Buy, rehab, rent, refinance, repeat: the BRRRR method depends on the fourth step handing back most of the cash you spent, so that cash can buy the next house. That step is where a higher interest rate hits, and with some lenders it hits your cash rather than your monthly payment.
Is the BRRRR method dead?
The BRRRR method isn’t dead: its five steps work the way they always have. What a higher rate changes is the size of the loan a house’s rent can carry, and with some lenders, that decides how much cash comes back. Freddie Mac’s weekly survey put the average 30-year rate at 6.76% on September 10, 2026, up from 6.35% a year earlier.
A refinance is capped at a share of the appraised value. Some lenders also test the rent, and when it can’t carry a loan that size, they lend less. Whatever they don’t lend stays in the house as your cash.
What are the steps in the BRRRR method?
Here are the five steps, on the same house as this BRRRR walk-through, paid for in cash until the refinance.
- Buy a house that needs work: here, $120,000 plus $2,400 of closing costs.
- Rehab it: $35,000 of work, plus $800 a month for four months to carry it while the work gets done.
- Rent it to a tenant, at $2,400 a month.
- Refinance it at its new value, a $200,000 appraisal, with a loan of up to 75% of that.
- Repeat with the cash the new loan hands back.
Before the refinance, you’ve spent $160,600, and the appraisal caps the new loan at $150,000. That 75% is also the most Freddie Mac allows on a cash-out refinance of a one-unit rental, for the loans it buys.
What is DSCR, and how does it shrink the loan?
DSCR, short for debt service coverage ratio, is how many times a house’s income covers its loan payments. The income here is net operating income, or NOI: the rent, less empty months and running costs, before the mortgage. A DSCR of 1.25 means the house earns $1.25 for every $1 the loan takes.
On this house, 8% of the $2,400 rent goes to empty months. Taxes of $200, insurance of $100, and 8% of rent each for repairs, big repairs and a property manager take another $876 a month. That leaves $1,332 a month, or $15,984 a year.
Say the lender’s minimum DSCR is 1.25. Then the loan payments can’t top $15,984 divided by 1.25, which is $12,787 a year, or $1,066 a month. The lender turns that payment into a loan amount at its rate, and the higher the rate, the smaller the loan $1,066 a month can pay off.
Lenders don’t all measure DSCR the same way, so ask how a lender counts it before you plan around a loan amount. This example uses the measure DealLevel’s calculators show.
What does an 8% refinance do to the cash left in the deal?
Freddie Mac’s 6.76% average isn’t a rental rate. It comes from purchase loans on single-family homes their owners live in, made to borrowers with good or excellent credit. A cash-out refinance on a rental is priced differently: when Freddie Mac buys one for more than 70% and up to 75% of the home’s value, it bills the lender a one-time fee of 2.125% of the loan because the home is a rental, on top of a cash-out fee of at least 0.875% (Exhibit 19, as of September 2026). This example assumes 8% for the refinance. A lender’s quote would replace it.
At 8% over 30 years, $1,066 a month pays off a loan of $145,224. The appraisal would allow $150,000, so a lender with the 1.25 minimum lends the smaller amount.
| Appraisal test only | Appraisal and 1.25 DSCR | |
|---|---|---|
| Everything you spent | $160,600 | $160,600 |
| Paid back by the new loan | −$150,000 | −$145,224 |
| Closing costs on the new loan (2%) | $3,000 | $2,905 |
| Cash left in the deal | $13,600 | $18,281 |
These are example figures, not a forecast for any market.
The rent test takes $4,776 off the loan, so $4,681 more of your cash stays in the house. Month to month, the smaller loan looks better. Its payment is $1,066 instead of $1,101, so the house clears $266 a month instead of $231. Judge the deal on cash flow alone and the version with more of your money stuck in it looks like the winner, the same trap a low appraisal sets.
Even so, $266 a month on $18,281 is a 17.5% cash-on-cash return, the year’s cash flow divided by the cash still in the deal.
How much does each half point of rate cost a BRRRR?
The rent test doesn’t kick in at every rate, but once it does, each step up in the rate leaves more of your cash in the house.
| New loan | Cash left in | Cash flow each month | |
|---|---|---|---|
| 7% | $150,000 | $13,600 | +$334 |
| 7.5% | $150,000 | $13,600 | +$283 |
| 8% | $145,224 | $18,281 | +$266 |
| 8.5% | $138,585 | $24,787 | +$266 |
| 9% | $132,435 | $30,814 | +$266 |
Up to about 7.66%, this house’s income covers the full $150,000 loan at least 1.25 times, so a higher rate only trims the monthly cash flow. Above that, the payment stops rising. The lender holds it at what the income covers and lends less instead. From 8% up, each half point leaves more than $6,000 more of your cash in the house, and at 9% the $30,814 left in is more than twice the $13,600 at 7.5%.
How do you make a BRRRR work at 8%?
On this house the rent test misses by a small margin, so small changes undo it.
- A bit more rent. At $2,465 a month, $65 more, the income covers the full $150,000 loan 1.25 times at 8%.
- A lower price. Paying $115,411, about $4,600 less, brings the cash left in back to $13,600 even with the smaller loan.
- Lower running costs. Every dollar a month cut from taxes, insurance or the other costs adds a dollar to the income the lender tests.
- A lender with a lower minimum. At 8% this house covers the full loan’s payments 1.21 times, so a lender whose minimum is 1.20 would lend all $150,000.
To test your own deal, run it in the BRRRR calculator at the rate a lender quotes you for the refinance. If the DSCR it shows is under that lender’s minimum, lower the loan-to-value until the DSCR reaches it. The cash left in the deal at that loan is the figure to plan around.