The BRRRR exit: timing your cash-out refi so the appraisal works for you

The rehab went fine. The rent came in over pro forma. Then the month-four appraisal lands at your cost basis, and the "R" that matters — the refinance — returns half the capital you planned on. The fix is usually not a better appraiser. It's a calendar.

The trap: refinancing at month four

An appraiser's job is to defend a number with closed comps. Four months after your purchase, the best comp for your property is usually your own purchase — at the pre-rehab price. Fresh paint and new counters don't override a recorded sale; time and comparable sales do. So early appraisals gravitate toward basis, and your 75% cash-out gets computed off the smaller number.

Seasoning rules exist for the same reason. Under six months on title, underwriting typically uses the lesser of your documented cost basis (purchase plus receipts) or the appraisal. After six months, the appraisal stands alone — renovated comps have had time to close, and the value defends itself.

Run the numbers backwards

Take a real shape of deal: $180K purchase, $55K rehab, $310K ARV, market rent $2,450.

All-in capital was $235K. The month-seven refi returns nearly all of it — which is the entire point of BRRRR. The month-four refi leaves $59K in the walls and still costs you the +0.25% cash-out adjustment.

When the early refi is still right

If basis-level proceeds are enough to close your next purchase, speed can beat proceeds — trapped equity has an opportunity cost too. That's a portfolio decision, not an underwriting one. What we'd push back on is refinancing early by accident, because nobody told you how the seasoning math works.

Two structural notes while you're planning the exit: the DSCR is computed on the 1007 market rent even if your lease is higher, and a 5-4-3-2-1 prepay is standard on the new loan — if you might sell inside two years, price the shorter prepay option on the term sheet instead of eating the penalty later.