Rent then Refinance or Refinace then Rent?

Question

Hey BP!

I’m in the middle of my first BRRRR deal. I’m about one week from completing the rehab and am starting to dive into the “rent, refinance, repeat” portion of BRRRR. I’ve spoken to my local bank about the re-fi terms, and shouldn’t run into any kinks as I’ve had a relationship with them for years.

The property is on track to look great- I purchased it as an REO and the previous owners left the place the wreck. I have come up with an estimated ARV should be very close to 75% in, but the appraisal will tell all.

My question is:

Why does the BRRRR strategy list “rent” before “refinance”? It seems like I should refinance and have the property appraised while it is clean, empty, and newly remodeled. After I put a tenant in it, who knows what it might look like...

Why wouldn’t an investor (i.e. me) hold off on placing a tenant in order to ensure the appraisal comes in at top dollar?

Would love to hear what experienced BRRRR-ers think about this!

Kenneth Garrett · Answer

@Dakota Adney

The idea behind the BRRRR is to place a tenant in there so you have a producing asset.  The bank wants to see a tenant in there with a lease (12 month lease, month to month).  This indicates factual data versus hypothetical data.  The rent might be projected to be $1000 by the bank, but you have a tenant paying 1250.   It makes your numbers better for them.

Nate Richards · Answer

@Dakota Adney, my refi and rental placement overlapped. I had a tenant under contract, they needed 45days to notify current LL and move. During that time the unit was refinanced, which only took 2 weeks to process.

I started/initiated both processes on the same day.