The BRRRR Method Explained: How the Refinance Math Works
The BRRRR method is a way to buy rental property while recycling the same money. BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. The idea is to buy a property that needs work, renovate it so it is worth more, rent it, then refinance into a long-term loan sized on the new, higher value. If the refinance pays back most or all of what you put in, you can use that money on the next deal.
Everything depends on one number: how much cash is left in the deal after the refinance. This guide shows how to calculate it and what can go wrong.
The five steps
- Buy: acquire a property below what it will be worth once it is fixed, often with cash or a short-term loan.
- Rehab: renovate it. The scope and cost drive the whole deal, so build a careful budget first (see how to budget a fix-and-flip rehab; the same approach applies).
- Rent: place a tenant. A rented property with documented rent is what most refinance lenders want to see.
- Refinance: replace the short-term money with a long-term loan based on the property’s new appraised value.
- Repeat: use the cash that came out to start again.
The refinance math, step by step
Work through four numbers:
- Total cash invested = purchase price + purchase closing costs + rehab + holding costs during the rehab.
- Refinance loan = after-repair value (ARV) × the loan-to-value (LTV) the lender allows.
- Cash out at refinance = refinance loan − refinance closing costs (and any loan being paid off, if you used a loan to buy or rehab; the example below assumes you paid cash).
- Cash left in the deal = total cash invested − cash out at refinance.
Example (illustrative arithmetic, not market data)
| Item | Amount |
|---|---|
| Purchase price | $120,000 |
| Purchase closing costs | $3,000 |
| Rehab | $35,000 |
| Holding costs during rehab | $6,000 |
| Total cash invested | $164,000 |
| ARV | $220,000 |
| Refinance LTV | 75% |
| Refinance loan | $165,000 |
| Refinance closing costs | $4,000 |
| Cash out at refinance | $161,000 |
| Cash left in the deal | $3,000 |
In this example you put in $164,000 and get $161,000 back, leaving $3,000 in the deal. If ARV had come in at $200,000 instead, the refinance loan at the same LTV would be $150,000, cash out would be $146,000, and cash left in the deal would jump to $18,000. The appraisal is the lever that matters most.
You can change every number in the BRRRR calculator and email yourself the report.
Does the property still make money after the refinance?
Getting cash back is only half of it. The new loan has a payment, so check the rental numbers:
- Monthly cash flow = rent − vacancy − repairs − capital expenditures − management − taxes − insurance − HOA − the new loan’s principal and interest.
- Cash-on-cash return = annual cash flow ÷ cash left in the deal. When cash left in the deal is zero or less, this ratio is not meaningful, so look at cash flow and coverage instead.
- DSCR (debt service coverage ratio) = monthly rent ÷ (principal and interest + taxes + insurance + HOA). Many investor-loan lenders look at this, and each sets its own minimum.
A deal that returns all your cash but loses money every month is not a good BRRRR.
What can go wrong
- A low appraisal. The loan is based on the appraised value, not the value you hoped for.
- Seasoning periods. Some lenders require you to own the property for a period before they refinance on the new value. Ask early.
- Rehab overruns and delays. Both reduce cash out and increase holding costs. Track budget against actual weekly.
- Different loan terms than you assumed. Rate, points, LTV cap and closing costs change the answer. Run the numbers with the quote in hand, not a guess.
- Vacancy and repairs. Use realistic allowances for both when you project cash flow.
A pre-purchase checklist
- Is the ARV supported by recent comparable sales, not a hope?
- Is the rehab budget built line by line, with a contingency?
- What does the refinance lender require (LTV cap, seasoning, rent documentation)?
- After the refinance, does the property cash flow with realistic vacancy and repairs?
- If the appraisal is lower than expected, how much cash stays in the deal, and can you live with that?
BRRRR rewards careful math done before you buy, not optimism afterward.