How the BRRRR Method Works
The BRRRR method works by purchasing a distressed property below market value, renovating it to increase its value, renting it out to generate cash flow, then refinancing to pull out most or all of your initial investment. The recovered capital is then used to purchase the next property, allowing you to scale without needing fresh capital for each deal.
The key to a successful BRRRR deal is buying at a significant discount to the after-repair value (ARV), so that after renovation, the property appraises high enough to refinance out your original investment.
Step 1: Buy Below Market Value
Find distressed properties through off-market marketing, wholesalers, auctions, or MLS listings that have been sitting. The goal is to purchase at 60-75% of the ARV minus repair costs. Most BRRRR investors use hard money loans or private lending for the initial acquisition since the property condition typically does not qualify for conventional financing.
Step 2: Rehab to Force Appreciation
Renovate the property to bring it up to the standard of comparable rentals or sales in the neighborhood. The renovation should increase the property's appraised value significantly above your total investment (purchase price + rehab costs). Focus on improvements that add the most value: kitchens, bathrooms, curb appeal, and systems (HVAC, electrical, plumbing).
According to the National Association of Realtors' Remodeling Impact Report, a complete kitchen renovation recoups approximately 75% of its cost at resale, while new flooring recoups about 100%. For BRRRR deals, the goal is not just to recoup renovation costs but to create enough equity to refinance out your capital.
Step 3: Rent to Qualified Tenants
Once renovation is complete, place a qualified tenant at market rent. A tenant in place strengthens your refinance application because it demonstrates income. Screen tenants thoroughly: verify income (2.5-3x monthly rent), check credit and background, and call previous landlords.
The property should generate positive cash flow after all expenses (mortgage, taxes, insurance, maintenance, vacancy reserve, and property management). Many investors target $200-400 per month in net cash flow per unit as a minimum threshold.
Step 4: Refinance and Pull Out Your Capital
After the property is stabilized (renovated and rented), refinance into a conventional or DSCR (Debt Service Coverage Ratio) loan. Most lenders will lend 70-80% of the appraised value. The goal is for the loan proceeds to cover or exceed your total cash invested (purchase + rehab + closing costs).
Most lenders require a 6-month seasoning period before they will refinance based on the new appraised value rather than the purchase price. Plan your timeline accordingly. DSCR loans are popular for BRRRR because they qualify based on the property's rental income rather than your personal income.
Step 5: Repeat with Recycled Capital
Take the capital recovered from your refinance and use it to purchase the next property. In an ideal BRRRR deal, you recover 100% of your initial investment and retain a cash-flowing rental property with forced equity. In practice, most investors recover 80-100% of their capital, with the remainder left as equity in the property.
BRRRR Deal Example
BRRRR Risks and How to Mitigate Them
The primary risks of the BRRRR strategy are: the property appraises lower than expected (leaving capital trapped), rehab costs exceed budget, the property takes longer to rent than planned, and interest rates increase between acquisition and refinance.
Mitigate these risks by being conservative with your ARV estimate, adding contingency to your rehab budget, understanding your local rental market thoroughly, and having reserves to cover holding costs during extended vacancy or renovation timelines.
Key Takeaways
- BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat
- The strategy allows you to recycle capital by refinancing after renovation
- Buy at 60-75% of ARV minus repairs to ensure a successful refinance
- Most lenders require a 6-month seasoning period before refinancing at appraised value
- Target recovering 80-100% of your initial investment on each BRRRR deal
Frequently Asked Questions
How much money do I need to start the BRRRR method?
Most BRRRR investors start with $30,000-80,000 in cash for a down payment on a hard money loan and initial rehab costs. Hard money lenders typically cover 80-90% of the purchase price and 100% of rehab costs, so your out-of-pocket is the down payment plus closing costs and holding costs during renovation. The exact amount depends on your market's price point.
What is the seasoning period for BRRRR refinancing?
Most conventional lenders require a 6-month seasoning period, meaning you must own the property for at least 6 months before they will appraise and refinance based on the new market value. Some portfolio lenders and DSCR lenders have shorter seasoning periods of 3 months or no seasoning requirement at all, though they may charge higher rates.
What happens if the appraisal comes in low on a BRRRR deal?
If the appraisal comes in below your expected ARV, you will recover less capital in the refinance. For example, if you expected a $220,000 appraisal but got $200,000, your 75% LTV loan would be $150,000 instead of $165,000, leaving $15,000 more capital in the deal. This is why conservative ARV estimation is critical in BRRRR investing.