The BRRRR Strategy, Briefly
Buy, Rehab, Rent, Refinance, Repeat. The strategy works by forcing equity through renovation, then pulling that equity out via cash-out refinance to fund the next acquisition.
The refinance step is where most investors either make the strategy work or discover it doesn't pencil the way they modeled it.
Why the Refinance Is the Critical Step
The goal of the refinance is to pull out enough equity to recover your initial capital — ideally leaving little to nothing in the deal. Whether that's achievable depends on:
- 1After-Repair Value (ARV) — what the property appraises for after renovation
- 2Loan-to-Value (LTV) — most DSCR cash-out programs go to 75–80% LTV
- 3DSCR ratio — the rental income must cover the new mortgage payment
- 4Seasoning requirements — many lenders require 6–12 months of ownership before a cash-out refinance
The Math on a Rochester Example
Let's say you buy a distressed property for $120,000, put $40,000 into renovation, and the ARV comes in at $220,000.
At 75% LTV: $220,000 × 0.75 = $165,000 max loan
Your total invested: $120,000 + $40,000 = $160,000
In this scenario, a $165,000 cash-out refinance recovers your full investment with $5,000 to spare. The property is now essentially "free" — you own it with no capital tied up, and it's generating rental income.
That's the BRRRR strategy working as designed.
Where It Breaks Down
The model fails when:
- ARV comes in lower than expected — appraisers use comparable sales, not your renovation budget
- DSCR doesn't qualify — if the rental income doesn't cover the new mortgage payment at the higher loan amount, you can't get the cash-out
- Seasoning requirements — if you need to wait 12 months to refinance, you have capital tied up longer than planned
- Rehab costs overrun — every dollar over budget reduces your equity recovery
DSCR Cash-Out Specifics
For the refinance step, DSCR cash-out programs are typically the right tool. Key parameters:
- Max LTV: 75–80% on most programs
- Min DSCR: 1.0–1.25 depending on lender
- Seasoning: 6–12 months ownership typically required
- Documentation: Lease, rent roll, appraisal with rent schedule (1007 form)
- LLC ownership: Allowed on most DSCR programs
Running the Numbers Before You Buy
The refinance needs to be modeled before you make the acquisition — not after. The question isn't just "can I buy and renovate this property?" It's "will the post-renovation DSCR support the cash-out loan I need to recover my capital?"
If the numbers don't work at the refinance stage, the BRRRR strategy doesn't work for that deal. Better to know that before you close.