How the BRRRR method works
BRRRR stands for buy, rehab, rent, refinance, repeat. You buy a property that needs work, fix it up, rent it out, then refinance based on its new, higher value. If the numbers work, the refinance hands back most or all of the cash you put in, and you use it on the next property.
The math comes down to three questions:
- What did it cost all-in? Purchase price, closing costs, rehab and the costs of holding it while the work gets done.
- How big is the refinance loan? The appraised after-repair value (ARV) times the lender’s loan-to-value limit.
- Does it still cash flow? The new loan is usually bigger than a normal mortgage, so the rent has to cover a bigger payment.
It doesn’t matter whether you bought with cash or a short-term loan: the refinance pays off the short-term loan either way, so the cash left in comes out the same. Just include that loan’s interest and points in holding costs.
Worked example
A single-family house that needs work:
- Buy for $150,000, plus $4,000 closing, $45,000 of rehab and $6,000 of holding costs: $205,000 all-in
- It appraises at $260,000 after the work. A 75% refinance gives a $195,000 loan, or $190,000 after $5,000 of closing costs
- Cash left in the deal: $205,000 − $190,000 = $15,000
At 7.5% for 30 years the new payment is about $1,363 a month. With $2,400 rent, 5% vacancy and $650 of monthly costs, the property clears about $267 a month. That’s about $3,200 a year on $15,000 left in, a 21% cash-on-cash return, with $65,000 of equity in the house.
The 70% rule
A common rule of thumb says your purchase price plus rehab should be no more than about 70% of the after-repair value. That leaves room for closing and holding costs while still refinancing most of your cash back out at 75% loan-to-value. In the example, price plus rehab is $195,000, exactly 75% of ARV, which is why $15,000 stays in.
What can go wrong
- The appraisal comes in low. A smaller value means a smaller loan. Try a lower ARV here to see how much room you have.
- The rehab runs over. Every extra dollar of rehab is a dollar that stays in the deal.
- Waiting periods. Some lenders require you to own the property for several months before a cash-out refinance, which adds holding costs.
- Rates change. A higher refinance rate can turn a cash-flowing property negative. Check the monthly cash flow, not just the cash back.
Frequently asked questions
How much can I pull out in a cash-out refinance?
Many investment-property lenders go up to about 70–75% of the appraised value, minus closing costs. Limits vary by lender, credit and property type.
What does it mean if cash left in is negative?
You pulled out more than you put in. That’s the best case for BRRRR, though the bigger loan means a bigger payment, so make sure the property still cash flows.
Can I use a DSCR loan for the refinance?
Often, yes. DSCR loans qualify you on the property’s rent instead of your income, which suits investors refinancing several properties. Check the ratio with the DSCR calculator.
What should holding costs include?
Interest and points on any short-term loan, property taxes, insurance and utilities for the months between buying and renting.
Check the rental after the refinance
Once it’s refinanced, the property is a long-term rental like any other. ElmCheck’s free deal analyzer shows ten-year projections, tax effects, IRR and a buy, maybe or pass verdict.