a flyer. The reserve requirement is about $33,400, being six months of carrying cost plus a third of the repair budget. A borrower with no cash at closing and no reserves does not have a deal, he has a problem in six weeks. Zero down is a structure. It is not the same thing as no capital.
At a $330,000 resale the estimated net profit is about $45,800 after closing, carrying and selling costs. That is a 13.9% margin. For context, ATTOM has the Houston metro at a 7.2% gross flipping margin for Q1 2026 and Austin at 2.0%, against 25.4% nationally, so 13.9% is respectable for Texas right now and still not a lot of room. A 60-day overrun or a $20,000 scope surprise moves it materially.
RENTAL EXIT
Same property, same borrower, refinance out instead of selling.
Refinance at 75% of $330,000 is $247,500. Taxes are $6,900, insurance $3,000, HOA $1,200, so $11,100 a year or $925 a month before any debt service at all. That is 36% of a $2,600 market rent gone before the note.
At $2,600 rent, after 5% vacancy, 8% maintenance and 8% management, NOI lands near $1,139 against roughly $1,647 of principal and interest on a 30-year at 7%. Call it $507 a month negative at a 0.69 DSCR. Breakeven rent on this house is $3,239. It is not going to rent for that.
WHAT I TOOK FROM IT
The flip works and the rental does not, and nothing about walking the property would tell you that. It is entirely a coverage problem, and the line item driving it is insurance. Texas average premiums went from $1,961 in 2019 to $3,291 in 2024 per TDI, and the state is now citing a 79% rise since 2020 to over $3,500. Deals underwritten as holds two or three years ago on older insurance assumptions do not survive that.
Here is what I would push hardest, and it is the reason I bothered writing this up. He is already in a hard money loan on this property. Every input above was knowable at contract, before he signed anything. Modeled then, he is choosing between two exits with his eyes open. Modeled now, all he is doing is discovering which exit he already committed to, and the carrying clock is running while he finds out.
So run the rental exit before you tie up a flip, even if you have no intention of holding it. If the rental math is close, you have a fallback when the resale market goes quiet. If it is $500 a month underwater like this one, you know your only exit is a sale and you should be pricing your rehab timeline accordingly. I keep a deal calculator and a DSCR calculator on my own site for exactly this, acp-lending.com/deal-calculator for loan scenarios, profit and the flip-versus-rent comparison on one set of inputs, and acp-lending.com/dscr-calculator for the coverage side, but the tool matters far less than doing it before the money is committed.
Curious whether people holding in high-tax Texas counties are seeing the same thing, and what rent-to-value ratio you need now to make a single-family hold clear at 75% leverage. Two or three years ago 0.7% seemed to work. I do not think it does anymore.