Question, fix and flip loan or DSCR

Orlando, Florida
General Real Estate Investing
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Question, fix and flip loan or DSCR

Art Schneider
Member since 2022 · 12 posts · 9 votes

I am a real estate investor and presently have long-term rentals that were purchased with DSCR loans.

Looking at buying a fixer-up that needs major rehab with a fix& flip loan and then 3 months later converting to a dscr loan 

pros and cons?

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Kyle MccawBusiness Member
Property Manager · Keller, TX · Member since 2011 · 1k+ posts · 1k+ votes
1y

@Art Schneider 

You're on the right path — that's the core of the BRRRR model. We do this all the time.

Pros:

  • You preserve cash by financing the rehab.

  • You can recycle your capital fast if the ARV and appraisal come in strong.

  • DSCR lenders don't care about your personal income — just the property's performance.

Cons:

  • Timing is everything. Some DSCR lenders won't let you refi before 6 months (seasoning), so confirm that upfront.

  • If the rehab goes over budget or timeline, your hard money interest racks up fast.

  • Appraisal risk — if the ARV misses, your cash-out will fall short.

Just make sure you're using reliable contractors and budgeting conservatively. This strategy works beautifully when executed right.

McCaw Property Management4.4907 Reviews
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  • Andrew Zamboroski
    Lender · Member since 2021 · 495 posts · 130 votes
    1y
    Quote from @Art Schneider:

    I am a real estate investor and presently have long-term rentals that were purchased with DSCR loans.

    Looking at buying a fixer-up that needs major rehab with a fix& flip loan and then 3 months later converting to a dscr loan 

    pros and cons?

    I hope I am interpreting this right.

    Pros of doing a BRRRR include the ability to create equity in the project as you force appreciate the property. You can generally put less down and potentially cashout all of your initial investment.

    Cons include costs for two loans and the risks associated with a rehab project. The project could go over budget, take longer than expected, have less profit margin, etc.

    0Reply
  • Devin PetersonBusiness Member
    Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes
    1y
    Quote from @Art Schneider:

    I am a real estate investor and presently have long-term rentals that were purchased with DSCR loans.

    Looking at buying a fixer-up that needs major rehab with a fix& flip loan and then 3 months later converting to a dscr loan 

    pros and cons?


    What are you asking the pros and cons of? Kind of confused by your initial statement and then follow up question. Fix and flip/hard money loan is good for renovating the property to bring up-to-date and make ready for highest market rents. You usually stabilize your debt via an exit strategy with a DSCR refinance. If you can buy something that's turned key and it's like cosmetic upgrades that are less than let's say $10,000 in repairs, I recommend putting on a interest, free credit card or paying out-of-pocket and buying it with a DSCR loan. Other than that, stick to the standard. BRRRR process - hope this helps. Good luck!

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    0Reply
  • Alex BekezaBusiness Member
    Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    1y

    @Art Schneider The main pro vs con between turnkey and the BRRRR strategy is about skin in the game. Assume both strategies end with a cash flowing rental. The turnkey strategy requires you to part ways with the 20-25% down for the foreseeable future. Using hard money to then cash out refi off a new higher appraised value in 3 months using a DSCR loan (BRRRR strategy) allows you to leave little to none of your own capital in the deal. That being said, the BRRRR deal obviously requires more time, labor and management to execute but with that there is potentially a higher reward if you can scale.

    StrategyBest ForCapital InCash FlowEquity BuildTime Involved
    TurnkeyPassive investors, out-of-state buyersHigherImmediateMinimalVery Low
    BRRRRActive investors seeking scaleLower (if recycled)DelayedHighHigh
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  • Kyle MccawBusiness Member
    Property Manager · Keller, TX · Member since 2011 · 1k+ posts · 1k+ votes
    1y

    @Art Schneider 

    You're on the right path — that's the core of the BRRRR model. We do this all the time.

    Pros:

    • You preserve cash by financing the rehab.

    • You can recycle your capital fast if the ARV and appraisal come in strong.

    • DSCR lenders don't care about your personal income — just the property's performance.

    Cons:

    • Timing is everything. Some DSCR lenders won't let you refi before 6 months (seasoning), so confirm that upfront.

    • If the rehab goes over budget or timeline, your hard money interest racks up fast.

    • Appraisal risk — if the ARV misses, your cash-out will fall short.

    Just make sure you're using reliable contractors and budgeting conservatively. This strategy works beautifully when executed right.

    McCaw Property Management4.4907 Reviews
    WebsiteView Page
    1Reply
  • Kyle DeutschmannPro Member
    Investor · Washington, DC · Member since 2017 · 428 posts · 205 votes
    1y
    Quote from @Art Schneider:

    I am a real estate investor and presently have long-term rentals that were purchased with DSCR loans.

    Looking at buying a fixer-up that needs major rehab with a fix& flip loan and then 3 months later converting to a dscr loan 

    pros and cons?

    Awesome job! I'm in a similar boat with a handful of long term rentals. Buying fixer uppers will allow you to "force" some appreciation and ideally you'd have no or little of your original capital left in the deal once you refinance into a DSCR loan.  Then you can do the final R of the BRRRR strategy and "repeat"/reinvest the same original capital. 
    [email protected]
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  • Timothy Hero
    Lender · United States · Member since 2020 · 1k+ posts · 499 votes
    1y

    If it needs rehab, then it won't qualify for a DSCR and you'll have to go the fix and flip route. DSCR is for rent ready properties only, as the cash flow is the approving factor.

    0Reply
  • Mike Klarman
    Specialist · NJ · Member since 2022 · 1k+ posts · 653 votes
    1y

    There's definitely factors that can play for or against you like market shift. I've seen the bridge loan appraisal say the ARV should be x and then as the DSCR refi the appraisal comes in y. Then there is the costs of two loans, two closings. But if the numbers work and the cashflow is there then it won't matter.

    0Reply
  • Amber Stout
    Lender · Tampa/Saint Petersburg, FL · Member since 2014 · 356 posts · 148 votes
    1y

    Super normal game plan. If you need a contact for fix & flip, I have a GREAT one. DSCR lenders do typically require a seasoning period of some sorts (usually 3-6 months) before you can refi. I am a mortgage broker/investor so if you have any questions on the DSCR, DM me.

    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    1w

    Pros:

    -- Speed to capital: Fix and Flip loans are fast to underwrite and so are DSCR loans. The limited seasoning allows you to finish a property and pull cash in as little as 6 months if all goes well and as planned

    -- LLC Anonymity: These loans allow you to close a property in an LLC, Series LLC, & Corporation. They do require a personal guarantee however, the loan does not get disclosed on your personal credit (some people like this, however there isn't a real benefit)

    --- Limited documentation: No tax returns, W2s, or personal debt are required to qualify for these loans

    Cons:

    -- Expensive

    -- Prepayment Penalty Clauses or Minimum Interest

    -- Higher downpayment requirements

    Hope this helps!

    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
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    0Reply
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