Could the first "R" in BRRRR stand for "Rationalize rents"?

[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?

[Richard Mark]

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.