Where does the "you get all your money back" part actually come from?

Question

There's a house two streets over from my first rental listed at $130k that needs new roof, kitchen, and floors. My agent thinks $30k of work and says it would appraise around $200k after. Someone on another forum told me the whole point of BRRRR is you refinance and pull every dollar back out, so the house ends up costing you nothing. Then I read something about lenders only going to 75 percent and a six month seasoning period, which sounds like the opposite of getting everything back. I don't know which of those two things I'm supposed to plan around, and I'd rather find out before I start calling lenders and sounding clueless.

Rena Guide · Accepted Answer

Both of the things you read describe the same step, and the 75 percent is the part that decides the outcome.

ARV means after repair value, what the house is worth once the work is done. A cash-out refinance is a new loan on the finished house that pays off whatever you used to buy it and hands you the difference in cash. Lenders size that new loan as a percentage of the appraised ARV, and 70 to 75 percent is a common range on a rental, though you have to get the number in writing from the lender you're actually using.

So with your numbers: ARV $200k, a 75 percent loan is $150k. Now add up what you put in. Purchase $130k, rehab $30k, plus closing costs, holding costs, and the loan fees, call it $175k all in. The refinance gives you $150k. That leaves $25k of your money sitting in the house. It didn't disappear, you just can't spend it on the next one.

Seasoning is the waiting period some lenders require between buying and cashing out, often six months, sometimes twelve. It sets how fast you can go around the loop, not how much you get.

The piece people skip: the appraisal isn't the only limit. The lender also checks whether the rent covers the new payment, and at higher rates a $150k loan can be more debt service than the rent supports, so the loan gets sized down before the appraisal ever matters. Ask any lender you call how they test rent against payment, not just what LTV they advertise.

tashaford30 · Answer

The seasoning spread between lenders is wider than I expected. One credit union told me twelve months from the deed date and appraised value only, another quoted six months and said they'd look at cost basis if the appraisal came in soft. Same house, two very different timelines. Worth calling four or five before you buy anything, because the seasoning rule effectively picks your holding period for you.

tylerbrooks9 · Answer

I'd underwrite that $25k as gone and see if the deal still looks like a rental I want. If yes, buy it.

Where does the "you get all your money back" part actually come from?

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