At what point is a property actually “stabilized” enough to refinance?

[Pierre Guirguis]

I’ve been looking at a few lease up and value add deals recently, and I keep running into the same question.

When is a property actually considered stable enough to refinance?

A lot of these deals start with some level of repositioning. Under market rents, units being renovated, vacancy that needs to be filled, or a mix of all three. The goal is clear, increase income, stabilize the property, then refinance. But the execution is rarely clean.

I’ve heard a lot of different answers. Some people say you need to be around 90% occupied for a few months. Others say everything needs to be fully leased at market rents. And some seem comfortable going earlier if things are clearly trending in the right direction. In reality most of these deals land somewhere in between. A couple units might still be getting turned, rents are moving but not fully proven yet, and some leases were just signed. On paper it looks close, but not fully “there.” At the same time, waiting too long to refinance can leave capital tied up and slow down the next deal, especially if you’re trying to keep momentum.

I’m curious how people are actually handling this in practice. What point do you personally feel comfortable refinancing at? Have you ever gone earlier than expected and still gotten a good outcome? And what have lenders actually pushed back on the most in your experience?

Would especially be interested to hear from anyone who has refinanced something mid value add or mid lease up recently.

[Victor Huang]

The answer depends a lot on whether you're going DSCR or through a bank doing a portfolio or small balance commercial loan. The gap between those two paths is bigger than people realize.

When I refinanced my 12-unit through a local bank, they wanted 90%+ occupancy sustained for at least 3 months with actual rent collection to back it up. Not pro forma, not projected rents, actual deposits. They ran their own debt service coverage on the property's trailing income, not what I told them the property could do. Whole process from application to close took about 90 days after I already had the rent roll where they wanted it.

DSCR is different. I've used DSCR on a couple smaller deals and those lenders lean more on the appraisal rent schedule than in-place income. You can close with fewer units leased as long as the appraisal supports the value. But you're capped around 75% LTV and the rate is going to be higher, so it's a speed vs cost tradeoff.

One thing I don't see mentioned here yet is the appraisal. On a value-add refi the appraiser has to assign a stabilized value, and the gap between what you think your renovated units are worth and what the appraiser puts on paper is where deals fall apart. I had an appraiser come in well below my projections on one refi and it changed the entire cash-out number. Even if a lender says they'll go off pro forma, the appraiser still has to agree.