What the BRRRR strategy optimises for
BRRRR — buy, rehab, rent, refinance, repeat — is not a strategy for maximising returns. It is a strategy for recycling capital. The goal is to end each deal with as little of your own money trapped inside the property as possible, while keeping a cash-flowing asset and the equity you created through the renovation.
That reframes every number in the model. A deal with outstanding returns and 40% of your capital still inside is a mediocre BRRRR, because that capital cannot fund deal two. A deal with modest returns and 98% of capital recovered is an excellent BRRRR, provided the post-refinance cash flow is positive.
The capital recycling math, step by step
The refinance is a single transaction that pays off the bridge loan and hands you back cash. The amount you get back depends on four numbers: the appraised ARV, the refinance LTV, the payoff balance of the bridge loan and the closing costs of the new loan.
Refinance loan = ARV × Refinance LTV
Cash out = Refinance loan − Bridge payoff − Refinance closing costs
Capital left in = Total cash invested − Cash out
Recovered % = Cash out ÷ Total cash invested| Stage | Amount | Notes |
|---|---|---|
| Purchase price | $168,000 | |
| Rehab budget (incl. 10% contingency) | $52,000 | Line-item budget in the workbook |
| Purchase closing costs | $4,200 | |
| Bridge loan (85% of purchase + rehab) | $187,000 | Payoff at refinance |
| Bridge points + interest + carry | $11,400 | Points, 5 months of interest, holding costs |
| Total cash invested | $48,600 | Cash the deal consumes upfront |
| Refinance loan (75% of $315,000 ARV) | $236,250 | New 30-year note |
| Less refinance closing costs | −$5,906 | 2.5% of the new loan |
| Less bridge payoff | −$187,000 | |
| Cash returned | $43,344 | 89% of capital recovered |
| Capital left in the deal | $5,256 | Your true basis |
ARV discipline: the input that makes or breaks the deal
The entire BRRRR strategy rests on one estimated number: the after-repair value. Overestimate ARV by 10% and your refinance proceeds fall by roughly 7.5% of ARV, which on a $315,000 property is $23,600 — often more than the total capital you were trying to recover.
Discipline means using the lowest of three closed comparable sales within the last six months within a one-mile radius, adjusted for differences in square footage, bed/bath count and condition. It means resisting the highest comp because your renovation "will be nicer." And it means getting a broker’s opinion of value in writing before you close on the purchase — a five-minute conversation that can save the deal.
- Closed sales only. Active listings are asking prices, and pending sales can fall through.
- Six months maximum age. In a moving market, twelve-month-old comps are fiction.
- Adjust for the same configuration — a 3/2 does not comp to a 4/2 even on the same street.
- Get the refinance lender’s own appraisal criteria before you buy. Their appraisal, not yours, sets the loan amount.
Bridge and hard money costs you must model
Hard money is expensive and it should be, because it is fast and it underwrites the deal rather than your tax return. The costs come in four parts, and only two of them are obvious.
- Interest: typically 10–13% annualised, charged monthly on the full drawn balance. Model every month you hold, including the refinance month.
- Points: 1.5–3% of the loan amount, paid at closing. On a $187,000 loan at 2 points, that is $3,740.
- Third-party costs: appraisal, title, doc prep — usually $1,500–3,000 per loan, and you pay them twice because the refinance has its own set.
- Carrying costs: taxes, insurance, utilities, lawn care, security and dumpster rental during the rehab. These are frequently omitted and frequently exceed the points.
Bridge cost = (Loan × Points%) + (Loan × Rate ÷ 12 × Hold months) + Closing costs + Monthly carry × Hold monthsPost-refinance cash flow is the actual test
Recycling capital feels like winning, but a BRRRR that returns 100% of capital and then loses $80 a month is not a deal — it is a liability with excellent marketing. After the refinance, the property must carry its new, larger mortgage.
The refinance loan is based on ARV, not purchase price, which means the debt service can be 40–70% higher than it would have been on the original purchase loan. If your rent is $2,450 and your new payment is $1,610, the property may still cash flow — but the margin compresses fast when taxes are reassessed or the market softens.
- Run the DSCR test at the new loan: most DSCR lenders require 1.20x, and a marginal BRRRR often lands at 1.05–1.15x.
- Stress-test the rent 10% lower — BRRRR deals with thin margins fail on the first vacancy.
- Check the debt service coverage after reassessment: a 25% tax increase can wipe out the entire monthly margin.
How to use this tool
- Enter the purchase, rehab and closing costs. Use the contract price, your contractor’s bid plus contingency, and the actual closing cost estimate from your title company. Bridge loans are sized off purchase plus rehab, so precision here matters.
- Verify ARV with three closed comps. Enter the lowest defensible ARV. The refinance loan amount — and therefore your capital recovery — is calculated directly from this number.
- Model the full bridge cost. Add the LTV, rate, points and hold period. Then check the cash invested figure: it should include carrying costs and loan points, not just the down payment.
- Download the model and stress the hold period. Extend the hold from 5 months to 9 months in the downloaded workbook and see how much additional capital gets trapped. That is your timeline risk, quantified.
What is inside the download
A line-item rehab budget with contingency, bridge loan cost breakdown, capital recycling maths (ARV, LTV, cash out, capital trapped) and a 10-year hold projection with sale analysis.
Renovation Budget— a separate worksheet inbrrrr-investment-model.xlsx.ARV & Refinance— a separate worksheet inbrrrr-investment-model.xlsx.Long-term Hold Returns— a separate worksheet inbrrrr-investment-model.xlsx.