Lenders...what's the deal with the seasoning period?

[Scott Winter]

So, I'm staring at David Greene's BRRRR book right now pg 232...Seasoning Period 

"Many lenders don't want to finance something right after an investor buys it. This is because they want to make sure the property is stable, rented, and wasn't a "fire sale" situation.  This is one of the methods lenders use to protect their investment."  

Can someone explain the reasoning behind why seasoning periods exist or specifically how it protects the investment?

I'm in a situation where I'll be ready to refi in about 2 months of owning the property.  BRR_ ... 

I can only see my perspective, and my perspective says, "it sure would be nice to pull my money back out for the next project."  And it seems like lenders are dying for our business, but have a rule that I have to own the property for another month (some want 6 months!)?  It just seems arbitrary, so please help me to understand so I don't call every lender in the country.

[Tanner Glenn]

Here's an overly simple example of what a lender is afraid of...

I buy a house from a motivated seller for $100k. I put in $30k worth of renovations to pretty up the place but i don't really deal with certain major issues. The house looks nice and appraises for $250k because the apraiser doesn’t discover the major issues. The bank does a cash-out refi for $200k which puts an additional $70k in my pocket after paying back the initial $130k i put in the deal. I decide the landlord game isn’t for me and i can't sell the place with the major issues i never took care of. I walk away from the property willing to take the credit hit because I'm $70k ahead. Now the bank is upside down on a crummy house.

I'm not trying to imply that this is your intention but there are people out there who would do this under the right circumstances. The bank has to protect their investment. If they see you working the property for six months they are less concerned about you making a grand exit after a cash out refi. They want to see that track record.