Renovated properties are sitting on the market longer in many parts of the country, and that alone is enough to break the math that made fix-and-flip investing work. When a rehabbed home used to sell in weeks, the model tolerated thin margins and short holding costs. When it sits for months instead, carrying costs erode the profit that a quick sale was supposed to lock in.
Investors have responded by changing strategy rather than waiting out the market: instead of renovating and selling, a growing number are turning to what the industry calls the BRRRR method – buy, renovate, refinance, rent, repeat – choosing to hold the property as a rental rather than exit it. That shift in investor behavior is now working its way back through the lending products built to serve them.
Non-QM lenders, lenders whose products fall outside the federal “qualified mortgage” standards that govern conventional loans, have historically built their investor-facing products around short-term exit strategies: underwrite the flip, get paid off at sale, move to the next deal. A borrower who intends to hold rather than sell changes the risk calculus, and lenders are having to rework underwriting and product design to match.
“Whereas we saw a lot of focus on fix and flip, folks, purchasing, renovating, and selling the home, you’re now seeing a softer market where properties are sitting a little bit longer,” says Daniel Norris, who leads a wholesale sales team at American Heritage Lending, a California-based non-QM lender. “There has been a bit of a shift towards investors using the BRRRR method. Instead of flipping it, they are deciding to hold it and build their rental portfolio.”
The core tension is straightforward: a lender that underwrote a deal expecting a sale-driven payoff is taking on different exposure when the borrower’s plan changes to a long-term hold. Lenders responding to this shift have had to reconsider how they qualify borrowers in the first place, moving some products away from relying solely on a property’s debt service coverage ratio and toward incorporating the borrower’s personal income and debt profile.
At American Heritage Lending, one version of this response has been an investment product that qualifies borrowers on personal income and debt rather than property cash flow alone. A fuller credit package gives the lender more confidence in the borrower, which can translate into more aggressive terms on that lender’s platform; in AHL’s case, loan-to-value ratios up to 80% on cash-out refinances and 85% on purchases, along with lending on rural properties. “With a little bit more certainty, with a stronger credit package, we can then pass off those benefits to the consumer,” Norris says.
Lenders have also experimented with structuring costs differently within a loan. AHL’s version, which it calls “stacking,” finances broker discount points and realtor fees into the loan amount, giving the borrower additional leverage without pricing the rate at the higher loan-to-value tier. “Despite the LTV going up, we still get to price it at the lower range and give them the best of both worlds,” Norris says. For investors comparing products across lenders, details like this can meaningfully change the economics of holding a property long-term rather than selling it, exactly the calculation more investors are now running.
The flip-to-hold pivot has also introduced a specific underwriting concern industry-wide: distinguishing borrowers who genuinely intend to hold a property from those seeking temporary financing while they continue marketing it for sale.
American Heritage Lending has tightened its guidelines around recently listed properties for this reason. “We’ve had to be mindful of that and put in the right parameters to make sure that we’re making good, responsible loans and not putting ourselves at risk,” Norris says. A refinance on a property whose owner still intends to sell carries exposure that a standard rental hold doesn’t, the lender underwrites for a long-term hold but may end up with a short-term loan that gets paid off as soon as the property sells.
Despite the sector’s growth, a persistent barrier remains: many mortgage brokers still treat non-QM as irrelevant to their business. “I’m just met with a close-minded response saying, ‘I don’t do non-QM, I just take my borrowers conventionally,'” Norris says.
The resistance tends to dissolve once the conversation gets specific. Self-employed borrowers whose tax returns understate their income, foreign nationals, non-warrantable condos, asset-depletion scenarios, these are common situations where conventional guidelines simply don’t accommodate the borrower, and non-QM offers a path. Conventional underwriting either fits a file or it doesn’t; there’s no built-in mechanism for weighing a strength in one area against a shortfall in another. Non-QM underwriting is built around that kind of case-by-case evaluation instead. “If something doesn’t fit our own guidelines, can we look at the deal, dissect it, and figure out where we have some strengths in another area that can compensate for anywhere that we’re falling short?” Norris says. “All of this only happens in non-QM versus the conventional world.”
For borrowers who fall outside conventional parameters, the difference between a declined application and a funded loan often comes down to whether their broker considers non-QM at all.
The non-QM lending field has broadened in recent years. According to Norris, the field once consisted of a smaller, more defined set of specialist lenders; it now includes purpose-built non-QM shops alongside larger lenders that previously concentrated on agency and government loans and have since added non-QM offerings.
More entrants mean brokers have more options, but it also raises the bar on execution, speed, consistency, and the ability to solve for deals that don’t fit standard guidelines become differentiators. Norris frames his own approach around a concept from his pre-lending career in hospitality: a predictable, repeatable process from submission through funding. “If I just focused on serving these individuals, getting them the results and the service that they’re looking for, then naturally they would just gravitate back towards us,” he says.
As investor strategies continue shifting from quick exits to long-term holds, the lenders that retain broker loyalty are likely to be the ones whose underwriting keeps pace with what borrowers actually need now, not what they needed when the exit strategy was still a quick sale.
About the Expert: Daniel Norris leads a wholesale sales team at American Heritage Lending, a California-based non-QM lender.
This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.
Explore similar articles from Our Team of Experts.
Buyers entering the Boulder, Colorado real estate market expecting a relaxed pace are getting a different experience. Despite national headlines about sluggish activity, well-priced listings in the Front Range market are generating enough competition that some first-time buyers cycle through multiple contracts before securing a property, not because they are being outbid every time, but ...
The Dallas–Fort Worth housing market is often discussed in aggregate, but the headline numbers conceal a more specific problem: buyers and sellers are stuck in a standoff driven by mismatched expectations, and the standoff plays out differently from one neighborhood to the next. Kristyn Fuston, a residential agent with eXp Realty who focuses on VA ...
Philadelphia’s median sale price continues to inch up one to two percent annually across most zip codes, a statistic that suggests a stable, readable market. For investors entering the city’s fix-and-flip space, that number is misleading. According to Aziz Dali, a real estate investor and agent at Realty Mark Cityscape who has completed close to ...
The gap between what entry-level buyers in Maine can afford and what the housing stock actually offers is not a matter of timing or interest rates. It is a supply problem with no clear solution on the horizon, and it is reshaping how families in the state approach homeownership altogether, according to Josh Cousineau, who ...
Austin’s luxury real estate market has developed an unusual split. Properties priced above $5 million are attracting buyers and moving relatively quickly, while homes in the $1.5 million to $3 million range are taking longer to sell. That inversion, where the top of the market outpaces the tier just below it, reflects something specific about ...
New Orleans doesn’t have much room to grow outward. Surrounded by water and constrained by geography, the metro can’t absorb demand the way Houston or Phoenix can through suburban expansion. That physical limitation shapes nearly everything about how the market behaves, from where prices move to which neighborhoods attract new interest. It also means that ...
