What the sequence is actually doing
BRRRR is a flip and a rental spliced together. You buy below value on short-term money, rehab to raise the appraised value, place a tenant, then refinance against the new value and pull your capital back out. If it works, you end up owning a rented property with most of your cash returned and available for the next one.
Two numbers decide whether it worked, and they pull against each other. The refinance has to return enough cash to be worth the effort, and the property has to still cash flow afterward at the larger loan the refinance creates. This page reports both, because a BRRRR optimized only for cash recovery produces a property that bleeds every month.
Reading the example this page loads with
The defaults describe a BRRRR that mostly works, with the usual catch at the end. These figures are illustrative — a teaching example, not market data for any particular city.
| Input | Value |
|---|
| Purchase price · closing · down | $140,000 · $3,500 · 10% |
| Initial loan rate (interest-only) | 10.5% |
| Rehab · hold · monthly carry | $35,000 · 5 months · $250 |
| After-repair value · refi LTV | $230,000 · 75% |
| Refi rate · term · closing | 7.25% · 30 yrs · $4,500 |
| Rent · taxes · insurance | $2,100 · $2,600 · $1,300 |
Going in, 10% down is $14,000 and the initial loan is $126,000, costing $1,103 a month interest-only. Over five months that interest plus the $250 carry comes to $6,763. Add the $3,500 of closing and the $35,000 rehab and the total cash invested is $59,263.
The refinance is where the capital comes back. At 75% of a $230,000 after-repair value the new loan is $172,500, which pays off the $126,000 initial loan and $4,500 of refinance closing costs, leaving $42,000 of cash out. Against the $59,263 invested, that leaves $17,263 still in the deal — about 71% of your capital recovered.
Then the property has to carry the new loan. The $172,500 mortgage at 7.25% over thirty years costs $1,177 a month. Rent of $2,100 less 5% vacancy gives $1,995 of effective income, operating expenses run $703, and net operating income is $1,292. Subtract the mortgage and monthly cash flow is $115 — positive, but barely, at a DSCR of 1.10 and an 8.0% cash-on-cash return on the $17,263 left in.
The number the whole model rests on
Everything above depends on the after-repair value, and it is the one input nobody can confirm until an appraiser says so. At $230,000 the refinance returns $42,000. If the appraisal comes in at $210,000 instead — under 9% low, which is an ordinary outcome rather than a disaster — the new loan drops to $157,500, cash out falls to $27,000, and the cash left in the deal nearly doubles to $32,263. The deal does not fail; it just stops being the deal you modeled, and the capital you were planning to redeploy is not there.
This is why the ARV figure deserves more scrutiny than any other on the page. It should come from closed sales of comparable renovated properties, not from active listings and not from the sum of purchase price and rehab budget, which is a cost rather than a value. Our guide on where to find your numbers covers which sources carry closed prices.
Why cash-on-cash gets strange here
Cash-on-cash return in a BRRRR is calculated against the money still in the deal after the refinance, which is a much smaller number than you spent. That makes the percentage look better than the same property would look bought conventionally, and the effect grows as cash recovery improves. Recover everything and the denominator approaches zero, at which point the percentage becomes meaningless rather than infinite.
Read it alongside the cash flow figure rather than instead of it. An 8.0% return on $17,263 is $115 a month, and $115 a month is what has to absorb a water heater, a turnover, or a tax reassessment. The percentage describes the efficiency of the capital; the dollar figure describes whether the property can survive a bad quarter. The second one is what stops you having to fund it from elsewhere.
What the lender will check
A refinance at 75% LTV assumes a lender willing to lend 75% of the appraised value, which is a guideline rather than a promise, and most will also apply a seasoning requirement — a minimum period of ownership before they will lend against the new value rather than your purchase price. A BRRRR that is modeled on a six-month timeline and financed by a lender wanting twelve months of seasoning has a funding gap in the middle of it, and the short-term loan keeps accruing through the whole gap.
They will also test the rent against the new payment. This example produces a DSCR of 1.10, which clears 1.00 but would fall short of a 1.15 or 1.25 minimum, and a lender applying a haircut to the rent would see a lower figure still. Run the post-refinance numbers through the DSCR loan qualifier before assuming the exit exists, because the refinance is the step the entire sequence depends on and it is underwritten by somebody else. Our article on the BRRRR method covers the sequence in full.
Where the holding period does its damage
The short-term loan here costs $1,103 a month in interest alone, plus $250 of carry — $1,353 a month during which the property produces nothing. The five-month default is optimistic for a $35,000 rehab once permits, contractor scheduling and the lease-up period are counted honestly, and each additional month adds $1,353 of cost and pushes back the refinance that ends it.
Worth noting that the holding cost lands in the cash invested figure, which means a longer hold both increases what you have spent and leaves more of it in the deal after the refinance, since the refinance proceeds do not grow to match. A three-month overrun on this example adds about $4,060 of cost and takes the cash left in from $17,263 to $21,320 — nearly a quarter more capital stranded, from a delay that is entirely routine.
Using it honestly
Model the pessimistic version first: an appraisal 10% under your estimate, a hold two months longer than planned, and a refinance rate half a point above today's quote. If the deal still works there, the base case is upside rather than the plan. If it only works at the numbers you hope for, the sequence has no slack, and BRRRR has more steps than most strategies for something to go wrong in.
Once the property is refinanced and stabilized, it is an ordinary rental and should be judged as one. The single-family rental analyzer will tell you whether you would buy it at the new loan balance if you were seeing it for the first time, which is the more useful question than whether the acquisition was clever.