Could the first "R" in BRRRR stand for "Rationalize rents"?
Investor · Pittsburgh, PA · Member since 2024 · 17 posts · 7 votes
Could the first "R" in BRRRR stand for "Rationalize rents"?
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Lender · San Francisco Bay Area · Member since 2025 · 11 posts · 11 votes
1ySounds entirely possible from a lenders POV. Its super important to do lots of research on Section 8 and qualifying your property/your tenants for those rents... its worth talking to someone whose been through that process before who knows the local regulations and important persons to contact in order to get that done. As a private lender, my first concern would be the risk involved with regulatory agencies you might deal. Disclaimer, I am based in CA and this process can be cumbersome in my experience.
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- Lender · San Francisco Bay Area · Member since 2025 · 11 posts · 11 votes1y
Sounds entirely possible from a lenders POV. Its super important to do lots of research on Section 8 and qualifying your property/your tenants for those rents... its worth talking to someone whose been through that process before who knows the local regulations and important persons to contact in order to get that done. As a private lender, my first concern would be the risk involved with regulatory agencies you might deal. Disclaimer, I am based in CA and this process can be cumbersome in my experience.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Elwin Green:
This post is primarily for lenders and loan brokers.
I'm thinking of buying a townhouse complex with seven 2/1 units, listed at $465K.
I see it as a potential BRRRR project. I haven't viewed it yet, so I don't know what rehab it needs. In fact, since it's already occupied, it may not *need* any rehab at all. But let's assume that it needs cosmetic work, but not enough to move the needle much on value. For easy numbers, call it $500k all-in.
My question is, what type of financing might a lender offer on a BRRRR project in which the primary means of increasing the property's value is not making physical improvements, but improving its cashflow by increasing rents?
In this case, the units are all priced differently, with rents ranging from $756 to $850, for a monthly total of $5,551. According to the county housing authority website, if they were re-rented through Section 8, they could bring in $1,623 each, for a monthly total of $11,361 - more than twice the current income.
The GAI would rise from $66,612 to $136,332.
Would you, or the lenders you work with, finance a $500K purchase+rehab with an eye toward refinancing based on a $136K GAI?
Since they are 2/1 townhomes a lender will look at both the rental income AND the value of the property - since you were able to increase the rents, it may not increase the value of the property significantly and they will go by the lower of the two.
A good example of this is a $250k home in a neighborhood where someone rents by the room to get $5k in rents. From a DSCR standpoint they could afford a $400k home but the home is still worth $250k so the lender will go off the $250k
Hope this makes sense.
7e investments53 Reviews - 1yKerlous TadresBusiness MemberRealtor · Columbus, OH · Member since 2023 · 1k+ posts · 1k+ votesThis sounds like a solid value-add through income strategy. Some lenders may still consider it a BRRRR if the value increase comes from stabilized NOI rather than rehab. Your best bet is working with a DSCR-based lender or a commercial lender that understands rent-based upside. They’ll want to see proof of rent potential (like Section 8 payment standards), and a clear plan to hit those numbers. You might not get max ARV on the refi without physical improvements, but strong, documented GAI growth can still support solid terms. Worth exploring!
Quote from @Elwin Green:
This post is primarily for lenders and loan brokers.
I'm thinking of buying a townhouse complex with seven 2/1 units, listed at $465K.
I see it as a potential BRRRR project. I haven't viewed it yet, so I don't know what rehab it needs. In fact, since it's already occupied, it may not *need* any rehab at all. But let's assume that it needs cosmetic work, but not enough to move the needle much on value. For easy numbers, call it $500k all-in.
My question is, what type of financing might a lender offer on a BRRRR project in which the primary means of increasing the property's value is not making physical improvements, but improving its cashflow by increasing rents?
In this case, the units are all priced differently, with rents ranging from $756 to $850, for a monthly total of $5,551. According to the county housing authority website, if they were re-rented through Section 8, they could bring in $1,623 each, for a monthly total of $11,361 - more than twice the current income.
The GAI would rise from $66,612 to $136,332.
Would you, or the lenders you work with, finance a $500K purchase+rehab with an eye toward refinancing based on a $136K GAI?
Kerlous Tadres | Reafco Real Estate539 Reviews - Investor · Pittsburgh, PA · Member since 2024 · 17 posts · 7 votes1y
Thanks, all, for your responses.
@Richard Mark, I'm in Pittsburgh, PA. I closed on my first BRRRR yesterday, and have already established a relationship with the landlord liasion (actual job title) at our county housing authority to help me prep it for Sec 8. I *think* being able to bring 7 units online together would thrill him. Can't say anything yet about municipal officials (the property's in one of Pittsburgh's 140+ suburban municipalities).
@Chris Seveney, I'm not sure I follow. Are you saying that doubling rents might have no effect on the DSCR refi I might be able to obtain?
@Kerlous Tadres, thanks for the mention of commerical lenders. I'm sure that in their world, creating value by increasing rents is normal. Think I'll shop the concept around to some CLs.
I'm guessing, and this is just a guess, that the rents were mostly set years ago and that the owner hasn't had the heart to raise them. My idea - not a fully formed plan yet - is that I could do whatever the housing authority requires for Sec 8, and at the same time invite the current tenants to see if they can qualify for Sec 8. If they can, then they could wind up staying in place, with their place newly fixed up, and actually paying less rent. I could create wins all around.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Elwin Green:
Thanks, all, for your responses.
@Richard Mark, I'm in Pittsburgh, PA. I closed on my first BRRRR yesterday, and have already established a relationship with the landlord liasion (actual job title) at our county housing authority to help me prep it for Sec 8. I *think* being able to bring 7 units online together would thrill him. Can't say anything yet about municipal officials (the property's in one of Pittsburgh's 140+ suburban municipalities).
@Chris Seveney, I'm not sure I follow. Are you saying that doubling rents might have no effect on the DSCR refi I might be able to obtain?
@Kerlous Tadres, thanks for the mention of commerical lenders. I'm sure that in their world, creating value by increasing rents is normal. Think I'll shop the concept around to some CLs.
I'm guessing, and this is just a guess, that the rents were mostly set years ago and that the owner hasn't had the heart to raise them. My idea - not a fully formed plan yet - is that I could do whatever the housing authority requires for Sec 8, and at the same time invite the current tenants to see if they can qualify for Sec 8. If they can, then they could wind up staying in place, with their place newly fixed up, and actually paying less rent. I could create wins all around.
Correct. If you threw 10 people in a home worth $200k, and they each were paying $500/mo and the rents were huge, the property is still worth $200k. You will have a high DSCR ratio - possibly over 2.0x but that is just one factor - the appraisal is another and because its worth $200k that will limit you.
A lender wont let you borrow up to a DSCR of 1 or 1.25 if the property does not appraise.
Do the GAI is only a component and not the only source of truth.
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- Investor · Pittsburgh, PA · Member since 2024 · 17 posts · 7 votes1y
@Chris Seveney OK, thanks.
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