Market Value

Market value is what an informed buyer would probably pay an informed seller if the home were exposed to the open market and neither side had to rush. The BRRRR method buys below market value, adds value through the rehab, and then borrows against the new market value at the refinance.

Distressed properties sell below market value because the seller needs speed, the house cannot be financed conventionally, or few buyers want the work. On the default deal the investor pays $300,000 and puts in $60,000 of work, for $360,000 against a $500,000 after-repair value, 72% of the finished value.

The appraisal at the refinance estimates market value in the house's new condition. The gap between that figure and the total project cost is the equity the deal created. On the default numbers it is $108,650 after purchase costs, financing and holding costs.

Further reading: Market Value on Wikipedia.