BRRRR is a buy-and-hold strategy in five steps: Buy a distressed property below market, Rehab it to rentable, appraisable condition, Rent it to a qualified tenant, Refinance at the new value to recover most or all of the cash invested, and Repeat with the recovered capital. The engine is manufactured equity: the discount plus the renovation creates value the refinance then lends against. The strategy fails most often at the refinance — an appraisal below the hoped-for ARV strands the investor's cash in the property.
The formula / structureRequired ARV for Full Cash Recovery ≈ (Purchase + Rehab + Costs) ÷ Refinance LTV (e.g. 0.75)
BRRRR: a worked example
Worked example. All-in cost $138,000. At a 75% cash-out refinance, full recovery needs an appraised value of $138,000 ÷ 0.75 = $184,000. Comps supporting $190,000 → the deal can work. Comps supporting $170,000 → only $127,500 comes back; $10,500 stays in the deal. Run this test before buying, not after.
What affects BRRRR
- Purchase discount (no discount, no BRRRR)
- Appraisal outcome — the strategy's grading moment
- Lender seasoning requirements and cash-out LTV limits
- Interest-rate environment at refinance time
- Post-refinance cash flow at the new payment
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