BRRRR stands for buy, rehab, rent, refinance, repeat. You buy a house that needs work, fix it up, rent it out, then refinance it based on what it’s worth after the work. If the new loan pays back most of what you spent, you can do it again.
How does a BRRRR work, step by step?
Here’s an example house from start to finish. Say you pay cash for the purchase and the work.
- Buy it for $120,000, plus $2,400 in closing costs.
- Rehab it for $35,000.
- Carry it for four months while the work gets done, at $800 a month for taxes, insurance and utilities: $3,200.
- Rent it for $2,400 a month.
- Refinance with a lender who lends 75% of the appraised value, paying 2% of the new loan in closing costs.
Before the refinance, you’ve spent $160,600. That’s what the new loan has to pay back.
How much cash is left in the deal after the refinance?
Cash left in the deal is everything you spent, minus what the new loan hands back, plus what the new loan costs to close.
| $200,000 | $180,000 | |
|---|---|---|
| Everything you spent | $160,600 | $160,600 |
| Paid back by the new loan (75% of the appraisal) | −$150,000 | −$135,000 |
| Closing costs on the new loan (2%) | $3,000 | $2,700 |
| Cash left in the deal | $13,600 | $28,300 |
At a $200,000 appraisal, $13,600 of your cash stays in the house. An appraisal $20,000 lower more than doubles that, to $28,300. At $170,000 it’s $35,650.
That money isn’t gone. It’s equity, the share of the house’s value that you own. But it’s cash you can’t put into the next house, and the next house is the point of the method.
Why does a low appraisal make the monthly numbers look better?
A lower appraisal means a smaller loan, and a smaller loan means a smaller payment.
| $200,000 | $180,000 | |
|---|---|---|
| Rent | $2,400 | $2,400 |
| Empty months (8% of rent) | −$192 | −$192 |
| Taxes, insurance, repairs, big repairs and management | −$876 | −$876 |
| New mortgage, 30 years at 7.5% | −$1,049 | −$944 |
| Cash flow each month | +$283 | +$388 |
The lower appraisal shows $105 more a month. That’s the trap: judge a BRRRR on monthly cash flow alone and the worse outcome looks like the better deal. Look at the cash left in first.
What else changes how much cash you get back?
How much the lender will lend. Not every lender lends 75% of the appraised value. At 65% of the same $200,000 appraisal, the new loan is $130,000 and $33,200 of your cash stays in the house.
The rehab and the months it takes. Every dollar over the rehab budget and every extra month of carrying costs adds to what the refinance has to pay back. The appraisal doesn’t rise to match.
How long the lender makes you wait. Some lenders won’t lend against the new value, and hand you cash back, until you’ve owned the house for a while. Ask before you buy, because each month of waiting is another month of carrying costs.
How do you test a BRRRR before you buy?
Run it at the appraisal you expect, then again 10% lower. If the lower appraisal leaves more cash in the house than you can go without, the deal depends on an appraiser agreeing with you.
A flip has the same weak spot in a different place. See what three surprises do to a flip that passed the 70% rule.