Chasing Financial Freedom

The rental you want is moving. You are still waiting on a buyer for the one you already own.

That equity is sitting in the property. Every week you wait on the sale is a week the next deal can't wait for you. A bridge loan borrows against that equity, up to 70–80%, so you can buy the new rental before the old one sells. Short-term, interest-only, 6 to 12 months. It pays off when you sell the old property or refinance the new one, and it qualifies based on the deal and your equity, not a long approval process.

How many days has the current one been on the market? Put the number in the comments. Send this to the partner who keeps saying you should just wait for the buyer.

A bridge loan is not the same tool as hard money.

A bridge is the right call when you have real, provable equity in the property you own, the new deal has a timeline you would lose without fast cash, and you have a believable exit. That means a listed property already getting activity, or a clear refinance plan. It is built for buy-before-you-sell.

Hard money is for purchase and rehab. Different tool. Different problem.

It stops working when the current property is thin on equity, you have no real plan to sell or refinance within the term, or two payments would break you if the sale takes longer than expected. That is how a good deal turns into a stressful one.

Up to 90% of your fix-and-flip purchase can be funded with the rehab, yet most first-time flippers walk away before they see how the money works. A fix-and-flip loan can cover purchase and rehab up to those limits, stay under a 70% ARV cap, run interest-only for 6 to 12 months, and pay rehab back in draws after you front each stage, though your leverage and draw timing depend on the deal and how many flips you have done. That keeps you from needing all cash up front and from stalling mid-rehab when the next draw has not hit yet. Before you make your next offer, does purchase plus rehab fit under that ARV cap with cash ready for the first draw?

On a fix-and-flip, every extra month you hold the property eats your profit, and rehabs run long, so underwrite the holding period honestly and pad it. Then plan the cash you will bring to flip a house: 10 to 20% of the purchase price, plus your closing costs and the first phase of rehab, which is far less than all cash but is not zero. If this is your first fix and flip, you can still get funded; you may just get slightly lower leverage until you have a track record. If the rehab on your next flip runs long, will your profit and your cash still hold up?

Beginners often price a flip as if they are paying all cash, decide they cannot afford it, and pass on the deal. Others get a loan without realizing the rehab money comes back to them in pieces, so they run out of cash mid-project. A fix and flip loan isn't just for the house: it funds most of the purchase price and the renovation budget, so you don't need all cash to do the deal. Before your next offer, have you mapped out the full loan flow, or are you still pricing the flip as an all-cash buyer?

You have two exits on this loan, and the short-term was built for only one of them.

You finish the rehab, list it, and sell it at the ARV. You pay off the loan and keep the spread. That is the classic exit, and the short loan term is built for exactly that timeline. The other exit is to keep it and refinance, the BRRR method. If the numbers say hold it as a rental, you refinance out of the short-term flip loan into a long-term DSCR loan and keep the property cash flowing. That is the bridge from flipping into a rental portfolio, and it is why this loan and a DSCR loan work together.

A fix-and-flip loan funds most of the purchase and rehab based on what the house will be worth, not what you pay today. The mechanic is the exit, not the rehab. Sell at the ARV, and the short term matches the timeline. Hold it, and you have to refinance into the DSCR loan, or you are keeping a rental on a loan that was built to be paid off.

Do the numbers say to sell at the ARV, or hold it and refinance into the DSCR loan?

On a fix-and-flip loan, the rehab money comes back to you in draws, not up front. You finish a stage, the lender inspects it and reimburses you, so you carry every stage out of pocket, and first-time flippers who skip that math run out of cash halfway through. Hold enough working capital to cover the first phase and line up your contractor payment schedule with the draw schedule before you make the offer. How many rehab phases do you plan to carry before your first draw hits?

Five things get you a DSCR loan, and your tax returns aren't one of them.
You need a 620 credit score (700+ for the best terms), a property with a DSCR of 1.25 or higher, 20 to 25 percent down, and six months of full payments (PITIA) in reserves. It also has to be an investment property.
The lender looks at what the property makes, not what you make.
If your income has been the thing holding you back, which of those would hold you back today?

You are about to write an offer on a property, and you have not run the one number that decides whether the deal even works.

Take the rent, divide it by the mortgage payment. That is your DSCR ratio. Hit 1.25 and the property earns 25 percent more than the payment, and you are in great shape. Some lenders will let you in at 1.0, break even, rent equals payment, nothing left over. A few will go below 1.0 if you bring more money down.

Do not go there. Below 1.25 is where your terms start to tighten, before you even close.

Know the ratio before you write the offer, not after the lender runs it for you.

What is the DSCR ratio on the deal sitting on your desk right now?

You wired the down payment. You covered the closing costs. Then the lender asks for one more thing, and you cannot pay it. You can only show it.

Six months of PITIA in your account on the day you close. Principal, interest, taxes, insurance, times six. On a $752 payment, that is $4,512 sitting in the bank, untouched, proving you can carry the property.

It is not a fee. Nobody collects it. And it trips up first-time investors more than anything else, because they spent everything getting to the table and have nothing left to show.

Yes, 20 percent down is the floor for a strong file. And also, a weaker credit score or a thin ratio pushes you toward 25. Either way, the reserves stack on top of the down payment, not inside it.

What is your PITIA times six on the property you are eyeing right now?