Anyone run into an issue where the deal/house is too SMALL?

Question

I'm looking at a BRRR deal for a barely sub-600 sq ft house with a low total purchase price/rehab/arv, with the goal to be to rent it out and hold after cash out refi. The lenders I have talked to need the loan to be over 100k, the sq footage to be over 6-700, the arv 125k+, and/or me to have done multiple deals (which I have not. I'm new. Yes, I understand brrr isn't ideal for a first time oos investor, but it is what it is). It is usually a combo of at least 2-3 of those. My numbers are close to all the limits, but just under. I've spoken with probably 20 lenders so far but no luck yet.

Any ideas? Message me please if you don't want it public. I'd like to find someone who can do the whole package (purchase/rehab/refi). I have excellent credit, fwiw. Thanks.

ps all the lenders I have spoken to have been really helpful (besides actually doing the loans lol) and generous with their time and suggestions. No real reason to add this, but I found many of them through BP and figured I'd mention it bc it made this process at least a little more enjoyable.

Landon Reid · Answer

Jeff, before you solve the lending problem, I'd check what the zoning actually allows on that lot.

A sub-600 sq ft house on a lot that permits an ADU or addition could completely change your strategy. Instead of fighting lenders on a tiny BRRRR, you might be sitting on a property where you can add square footage and blow past every lender minimum.

The question isn't just "can I finance this house" — it's "what can I BUILD on this parcel?"

Check the setbacks, lot coverage, height limits, and permitted uses. If zoning allows an ADU or addition, your ARV jumps significantly, lenders suddenly have no issue, and your BRRRR math gets a lot more interesting.

I run a 20-second buildability check on every property before I even think about financing. It tells me exactly what's permitted by right — zoning, overlays, setbacks, the works. Would have saved me thousands in feasibility studies on deals that didn't work.

The small house might actually be your biggest asset if the lot supports expansion.

Bruce Woodruff · Answer

Well, can you split the pickle and just do a small remodel, like just the bathroom? Or add a half bath..... there has to be a way?

Stacy Raskin · Answer

The square footage isn't an issue at what you mentioned. There are DSCR lenders that will lend down to $75K appraised value and down to a $50K loan amount on a ready to rent property depending on LTV and borrower credit score (so not in fix and flip condition). Fix and flip loans usually want a $100K loan amount between the purchase and the rehab (done on draws). Happy to connect to discuss further.

Erik Estrada · Answer

This shouldn't be an issue. Most lenders will have a cap at 400 sqft minimum. There are also bridge lenders that have a $50k minimum loan amount.

Happy to connect

Bruce Woodruff · Answer

Can you (do you have the budget?) to add some sq footage by adding another bedroom, or busting out a wall to make the living room bigger? That increases both the size and budget....

Landon Reid · Answer

Jeff — you're hitting the exact constraint that trips up a lot of investors on small properties. The ADU size cap relative to the main house is one of those rules that varies wildly by jurisdiction, and it's the kind of thing most people don't check until they're already deep into the deal.

The financing angle you mentioned is real too. Lenders underwrite based on total usable square footage, and two sub-1,000 sqft structures can be a tough sell for conventional or DSCR products.

A few things worth checking before writing off small lots:

1. Some jurisdictions measure ADU caps based on lot size, not just main house size. A 6,000 sqft lot might allow more than you think even with a small primary.

2. JADU rules (Junior ADUs) in some states let you convert existing space within the main house footprint — no size cap headaches.

3. If the numbers don't work for a detached ADU, sometimes the better play on a small house is a bump-out or addition to the primary rather than a separate structure. One bigger house can be worth more than two tiny ones.

The key is checking those rules BEFORE you make the offer. Otherwise you're doing exactly what you described — finding out the hard way that the deal doesn't pencil after you're already in.

Jeff Isaacs · Answer

true. looks like 65% of main house or 1k sq ft, whichever is greater, BUT it can't be larger than the main house. So I'd have two tiny houses with the same financing problem lol

Jeff Isaacs · Answer

Hey Landon,

From what I've looked at an ADU can be built, but it can't be larger than the main house.

Jeff Isaacs · Answer

The problem is that's a massive increase, not just in cost but permits/time/work scope etc. I'm looking at options to increase the size by a little. Thanks

Anyone run into an issue where the deal/house is too SMALL?

Anyone run into an issue where the deal/house is too SMALL?

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