What’s Your Backup Plan If the Flip Doesn’t Sell as Fast as Expected?

Question

A lot of investors run the numbers assuming the property will sell quickly once the rehab is finished.

But what happens if it sits for another 30, 60, or even 90 days?

That’s when interest, utilities, insurance, taxes and other carrying costs can start eating into the profit.

Before getting into a flip, I think it’s important to know your numbers, do your own due diligence and have an exit strategy beyond just “sell it.”

That could mean having enough liquidity to carry the property longer, being able to refinance if the numbers make sense, or having a rental strategy as a backup.

And if you’re using leverage, make sure the payments are something you can comfortably handle if the project takes longer than expected.

What’s your backup plan when a flip doesn’t sell on schedule?

Jarred Sleeth · Answer

A rental isn’t really a backup plan unless the rental math worked before you bought the flip. It only stretches out the pain, and truthfully, sometimes it's better to take the loss up front than to drag it out.

Converting a slow-selling flip into a rental can lock a mediocre acquisition into long-term debt. Before closing, I'd calculate the conservative rent, actual taxes and insurance, qualifying payment, DSCR, likely refinance proceeds and how much cash would remain trapped in the property. If that result isn't acceptable, "I'll rent it" shouldn't appear in the exit plan.

I’d also decide the resale response in advance: when the first price reduction happens, how much room exists before the required profit disappears, and the lowest net proceeds I’ll accept. If showings and buyer feedback say the price is wrong, spending another two months on interest and carrying costs to defend the original ARV usually makes the problem worse.

The best protection is created during acquisition: enough spread to reduce the price, enough liquidity to carry the project, and a rental exit that survives conservative numbers. Without all three, the backup plan may just be a slower version of the original loss.

Stacy Raskin · Answer

Most investors I see are deciding to make the property a rental and refinancing it with a DSCR loan since DSCR loans have a shorter seasoning period compared to conventional loans to use the new appraised value on the refinance. They can also be vested or titled in LLCs while conventional loans can not. DSCR loans can be titled to individual borrowers as well. The investors are then renting the property before or after refinancing it and reassessing where they are in a year.

An investor can either refinance to just get a lower rate or refinance to take cash out. When using the same borrower credit profile, a lender's rates generally will be a little higher if a refinance to get a lower rate compared to take cash out as the lender views taking cash out as a higher risk loan.

What’s Your Backup Plan If the Flip Doesn’t Sell as Fast as Expected?

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