Your Exit Strategy: What Happens When the Timeline Slips

Every short-term loan has a maturity date. Most projects finish well before it. Some do not. The rehab runs long, the house sits on the market, or the refinance comes in short. When that happens, the investors who come out fine are the ones who planned for it and talked to their lender early.

Here is how to build an exit plan that holds up when things do not go to schedule.

Plan A, B, and C

Before you close, write down three exits:

• Plan A. Your primary exit, usually a retail sale or a DSCR refinance.
• Plan B. A realistic alternative. If you planned to sell, could you rent it? If you planned to rent, could you sell?
• Plan C. The fallback. A price cut to move the property quickly, or a sale to another investor.

If you cannot write a Plan B, the deal carries more risk than it looks.

Know the early warning signs

• The rehab is more than a few weeks behind schedule
• Draws are running ahead of completed work, or the budget is nearly spent with work left
• The property has been listed for longer than your comps sold in, with few showings
• Rental comps have softened since you bought
• Your maturity date is 90 days out and the exit is not in motion

Any one of these is a signal to act, not wait.

Your options when the timeline slips

Adjust the price. A price reduction early usually costs less than months of carrying costs later. Compare the reduction to what another 90 days of interest, taxes, insurance, and utilities will cost you.

Switch the exit. A flip that will not sell may work as a rental. Run the DSCR numbers. If the rent covers the payment, a refinance can take you out of the short-term loan and let you sell later.

Request an extension. Most short-term loans allow extensions, usually for a fee. Lenders will want to see:

• Your payment history
• Where the project stands and what is left
• An updated timeline and budget
• Your plan to pay off the loan

At PK, extensions are available in 3-month terms for loans in good standing.

Sell to another investor. If you need out, another investor may buy the property as-is or partially complete. You may give up some profit, but you protect your capital and your track record.

Talk to your lender early

This is the most important point in this post. Call your lender 60 to 90 days before maturity if you think you might need more time. Early conversations give both sides more options. Waiting until the loan matures can trigger default interest and fees and limits what either side can do.

At PK, we would much rather work through a plan with you than deal with a surprise. A borrower who communicates early and has a clear plan is a borrower we want to keep funding.

Build in time before you close

The best protection is time you build in up front. Add a few weeks to your contractor's schedule, assume the listing will take longer than your fastest comp, and pick a loan term that covers both. Many short-term loans allow early payoff without a penalty, so extra term rarely costs anything if you do not need it. If the project runs long, you are not negotiating from a corner.

Have a deal coming up?

If you are planning a project and want to talk through the exit before you close, send it over. We will work through Plan A, B, and C with you and size the loan term with enough room for delays.

When you have a deal, we are ready to look at it.