There are flippers who have always dealt in cash. Never obtaining a loan to buy, fix and flip a property. No reason to pay any interest to someone else they say and besides what’s my money going to do sitting in a bank account anyway? Other than real estate there’s nothing that can pay the kind of returnsspotty income real estate does. But at some point, those same investors will need to obtain a loan for one reason or another.

Perhaps a deal comes up that is more expensive than those in the past or a property can’t be flipped in time or for enough funds to take on the new transaction. For real estate investors who rely solely on profits from flipping, they may find their financing the first time around is more difficult than they might have imagined.

If there is little or no schedule E income from rental properties found in federal income tax returns lenders will use income from the business to qualify the investor. To do so, conventional lenders will review the two most recent personal and business income tax returns. Upon review, the lender first looks for consistency. Is year two as good or better than year one? If so, the lender will average the two amounts together and divide by 24 to get a qualifying income.

However, if the income is spotty, say a flip in January of this year for $30,000 and one in October for $55,000 there might be a consistency issue. Income must have a two year history along with a likelihood of continuance for at least three years. If the following year only one flip was made for $70,000 the underwriter will total the amounts and divide by 24 to get a qualifying income of $6458. But because there are only three transactions over a two year period, without other compensating factors such as a considerable amount of liquid assets and high credit scores for example the loan may have problems getting approved.