What Is the BRRRR Method? Buy, Rehab, Rent, Refinance, Repeat, Explained

BRRRR stands for buy, rehab, rent, refinance, repeat. You buy a property that needs work, usually below market and with short-term financing. You renovate it, lease it, then refinance into a long-term mortgage based on the new appraised value. If the appraisal is high enough, the refinance pays off the short-term loan and returns your cash. You now own a rental with little or none of your own money in it, and the cash goes into the next deal.

That is the method. Whether it works on a specific property comes down to arithmetic, and the arithmetic has five parts.

Buy

The purchase has to be well below the after-repair value, because everything downstream depends on the gap between what you pay and what the property will be worth finished. Most BRRRR investors screen with the 70% rule: pay no more than 70% of ARV minus the cost of repairs. The 70% rule guide covers where that number comes from.

Financing at this stage is usually a hard money or bridge loan covering 85 to 90% of the purchase at 10 to 12% interest with one to three points, or cash. Conventional lenders will not finance a property that is not habitable, and they are too slow for the sellers who take BRRRR offers.

Rehab

The renovation has to do two things: bring the property to the condition that justifies the ARV, and make it rentable. Cosmetic work on a structurally sound property is the sweet spot. Foundations, roofs and systems cost the same whether the tenant sees them or not.

Budget a contingency. Ten to fifteen percent over the contractor’s bid is normal, and every dollar of overrun is a dollar of cash that has to come back out at the refinance. The risks guide covers what usually goes wrong.

Rent

A lease before the refinance does two things. It proves the property is a stabilized rental, which most refinance lenders require, and it sets the income figure the lender uses to qualify the loan. Rent at market with a tenant in place is the strongest position. A vacant property refinances at a lower LTV or not at all with many lenders.

Refinance

The cash-out refinance is the step that makes BRRRR different from ordinary rental investing. A lender orders an appraisal on the finished, leased property and lends a percentage of the appraised value, usually 70 to 75%. That loan pays off the short-term financing and its closing costs, and the remainder is your cash back.

If purchase plus rehab plus all costs came to 75% of ARV or less, the refinance returns everything. If it came to 85%, you leave 10% of ARV in the deal. The refinance guide covers LTVs, seasoning and what lenders look for.

Repeat

With the cash back, you do it again. The appeal of BRRRR is that a fixed pile of cash can acquire a series of rentals instead of one, because each deal returns the capital. The catch is that each deal also leaves you with a rental on a 75% loan at today’s rates, and that rental has to carry itself.

A worked example

A $150,000 house that will be worth $260,000 after $40,000 of work.

Buy with a 90% hard money loan ($135,000) at 11% with 2 points. Closing costs of $3,000, points of $2,700. Rehab and lease over six months, paying $7,425 of interest and $2,700 of taxes, insurance and utilities. Total project cost: $205,825. Cash out of pocket: $70,825.

Refinance at 75% of $260,000, a $195,000 loan, with $5,850 in costs. Pay off the $135,000 hard money loan. Cash back: $54,150. Cash left in the deal: $16,675. You have recovered 76% of your money and hold a property with $65,000 of equity.

Rent it for $2,300. After vacancy and expenses, net operating income is about $17,200. The new payment at 7.25% is $1,330 a month, $15,963 a year. Cash flow: about $1,240 a year, a 7.4% return on the $16,675 still in the deal, with a DSCR of 1.08.

To get every dollar back, the ARV would have needed to be about $283,000, or the price about $135,000. The calculator runs this example by default and lets you change any line. The formula guide explains each step.

Who BRRRR fits

Investors with enough cash for one project at a time and the intention to build a portfolio of rentals rather than flip for income. People who can manage or oversee a renovation. Markets where properties needing work trade at a real discount to finished ones, and where finished rents cover a 75% loan.

Where it breaks

Higher interest rates. A 75% refinance at 7% or more produces a payment that many properties cannot cover from rent, especially in the metros where ARVs are high relative to rent. Investors end up recovering the cash and owning a property that loses money monthly. The BRRRR vs buy and hold guide works through when that trade is worth it.

Appraisal risk. The refinance is on the appraiser’s number, not yours. A 10% miss on a $260,000 ARV leaves an extra $19,500 in the deal.

Time. Six months is optimistic. Permits, contractors and lender seasoning stretch it, and hard money interest accrues the whole time.

None of those kill the method. They set the price of admission, and the calculator’s job is to show that price before you make an offer.