Refinancing after a BRRR

[Victoria Spagnolo]

Hi all! I desparately need some advice here. I am a new investor so please be honest but kind!

I got a personal loan of $50k from a family member for a deal I simply could not pass up (student housing where I can rent by the room and where the cash flow is pretty substantial!). I used about $39k for the downpayment and the remainder for renovations. I was encouraged by another investor to go ahead with the deal with a DSCR loan (great idea!), make some renovations (definitely needed), and then simply refinance to pay the loan back (not so simple as he made it seem). Here is the issue. The renovations were done to the basement (or better describes as lower level? the house is on a hill so it is considered the lower level from one side of the house and the first floor on another). There we fitted out another "bedroom." We also semi-finished this lower level. Prior to the renovations, there was mold along the walls and on the stairs, unfinished walls, and hardly any eletronic (and definitely no heat). We cured all the mold, installed outlets and lighting, and added heat.

I am worried I over estimated the ARV. Since the renovations were done to the lower level, I don't know if the 5th room would qualify as an actual "bedroom." It is probably more appropriately categorized as a bonus room. Therefore, I don't know how much these renovations will help during the appraisal when I go to refinance.

The house was purchased for $195k. It's difficult to find comps in the area as the houses vary by block. Most of the surrounding houses are duplexes (and used for student housing) while this is single family home. At the appraisal conducted before closing, the house was appraised for $200,000. After the renovations, I think it could appraise for $215k, but this is almost entirely a guess. As I mentioned, it is hard to find comps in the area. 

What are your thoughts? How can I repay the loan back as quickly as possible? The loan is from a family member and so she is a bit flexible, but I want to promptly pay her back. 

Thank you in advance. 

[James Jones]

You’ve laid out the situation really clearly, here’s how I’d break it down for you:

1. On the “5th Bedroom”

• For an appraiser (and lenders), a bedroom usually needs:

  • Legal egress (window/door to outside in case of fire).

  • Heat source.

  • Proper electrical.

  • Adequate ceiling height.

If your “bonus room” meets those standards, you can argue it’s a true bedroom. If not, the appraiser may just call it finished square footage, not an additional bedroom. Either way, you still added livable space, which adds value.

2. Appraisal / ARV

• You’re right to temper expectations. If the pre-renovation appraisal was $200K and you put ~$11K into improvements, $215K–$220K isn’t unreasonable, but don’t bank on it being appraised as a full 5-bed if that lower level doesn’t qualify.

• Appraisers will focus on livable square footage and condition improvements more than the “label” of the room. You still improved the property by curing mold, adding heat, and making the lower level functional, that matters.

3. Refinance Strategy

• A DSCR loan is based primarily on rental income vs. debt service, not your W-2 income. That’s good news since you’re targeting student housing where rents are high.

• Make sure your leases are structured by the room and you have signed leases in place before the appraisal. Appraisers for DSCR products often give weight to actual rental income.

4. Repaying Your Family Loan

Here are a few paths you could consider:

• DSCR Refi: If the numbers work, this is your fastest route. Even if the appraisal isn’t sky-high, as long as your debt coverage ratio is strong, you can still pull enough cash out to pay most (or all) of that $50K back.

• Bridge Loan / Private Lender: If the DSCR doesn't quite give you enough, a short-term private or hard money loan could clear your family debt and buy you time to stabilize and refi again later.

• Cash Flow Method: If you can’t refi right away, start making interest-only or partial principal payments to your family member from the strong student housing cash flow until you can do a proper refinance.

• Partnership Buy-In: As a last resort, you could sell a small equity stake in the property to another investor to raise the capital to pay her back.

5. Action Steps

1. Verify with your appraiser or contractor if the “bonus room” meets bedroom code.

2. Lock in solid leases at strong rents (on paper, not verbal) before your refinance appraisal.

3. Gather student housing comps, even if they're duplexes, the rental income comparison can help justify higher value on DSCR loans.

4. Have a backup plan (cash flow paydown, bridge loan) if appraisal doesn’t hit as high as you need.

✅ Bottom line: You didn’t make a bad move. Even if the appraisal isn’t as high as hoped, the income from student rentals will be the biggest driver for your refinance and DSCR approval. Focus on proving strong rent rolls and keep the family member in the loop, with cash flow, you have options to pay her back.