A seasoning clause buried under the draw schedule can undo a BRRRR refinance timeline
A first BRRRR is a useful case for showing how a seasoning clause can wreck an otherwise sound plan even when the loan documents were read carefully. Take a small three bed house in a working class suburb, bought at $118k with a hard money loan covering 80 percent of purchase and 100 percent of a $42k rehab budget. Rehab comes in at $47k, a normal overage with adequate padding. The property rents at $1,650 about five weeks after the contractor finishes. So far the plan works as designed. The part that commonly gets missed: a refinance lender lined up in advance may get read closely for rate, points and prepayment terms, while the line about seasoning, meaning how long the property must be owned and rented before the lender will lend against the new appraised value instead of the purchase price, gets skimmed. A program requiring twelve months of ownership doesn't line up cleanly with a twelve month hard money note that has two three-month extensions at a point each. The result is paying roughly $1,100 a month in bridge interest, plus two extension points, for months past the point the refinance was expected to close, easily $9,900 in unplanned interest and about $3,300 in extension fees. The refinance eventually closes and returns most of the cash, and the property continues to cash flow. The fix for the next deal: ask every candidate refinance lender, in writing, how they define seasoning and what value they lend against before that period is up, then size the bridge loan term to that answer instead of to the construction timeline.
