How to Finance a BRRRR: The Loans Behind Each Step

BRRRR method financing is not one loan. It is two in a row, sometimes three. A short term loan buys the house and pays for the rehab. A long term loan refinances the finished, rented property, pays the first loan off and sends your cash back. That sequence is how BRRRR loans work, and it is why the question of the best loan for the BRRRR method has two answers rather than one.

Use the calculator’s standard deal to see the shape. You buy for $300,000, spend $60,000 on the rehab, finish at a $500,000 after repair value and rent it for $4,400 a month. Refinance at 75% of ARV and the new loan is $375,000. That repays the $360,000 you put in and leaves $15,000 on the simple tab, before any financing costs.

Steps 1 and 2: short term money for the buy and the rehab

A conventional lender wants a finished house. A half-gutted property with no working kitchen will not pass their inspection, and a 45 day close loses most distressed deals anyway. So the purchase and the rehab get paid for with short term money.

Hard money

A hard money loan is underwritten on the property and the plan more than on you. The usual structure: 85 to 90% of the purchase price funded at closing, the rehab budget held back and released in stages, interest only payments, and a nine to eighteen month term. On the standard deal at 90% of purchase, that is $270,000 wired at closing, a $60,000 holdback, and $30,000 down.

Speed and flexibility are what you are buying. Points, lender fees and interest are what you pay for it, and they all come out of your refinance proceeds at the end. The itemized version is in what hard money really costs. The short answer is that those costs usually swallow the $15,000 surplus and part of your down payment with it.

Bridge loans and private money

A bridge loan from a small bank or credit union can look like hard money with fewer fees and slower underwriting. Private money, meaning an individual lending you the funds, gets negotiated one deal at a time: often simple interest, no points, terms set by the relationship. Either works for a BRRRR as long as the term runs past your expected rehab and lease up with months to spare.

Cash, home equity, and partners

Paying cash for the purchase removes points and holding interest, worth roughly 4% of ARV on this deal. The trade is that your money is locked in the house until the refinance funds.

Borrowing against the equity in your own home is the common middle path. A line of credit floats with the market, so you pay today’s rate rather than a locked one, and the debt is secured by the house you live in. If you have no cash to put in at all, the realistic routes are a partner or a private lender, which is the subject of doing a BRRRR with no money.

How rehab draws actually get paid out

The $60,000 rehab line is not money you receive at closing. You pay for completed work, request a draw, wait for an inspection, and get reimbursed a few days later. Three draws of $20,000 means you float $20,000 at a time, plus material deposits that land before any work is finished.

Budget for that float as part of your starting cash. Ask how many draws the loan allows, what triggers one, how long funding takes after inspection, and whether each draw carries a fee.

The refinance: long term money that ends the project

The second loan is an ordinary rental mortgage on a finished property, sized as a percentage of the new appraised value. 75% is the common cash out limit, the $375,000 here. Three products show up most often.

A DSCR loan qualifies on the property’s rent instead of your tax returns. At $4,400 of rent against a payment near $3,330 including taxes and insurance, coverage is about 1.32, above the 1.20 most lenders ask for. The DSCR refinance guide covers the details.

A conventional investor mortgage often prices lower but underwrites you instead: income documents, credit score, debt to income ratio, and a cap on how many financed properties you hold. Whether a regular mortgage can carry a BRRRR is answered in can you BRRRR with a mortgage.

A local bank or portfolio lender keeps the loan in house. Expect a shorter fixed period, maybe five or seven years, and more willingness to judge the deal as a whole. Matching the product to your own file is the real decision, and what type of loan is best for the BRRRR method lines the options up next to each other.

What each option costs you per month

• Hard money at 11% on a $330,000 balance, interest only: $3,025 a month during the hold.
• The same loan at 13%: about $3,575 a month.
• A $375,000 refinance over 30 years at 7%: about $2,495 of principal and interest. At 7.5%, about $2,622. At 8.5%, about $2,883.
• Taxes at $6,000 a year and insurance at $2,500 add about $708 a month.

So at 7.5%, the finished property costs roughly $3,330 a month against $4,400 of rent, leaving about $1,070 before vacancy, repairs and management. A full point higher on the refinance rate takes about $260 of that away. Rates are quoted deal by deal and move with the market, so price your own quote and then price it a point or two worse.

Picking a lender and what to ask

For the short term loan, ask what percentage of purchase and rehab they fund, whether points are charged on the full commitment or only the money advanced at closing, what the full fee sheet says, whether interest accrues on the drawn balance or the whole loan, how long draws take, and what an extension costs.

For the refinance, ask about the seasoning period, the maximum cash out LTV, whether they use market rent or your signed lease, and whether there is a prepayment penalty. Line up that lender before you buy, because their appraisal and their LTV decide what the deal returns. Which lender is best for BRRRR financing covers how to compare them.

Price the whole stack first

The BRRRR calculator on brrrrcalculator.org takes your purchase price, rehab budget, ARV, rate, points, hold length and refinance LTV, then shows the cash you leave in and the monthly cash flow after both loans. Run your real quotes through it before you sign the first one.