Rental Value

Rental value is the rent a property commands on the open market, also called fair market rent. In BRRRR it is the input to the rent step: the finished property's market rent sets its net operating income, whether it covers the new mortgage, and, with a DSCR lender, the loan it qualifies for.

Estimate it from comparable renovated rentals nearby before you buy, not from the listing or the seller. A $400 miss on $4,400 of rent cuts NOI by about $3,740 a year, which on the default deal takes cash flow from positive to negative.

The refinance lender checks it as well, using the appraiser's rent schedule, and underwrites whichever is lower, the lease or the market figure. A lease signed at market before the refinance is the strongest position: it proves the rent and the property's status as a stabilized rental, which many lenders require before a cash-out.

To estimate fair market rent, find three or more renovated rentals nearby with the same beds, baths and size, and take the middle of their rents. Then enter that figure as rent in the BRRRR calculator. It will show whether the property cash flows on its new loan.

Worked example from the default deal: a $400 miss on $4,400 of rent cuts NOI by about $3,740 a year. That is enough to turn cash flow from positive to negative. The refinance lender checks rent with the appraiser's rent schedule, Fannie Mae Form 1007 for single-family homes. It underwrites whichever is lower, the lease or the market figure. HUD publishes Fair Market Rents for each metro area every year, set at the 40th percentile of gross rents. Treat them as a floor for a renovated unit, not as its rent.