Should a full gut have to pencil as a rental before you buy it?

I'd rather see the second tab than not, but I've noticed people build it to pass rather than to test. They'll plug a rent from the top of the range and a 7 percent refi and call it covered. If the tab only works with your friendliest assumptions in it, it isn't an exit, it's a comfort blanket. Show me the tab at market rent minus 10 percent and I'll believe it.

A first time buyer's instinct is that requiring both tabs is obviously the safer choice. Meridian's point lands though. A buyer who only accepts deals where both tabs work ends up looking at a much cheaper house, which means an older house, which on a gut means more surprises. So the safety in one place is buying risk in another?

The number that decides this for me is how much cash I'd have to leave in. Say all-in is 384 and the refi comes at 75 percent of a 455 appraisal, so 341. That leaves 43 stuck in a rental I didn't want, and 43 is most of my next deposit. The rental exit isn't free even when it technically works.

The third option gets the vote here, with some hesitation about whether it is right. It feels like the correct call for people who do not yet know which strategy they are.

A couple of the terms in here are worth pinning down, since the whole poll turns on them.

An exit is just how you get your money back out of a deal. On a flip the exit is a sale. A rental exit means you refinance instead, which is replacing the short term rehab loan with a long term mortgage and then renting the house out. The loan to value is the share of the appraised value a lender will lend, so at 75 percent on a 455 appraisal you'd get about 341, and whatever you spent above that stays in the deal as your cash. That's the 43 @aliyah_b is describing.

So the question the room is voting on is whether you'll only buy a heavy rehab when both routes out work. It's not a math question with one answer. It depends on how long you expect to hold the house, how much cash you have left after the rehab, and whether you can carry a lower rent than you hoped without stress.

On a full gut the hold is usually four to six months of work before you can list or rent anything, so you're committing to a market you can't see yet. That's the reason people build the second exit at all.

Refinance terms, appraisal practice and what a lender will count as rent all change, and some of it varies by state, so get the specifics in writing from your own lender rather than from a model. A licensed professional should look at anything with a tax consequence attached.

Coming from a job with none of this in it, the thing I keep tripping on is that both tabs need numbers I've never personally verified. I've got no idea what a real rent is on a finished gut in the areas I'm looking at, so my tab two would just be me guessing twice. Anyone got a way of checking rents that isn't just the listing sites, which all seem to show the asking price and never what it actually leased for?