BRRRR Strategy
Introduction / Objective
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. It is a strategy for building a rental portfolio while trying to recover most of the cash you put into each property, so you can use that cash again on the next one.
This article walks through all five steps, shows how the refinance is the engine that makes the strategy work, and explains where BRRRR most often goes wrong. It combines ideas from flipping and from rental investing, so it helps to understand both before you attempt it.
BRRRR can work well, and it can also leave you stuck with cash trapped in a property or a loan you struggle to carry. The outcome depends heavily on accurate estimates. Nothing here promises a result. The goal is to help you see how the pieces connect and where the risk lives.
Key Concepts / Definitions
Two ideas sit at the center of BRRRR.
Equity is the part of a property you actually own, found by taking the property's value and subtracting what you still owe on it. BRRRR is built on creating equity through renovation and then borrowing against some of it.
The ARV, or after-repair value, is what the property is worth once the renovation is done. The refinance is based on this value, so an accurate ARV is the foundation of the whole plan.
A cash-out refinance is a new loan on a property that is larger than the old one, where you take the difference in cash. In BRRRR, this is how you pull your invested money back out after the renovation has raised the property's value.
Seasoning is a waiting period some lenders require before they will refinance based on the new value rather than your purchase price. This varies by lender, so confirm it early.
Step-by-Step Guidance
Step 1: Buy. Purchase a property below market value, usually one that needs work. As with a flip, your profit margin is largely set the day you buy, so a good purchase price matters.
Step 2: Rehab. Renovate the property to raise its value and make it rentable. Build a careful budget with a cushion for surprises. A tool like MV Budget can help you lay out the rehab budget line by line so you do not underestimate the work.
Step 3: Rent. Place a reliable tenant at a market rent. The property needs steady rental income, both to cover the future loan and because many lenders want to see it occupied before they refinance.
Step 4: Refinance. Get a new loan based on the after-repair value. The cash-out refinance returns some or most of the money you invested in the purchase and rehab. How much you can pull out depends on the ARV and how much the lender will lend against it.
Step 5: Repeat. Use the cash you recovered as the starting funds for the next property, and run the cycle again. Each turn of the cycle should be judged on its own. A deal that recovered most of your cash last time tells you little about whether the next property will do the same, because values, rates, and rehab costs all change.
Throughout, run your numbers carefully. DLV Deal Intel can help you test how the ARV, rehab cost, and refinance amount work together before you commit. Treat the refinance step as the part most likely to surprise you. You control the purchase price and, with discipline, the rehab budget. You do not control the appraised value the lender uses or the interest rate available when you refinance. Because of that, the safest BRRRR deals are the ones that still make sense even if the refinance returns less cash than you hope.
Practical Example
Suppose you buy a run-down house for $120,000 and spend $40,000 on the rehab. Your total cash into the deal, setting aside loan details for simplicity, is $160,000.
After the work, similar renovated homes nearby sell for $220,000. That is your ARV. You have created equity, because the property is now worth more than what you put in.
You refinance. Suppose your lender will lend up to 75 percent of the ARV. Seventy-five percent of $220,000 is $165,000. The new loan pays off any existing financing and returns cash to you. In this example, the $165,000 loan could let you recover most or all of your $160,000 invested, depending on closing costs and the existing balance.
If that works, you have a rented property and most of your cash back to use on the next deal. But notice how fragile it is. If the ARV came in at $190,000 instead of $220,000, your refinance at 75 percent would be about $142,500, leaving roughly $17,500 of your money trapped in the property. A missed ARV changes everything.
The same fragility shows up if rates rise. Suppose the rent on this property is $1,800 per month. At one interest rate, the new loan payment plus taxes and insurance might leave room for positive cash flow. At a higher rate, that payment climbs, and the cash flow can shrink to nothing or turn negative. So two numbers outside your control, the ARV and the interest rate at refinance, can each undo an otherwise good plan. This is why experienced BRRRR investors leave themselves a margin rather than counting on the best case.
Common Mistakes
Overestimating the ARV. This is the most common BRRRR failure. If the finished value comes in low, the refinance returns less cash than you planned, and money stays stuck in the deal.
Underbudgeting the rehab. Cost overruns increase the cash you put in while the refinance amount stays the same, widening the gap you cannot recover.
Over-leveraging. Pulling out as much cash as the lender allows can leave the property with a loan payment so high that rent barely covers it, or does not.
Ignoring rate changes. You refinance at whatever rates exist at that time, not the rates from when you bought. A higher rate at refinance means a higher payment and weaker cash flow.
Skipping seasoning rules. Some lenders will not refinance at the new value until you have held the property a set time. Not knowing this can strand your cash longer than expected.
Next Steps
Test your numbers before you buy with DLV Deal Intel, and build your renovation budget in MV Budget so the rehab figure feeding your refinance is realistic.
When you are ready to apply these ideas to properties with more than one unit, read Small Multifamily Investing.
A BRRRR Worksheet (future) will be available in the Download Center to help you map all five steps for each deal.
Terms in This Article
- Equity — the part of a property you own, found by subtracting what you owe from the property's value.
- ARV — the after-repair value, or what the property is worth once the renovation is complete.
Disclaimer
This article is educational information only — not financial, legal, tax, or investment advice. Real estate investing involves risk, including the possible loss of money. Consult licensed professionals before making decisions.