Why Rent before Refinancing?
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?