Return on Equity (ROE)

Return on equity compares a year of profit with the equity the owner holds. On a BRRRR rental it shows what the equity sitting in the property earns, not the cash the investor put in, and it tends to fall over time as values rise and loans are paid down.

On the default deal, annual cash flow of about $1,933 against $27,600 of cash left in the property is a 7% cash on cash return. Against the full $125,000 of equity it is about 1.5%. The difference is equity the investor created but has not taken out.

A low return on equity is the signal to act again: another cash-out refinance, a home equity loan, or a sale and exchange into a larger property. That decision is the repeat step of BRRRR.

Further reading: Return on Equity (ROE) on Wikipedia.