Why I Don't Model Out A Refinance Exit

I love the refinance. It's an amazing concept where you pull out money that isn't taxed. It also sets up a longer term hold which I like.

If I like it so much then why do I only model out sales in my underwriting and never refinances?

Simply put:

It adds another unpredictable element; the interest rate at the time of exit. It's already a lot to predict rental increases, expense increases and most uncertain the exit cap rate. Adding another assumption of what interest rates will be 2-5 years from now is merely a guess.

Do I factor in what would happen if interest rates do indeed rise in the stress test? Yes. But I prefer not having that assumption integrated into the returns promised to investors. If the opportunity presents itself within the hold period, I would do a refinance.