How the BRRRR method works
BRRRR stands for buy, rehab, rent, refinance, repeat. You buy a property that needs work, fix it, rent it out, and then take a cash-out refinance based on the new, higher value. The refinance pays back some or all of the cash you spent, so you can use it again on the next property. This calculator follows the deal through each step.
1. Buy: the cash you need up front
Add the purchase price, closing costs and rehab budget. Then add the cost of holding the property until the refinance: property tax, insurance and utilities for each month it sits empty. If you use a purchase or hard-money loan, the calculator treats it as interest-only while you hold, which is common for short-term rehab loans. The loan covers part of the price, so the cash you need is the total cost minus the loan.
2. Rehab and rent: the after-repair value
The after-repair value (ARV) is what the property should appraise for once the work is done. Lenders base the new loan on the appraisal, not on what you paid. That gap between your cost and the ARV is what makes BRRRR work.
3. Refinance: cash out
The refinance loan is the ARV times the loan-to-value (LTV) ratio the lender allows. That loan first pays off any purchase loan and the refinance closing costs. Whatever is left is your cash out. If the appraisal comes in low, the cash out can even be negative, which means you would bring money to the closing table.
4. Cash left in, cash flow and return
Cash left in the deal is the cash you put in minus the cash out. Cash flow is the rent after vacancy, minus operating expenses (tax, insurance, repairs, capital expenses and management), minus the new loan payment. Cash-on-cash return is a year of that cash flow divided by the cash left in. When cash left in is zero or negative, you have all of your money back, and any positive cash flow is aninfinite return. Equity is the ARV minus the new loan.
Worked example
A $120,000 house with $3,000 in closing costs and a $35,000 rehab, bought with a hard-money loan for 80% of the price at 10% interest-only. It takes 6 months to rehab and rent, with $500 a month in holding costs. It appraises at $210,000, and the lender refinances at 75% LTV on a 30-year loan at 7.5%, with $4,500 in closing costs. Rent is $2,000 a month.
| All-in cost | $165,800 |
|---|---|
| Less hard-money loan | −$96,000 |
| Cash needed up front | $69,800 |
| Refinance loan (75% of $210,000) | $157,500 |
| Pay off hard-money loan | −$96,000 |
| Refinance closing costs | −$4,500 |
| Cash out | $57,000 |
| Cash left in the deal | $12,800 |
| NOI per month | $1,248.00 |
| New loan payment (P&I) | −$1,101.26 |
| Cash flow per month | $146.74 |
The refinance returns $57,000 of the $69,800 you spent, so $12,800 stays in the deal. Cash flow of $1,761 a year on that $12,800 is a 13.8% cash-on-cash return, and you hold $52,500 of equity. If the house appraised at $240,000 instead, the refinance would pay back more than you put in and the return would be infinite.
Things to check before you count on the refinance
Seasoning. Fannie Mae requires at least six months on title before a cash-out refinance, with exceptions such as delayed financing on an all-cash purchase. Under delayed financing the new loan is limited to your documented purchase cost plus closing costs, not the ARV. Other lenders set their own waiting periods and may lend on your cost until then.
LTV limits. Fannie Mae's eligibility matrix caps a cash-out refinance on a one-unit investment property at 75% LTV. BiggerPockets suggests keeping purchase plus rehab at or below 75% of ARV so that kind of loan can return your cash. The two numbers line up, but your lender's limit is the one that counts.
The appraisal. The whole plan rests on the ARV. Use recent sales of similar fixed-up homes, and try a lower ARV in the calculator to see how much cash would stay in the deal.