Refinancing a co-living investment home?

Question

Hello all,

I am looking to buy a SFH and add some bedrooms to make it a 7 bedroom co-living home. I would like this to be a long term hold but am wondering how a cash out refinance would work in the future. Would there be any complications with the addition of more bedrooms or would the process run just as smoothly as a normal 3 bedroom home? My initial thought is that a lender would have trouble valuing the home since if resold it would most likely be for investment purposes.

Thanks!!

Brian Kiczula · Answer

Refinancing with a conventional loan will be tricky if you don't pull permits for the additional bedrooms.

Brian Kiczula | CostSegRxCost Segregation Specialist

Ty Coutts · Answer

Great question, Serge — and kudos for thinking long-term with your co-living strategy. You're absolutely right to consider how refinancing could play out after modifying a property for higher cash flow.

Here's the Refinancing Reality for Co-Living Homes:

You nailed it — a 7-bedroom SFH often doesn’t appraise the same way a typical 3-bed would.

• Appraisers use comps of similar homes in the area. If there are no nearby 7-bedroom SFHs (likely!), you’ll be limited to traditional comps, which may not reflect the value of your upgrades.
• Permitted additions help — unpermitted rooms might not be counted at all.
• The more the home looks/feels like an “investment property” or boarding house, the more pushback you might get from a conventional lender.

Appraisers use comps of similar homes in the area. If there are no nearby 7-bedroom SFHs (likely!), you’ll be limited to traditional comps, which may not reflect the value of your upgrades.

Permitted additions help — unpermitted rooms might not be counted at all.

The more the home looks/feels like an “investment property” or boarding house, the more pushback you might get from a conventional lender.

Even if the property cash flows like a beast, a standard cash-out refi will still lean heavily on what nearby homes have sold for — not on your income potential.

Loan Type Matters

Here’s how you can still pull equity smartly:

• Traditional Cash-Out Refinance:


Lower interest rates, best terms.


Requires the property to still “look and feel” like a typical single-family residence.


May not value additional bedrooms beyond 4–5, especially if they're not in line with the neighborhood.
• Lower interest rates, best terms.
• Requires the property to still “look and feel” like a typical single-family residence.
• May not value additional bedrooms beyond 4–5, especially if they're not in line with the neighborhood.
• DSCR (Debt-Service Coverage Ratio) Loan:


Bases qualification on rental income, not your W-2 or tax returns.


Works well for co-living setups where you're renting by the room.


Less reliant on traditional comps, though the LTV caps may be lower.
• Bases qualification on rental income, not your W-2 or tax returns.
• Works well for co-living setups where you're renting by the room.
• Less reliant on traditional comps, though the LTV caps may be lower.
• Portfolio or Bank Statement Loans:


More flexible with layout changes and unconventional income models.


Great if you’re building a co-living brand or operating as a business.
• More flexible with layout changes and unconventional income models.
• Great if you’re building a co-living brand or operating as a business.

Traditional Cash-Out Refinance:

• Lower interest rates, best terms.
• Requires the property to still “look and feel” like a typical single-family residence.
• May not value additional bedrooms beyond 4–5, especially if they're not in line with the neighborhood.

Lower interest rates, best terms.

Requires the property to still “look and feel” like a typical single-family residence.

May not value additional bedrooms beyond 4–5, especially if they're not in line with the neighborhood.

DSCR (Debt-Service Coverage Ratio) Loan:

• Bases qualification on rental income, not your W-2 or tax returns.
• Works well for co-living setups where you're renting by the room.
• Less reliant on traditional comps, though the LTV caps may be lower.

Bases qualification on rental income, not your W-2 or tax returns.

Works well for co-living setups where you're renting by the room.

Less reliant on traditional comps, though the LTV caps may be lower.

Portfolio or Bank Statement Loans:

• More flexible with layout changes and unconventional income models.
• Great if you’re building a co-living brand or operating as a business.

More flexible with layout changes and unconventional income models.

Great if you’re building a co-living brand or operating as a business.

Strategy Tip

Start thinking now about how you’ll document the income and whether your upgrades will be permitted and conforming to zoning. You want the property to stay “financeable” — otherwise your only refi route might be niche lenders.

Let me know if you’d like to model this out — I’ve worked with a few investors who’ve done similar co-living value-add plays. The key is aligning your renovation + income goals with your future exit or refi options. Happy to walk you through both sides.

Denise Supplee · Answer

Hi @Serge DuLaudAllemans nice to meet you!

Lenders often value based on comps, and if nearby homes are mostly 3-4 beds, your 7-bed setup might not fit neatly, especially if it’s clearly tailored for co-living. Some lenders might value it more as an investment property, which could mean stricter terms or lower LTV. To help with this down the line, document all improvements and keep permits in order. A local appraiser with rental income experience can also make a big difference.