BRRRR Pro – R is for Refinance

Good morning,

Wow. By the time you have reached the 4th stage of the BRRRR, you have already successfully identified and bought your first property, rehabbed it, and found a qualified tenant. Reaching this stage feels really good!

Now it is time for all your hard work to reward you: get your money back out of the property. This stage is really fun, but can also be stressful. Here are four steps to help you successfully refinance your money out!

By Frugal Mogul

R is for Refinance

Step 1: Lender Loyalty is Overrated 

You will be tempted to call your current lender and say “hey, I am ready to refinance!” We always gravitate towards those we know and trust. Resist the urge to go with them unless they are the most beneficial lender for your refinance. How do you know if they are the most beneficial lender? Easy! Just answer these questions:

  • Do they allow for a cash out refinance of 80% loan to value (LTV)?
  • Do they have the most favorable interest rate?

In my opinion, the answer to question #1 above must be yes. I am willing to compromise on a slightly higher rate if it means I can cash out at 80% LTV. Remember, your goal is to take out as much money as possible so that you can purchase your next property.

Step 2: Help Your Appraisal Value (Part A)

Think of the appraisal as your property’s “Super Bowl.” You’ve spent all this time rehabbing it, and now it’s time for it to shine. Your property will never appraise as well as right after you’ve rehabbed it. If at all possible, try to time the appraisal so that it happens before the tenants move in, and make sure that the property is spiffy clean (buff the floors, dust the counters, etc.).. Don’t forget to touch up the curb appeal also (the day before the appraisal is the best day to mulch the flower beds and cut the grass). Trust me, this impacts the appraiser’s valuation of your home

If the tenants have already moved in, kindly inform them that the appraisal is for refinance purposes (they may stress thinking that you’re selling), and ask them if they could have the place looking nice for that day. Most tenants would be happy to help. A messy property will appraise lower, so do your very best on this.

Step 3: Help Your Appraisal Value (Part B)

When performing a cash out refinance, your lender will normally ask for a list of improvements that were made since you acquired the property. Always provide them with a comprehensive list of all the money you have spent on the property, but don’t stop there. The most useful thing I have done during my numerous cash out refinances was a typed out report that I create for the appraiser. The report includes the following:

  • A comprehensive list of improvements + the aggregate cost of those improvements 
  • A list of the five most favorable comparable properties recently sold

Once you create that report, make sure you e-mail it to the appraiser prior to them going to the property. If at all possible, also meet them there and speak to them personally about all of the improvements you have done. Be kind, professional, and appreciative of their time (trust me). I know for a fact that doing the items discussed in this step has directly impacted what appraised value was given to my properties.

Step 4: Don’t Settle

If you followed steps 1-3 and your property still did not appraise to your satisfaction, do not give in! Remember, you have done your research and you are confident of your after repair value (ARV). So, here are the next steps you can take after an unsuccessful appraisal:

  • Challenge the appraisal with your lender (citing the comps you used on your report to the appraiser)
  • If your lender rejects the above, decline the loan with that lender and start the process over with another lender

It is important that you remove as much funding as possible from this property so that you can purchase your next one. Don’t just accept a sub-par appraisal! Successful appraisal challenge stories are often shared within real estate investor groups.

Frugal Mogul 🏡 (@RealFrugalMogul) / Twitter
Frugal Mogul 🏡 (@RealFrugalMogul) /
On a journey towards financial independence through real estate 🏡. Live tweeting the trials, tribulations, and the wins of an amateur real estate investor.

Come back in a few weeks for the next and final BRRRR stage: Repeat

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