How do you refinance a flip?

[Will Kaufmann]

We are listing a flip soon and looking for alternative exit strategies in the event we cannot sell by the time our loan terms. At the moment, it does not look like renting is a viable option as the market is thin for rentals. Under our loan agreement, we can request a 6-month extension but that will cost 2 points and continue at an interest rate of 9.99%, which may be too expensive. I searched extensively on refinance strategies and did not come across much information. Here are some key details:

Purchase Price: $172,000

Rehab Costs: $100,000

Financing and Holding Costs through Term: $48,000 (all in cost of roughly $320,000)

Balloon Payment: $272,000

ARV: $300,000 - $350,000; the variance is explained by some investors using below-grade finishes and also using "fire sale" tactics.

The DOM in the market varies, with some properties selling in 60-90 days and others sitting for up to 180 days. Ultimately we may need to keep it on the market for another 6 months after the loan terms. Losing money on the deal is a reality but we would like to minimize the loss if that is our actual scenario. The property is held in an LLC and we have the DTI to obtain a conventional loan by purchasing the property from our own company. Obtaining a note from a private lender may be difficult, so my question is would a conventional loan be an alternative (assuming it would appraise) to settle the balance with the HML ($272,000)? If not, what are the options in the current lending market?

Thanks in advance for the input!

[Rick Pozos]

2 points should NOT kill your deal. If you did a good job on the rehab, just wait the time it takes to sell the home in your area. You should have known how long it takes, just sit back and wait your time to sell it.

Dont panic. 2 points is just over 5k. You should always plan for at least 10% to sell the property. An additional 6%-10% for holding costs. Thats why everyone says that you should buy at 70% of ARV minus repairs. You are not making that 30% as profit, after all costs, it usually ends up about 10%.