Why Rent before Refinancing?

[Erik Pilon]

Hello!

I've been making some quick calculations, but was wondering why is BRRRR set-up so that renting is before refinancing?

Example:

- House = $100,000

- Downpayment = $20,000

- Loan #1 = $80,000

- Rehab = $20,000

- Rent = $1,000 / mo (Assume 1% “rule”)

- Re-evaluation = $150,000 (assume)

- Refinance (80%) Loan #2 = $120,000

- Pay off Loan #1, subtract rehab to see gains

- Gain = $20,000 for repeat on next down payment on property 2

But now you have to a loan of $120,000 rather than $80,000 and your tenant is still paying $1,000 per month from your previous calculation. A $200 per month difference.

Wouldn’t it be better to refinance before renting, at $1,200 / mo?

Or it’s because people wait for the original tenant to vacate to finally raise rents to $1,200?

Or it’s because you have to wait for a period of time before actually refinancing?

[Joe Villeneuve]

What????  The loan amount has nothing to do with what you charge for rent.  If you wanted to charge $1200/month because the house has improved enough to warrant it (and the improvement won't impact it if the original $1000/month was the max in the area already), then charge $1200/month before you refi.