Bank not allowing BRRR?

Question

Hello,

I've been investing in rental properties for 3+ years now, but I did my first BRRR recently. I bought a distressed SFH back in December for $98,000, and then put about $22,000 in rebab. I estimated that it would appraise for around $140k-$150k now based on the values of nearby houses. I went to a bank to refinance the property (I have done previous deals with this bank and have a good relationship with them). My bank contact called me the other day and said that the underwriter told him that they likely wouldn't finance more than $100k because I had only put $120k into it, even if it appraised much higher. In other words, it didn't really matter what it appraised at, what mattered is what I put into it.

I was a bit surprised and disappointed, as this model defeats the BRRR program of adding more value through rehab than you spend. Has anyone else encountered this, or do you think this is just a solitary bank doing this? Any insight would be appreciated.

Alex Bekeza · Answer

@Eric Sammons Hopefully you found a solution by calling around but yes as long as you've been on title for long enough there should be no reason to settle for any type of cost basis restriction on this.

Eric Sammons · Answer

@Jaron Walling Well, I guess it's good to hear that my bank is likely unique on this. I've already put in a call to another lender. Thanks!

Jaron Walling · Answer

@Eric Sammons That's crazy and I'd more than "a bit surprised and disappointed". I'd tell the current lender I'm taking my business else where. Start calling other lenders and get an appraisal done with people who understand real estate investing. The concept of buying a distressed property, fixing it up, and refinancing is not new. The only new thing is the BRRRR label.