A rural BRRRR where the exit lender's loan minimum exceeds the refinance amount
Take a small town of about 4,000 people, an hour from anything, a three bed one bath house at 1,080 square feet bought at 61k off a probate that had been listed and expired twice. A 34k rehab budget running to 36,400 actual puts all-in cost around 101k including carry and closing, with roughly 41k in cash and the rest from a local hard money lender at 60k. A signed rent at 1,150 is strong for a town like that, often earned by delivering the only fully redone bathroom in that price band. Taxes running 1,380 a year and insurance quoted at 1,910, higher than expected, commonly reflects roof age and distance to a fire station. Say ARV lands at 135k, supported by recent comps within a mile. The problem shows up at the exit. DSCR lenders commonly carry loan minimums around 100k, which at 75 percent of a 135k valuation isn't reached, though some will go to 75k with a rate add. A local bank offering 75 percent at 8 percent, 20 year amortization, with a five year balloon and a personal guarantee, is the more common alternative in small towns like this. 75 percent of 135k is 101,250. After a 60k payoff and a few thousand in costs, that recovers close to 37k in cash, close to the full amount invested. The tradeoff is the five year balloon, since nobody knows what rate environment or lender appetite for rentals exists in five years. The general framing worth applying here: a balloon that recycles nearly all the cash is the stronger move when the investor plans to keep refinancing or selling ahead of maturity, while a DSCR loan with a rate add that pulls less cash but avoids balloon risk suits an investor who wants to hold indefinitely without revisiting the loan.
