The BRRRR method: how the math works
A BRRRR deal works when the refinance loan, based on the after-repair value, repays most of what you spent buying and fixing the property.
| Step | Amount |
|---|---|
| Purchase price | $140,000 |
| Closing costs | $4,200 |
| Rehab | $38,000 |
| Holding costs (5 months × $650) | $3,250 |
| All-in cost = cash in (bought for cash) | $185,450 |
| New loan: $245,000 ARV × 75% | $183,750 |
| Less refinance closing costs | ($5,500) |
| Cash out at refinance | $178,250 |
| Cash left in the deal | $7,200 |
| Equity after refinance (ARV − new loan) | $61,250 |
| Monthly cash flow after refinance | $84 |
If the cash out is larger than the cash in, the result shows cash pulled out and the cash-on-cash return becomes infinite, because no cash of yours remains in the property. That is the outcome BRRRR investors aim for, but it depends on the appraisal.
The appraisal decides the deal
The refinance lender applies its loan-to-value limit to the current appraised value, not to your estimate of it.[1] If the same house appraises at $215,000 instead of $245,000, the new loan drops to $161,250 and the cash left in rises to $29,700. Run the worksheet with a conservative ARV before buying.
Refinance rules that limit BRRRR
Conventional cash-out refinances follow agency guidelines that cap both timing and size:
- Loan-to-value cap. Fannie Mae's eligibility matrix caps a cash-out refinance of an investment property at 75% loan-to-value for one unit and 70% for two to four units (purchases allow 85% and 75%).[2] Your lender may set a lower limit.
- Six months on title. Fannie Mae requires at least one borrower to have been on title for six months before the new loan is disbursed; Freddie Mac's rule is also six months.[1][3]
- Delayed financing. A property bought for cash within the last six months can still be refinanced under Fannie Mae's delayed-financing exception, but the new loan can be no more than the documented purchase investment plus financed closing costs, prepaid fees and points, and must still fit the cash-out LTV on the appraised value.[1]
- A financed purchase. Both agencies' guides say an existing first mortgage paid off through a cash-out refinance must be at least 12 months old.[1][3] If you bought with a short-term loan, ask the refinance lender how it applies before counting on a six-month refinance.
- Closing costs. The refinance has its own; enter them in the worksheet.
To refinance a rental you already own and have held for a while, the cash-out refinance rental property calculator compares the old and new payments. Non-agency lenders such as DSCR loan lenders set their own rules. Whatever the loan, check that the rent covers the new payment: the results show the DSCR after the refinance.
The 70% rule
Some investors screen BRRRR and flip purchases with the "70% rule": pay no more than 70% of the after-repair value minus the rehab cost. In the example, $245,000 × 70% − $38,000 = $133,500. It is a rule of thumb from practice, not a standard from any agency or lender, so the worksheet reports it for reference only.
Where BRRRR goes wrongRehab overruns, a long vacancy, a low appraisal or higher rates at the refinance can each leave much more cash in the deal than planned. Property values can fall and rent may not cover the new loan.[4]
After the refinance, the property is an ordinary leveraged rental: track it with the rental property calculator and the cash-on-cash return calculator.
Frequently asked questions
What does BRRRR stand for?
Buy, rehab, rent, refinance, repeat: buy a property that needs work, renovate it, rent it out, refinance at the higher value to pull cash out, and use that cash for the next property.
How much can I borrow on a BRRRR refinance?
The appraised after-repair value times the lender's maximum loan-to-value for an investment cash-out refinance. Agency limits are lower for cash-out than for purchases and lower for 2–4 units.
How soon can I refinance after buying?
For a conventional cash-out refinance, Fannie Mae and Freddie Mac require six months on title, with a delayed-financing exception for cash purchases. Other lenders set their own waiting periods.
What if the cash-out refinance does not repay my purchase loan?
Then you must bring cash to the closing, and the deal ties up more of your money than planned. The worksheet flags this case.