Mortgage

A mortgage is borrowed money with real estate pledged as security, paid back with interest over a fixed number of years. In BRRRR it is the permanent financing the refinance puts in place: a 30-year conventional or DSCR loan that pays off the short-term lender and stays on the property for as long as you hold it.

The new mortgage decides whether the rental works. In the default scenario the $375,000 refinance at 7.25% runs $2,558 a month, or $30,698 a year, while the property produces $32,631 of net operating income. That leaves $1,933 of cash flow and a DSCR of 1.06 on the NOI basis.

Rate and term move that outcome more than anything else after the refinance. At 6.5% the same loan costs $2,370 a month and cash flow roughly doubles. At 8% cash flow turns into a loss of about $390 a year. The refinance rate is set on the day you close it, months after you bought, which is the interest rate risk the strategy carries.