The BRRRR Method — Part 2: The Math Behind the Deal

The BRRRR method works on paper. Whether it works on your specific deal depends on five numbers you need to nail before you make an offer — not after the rehab is done. This post walks through how to run the analysis from the refinance backward, so you know your maximum purchase price before you ever pick up the phone.

Start from the back end

Many investors analyze deals from the front — purchase price, rehab budget, projected rent — and hope the refinance works out. The right approach is the opposite. Start with the refinance and work backward to find your maximum allowable purchase price.

The five numbers that drive every BRRRR deal are:

1. After-repair value (ARV)
2. Refinance LTV and maximum loan amount
3. Total cost stack (purchase + rehab + all carrying and closing costs)
4. Debt service coverage ratio (DSCR) post-refinance
5. Capital left in the deal

If these five numbers don't work together, the deal doesn't work — regardless of how attractive the purchase price looks.

Number 1 — After-repair value (ARV)

ARV is the estimated market value of the property after renovation is complete. In a BRRRR deal, ARV controls how much you can pull out at the refinance stage. Everything else is downstream of this number.

A realistic ARV requires actual comparable sales — recently sold properties within a reasonable radius that are similar in size, bedroom count, condition, and lot type. Three to five solid comps is the minimum. Use sold prices, not list prices. Your lender's appraiser will use comps, and if your ARV was based on optimistic assumptions, the appraisal will come in lower and the deal will underperform.

Build in a conservative and an optimistic ARV estimate. The gap between those two numbers is where your risk lives. If the deal only works at the optimistic ARV, it probably doesn't work.

Number 2 — Refinance LTV and maximum loan

Most lenders cap practical cash-out proceeds around 70–75% of appraised value. Some DSCR lenders quote up to 80% LTV for strong borrower profiles, but actual cash-out is often further constrained by DSCR requirements, seasoning, or how the lender determines value. Use 75% as your planning assumption.

Your maximum refinance loan = ARV × LTV cap (subject to lender constraints and appraisal)

On a $220,000 ARV at 75% LTV, the most you can borrow is $165,000. That's the ceiling on what you can pull out. Your total cost stack needs to be at or below that number for full capital recovery — and below it if you want any cushion.

The practical rule most experienced investors use: keep your total all-in cost at or below 75% of ARV, including carrying and closing costs. That's your go/no-go filter before you analyze anything else. If the numbers can't clear that threshold, walk away.

Number 3 — Total cost stack

This is where many BRRRR analyses fall short. The total cost stack is not just purchase price plus rehab — it's every dollar you spend from contract to refinance:

• Purchase price
• Rehab budget — plus a contingency of at least 10–15% for surprises
• Closing costs (acquisition) — title, attorney fees, transfer tax, lender fees on the hard money loan
• Hard money interest — accruing from day one of the loan through payoff at refinance
• Property taxes during hold
• Insurance during rehab — note that most standard landlord policies don't cover vacant properties under renovation; you typically need a builder's risk or vacant property policy
• Utilities during rehab
• Closing costs (refinance) — title, lender fees, appraisal on the DSCR or conventional loan

Many investors underestimate the carrying cost line. Hard money interest alone on a 9-month rehab at 12% on a $150,000 loan is $13,500. Add insurance, taxes, and utilities and you can easily add $18,000–$22,000 to your cost stack before a single nail is driven.

Number 4 — DSCR post-refinance

The refinance isn't just about recovering capital — the long-term loan has to be serviceable by the rent. This is where many BRRRR deals that look great at acquisition quietly fail. Many deals fail here even if the refinance "works" on paper.

DSCR = Gross monthly rent ÷ Monthly PITIA (principal, interest, taxes, insurance, and any association dues — lender-specific definitions may vary slightly)

Most DSCR lenders require a minimum ratio of 1.20–1.25. A ratio below 1.0 means the rent doesn't cover the debt service — the investor has to feed the property out of pocket every month.

Here's the problem in the current rate environment: at 7–8% on a 75% LTV refinance, the monthly debt service on a long-term DSCR loan is significantly higher than it was when rates were at 3–4%. Many BRRRR deals that cash-flowed well in 2021 produce flat or negative cash flow today at the same purchase price and rent. Run this number before you buy.

Use RE Data Metrix's DSCR Calculator to stress-test whether the deal actually works at today's rates — with your actual projected rent, taxes, insurance, loan amount, and rate — before you commit to a deal.

Number 5 — Capital left in the deal

Capital left in the deal = Total cost stack − Refinance loan amount

This is the number that tells you whether the BRRRR strategy actually worked. Zero or negative means full capital recovery (ideal). Positive means some capital is permanently in the deal — at least until you sell or complete another cash-out refinance later.

In the current environment, most BRRRR deals leave some capital in the deal. Expect $15,000–$35,000 as a realistic range for a well-executed deal. That's not a failure — what matters is the cash-on-cash return on remaining equity. If you have $25,000 left in a deal generating $300/month in positive cash flow after all expenses, that's a 14.4% annual return on the trapped capital. That's a good outcome.

The metric to calculate: Annual cash flow ÷ Capital left in deal = Cash-on-cash return on remaining equity

Use RE Data Metrix's Rental Property Calculator to model the full long-term picture — IRR, cash-on-cash, NOI, and year-by-year cash flow — so you can see whether the deal justifies the capital you're leaving behind.

A worked example

Here's how the five numbers work together on a real deal. Assumes appraisal supports ARV and lender allows full 75% LTV cash-out.

This deal works — full capital recovery, positive DSCR, and modest cash flow. The margin is thin, which is honest for the current rate environment. Change the ARV by $15,000 in either direction and you see how sensitive the outcome is to that single number.

What breaks the math

Four things consistently break BRRRR deals:

• Overpaying at acquisition. Every dollar over your maximum allowable purchase price is a dollar that stays in the deal permanently. Unlike a flip, you can't just sell faster to recover it.
• Rehab overruns. Every $5,000 over budget is $5,000 more capital trapped in the deal. Add a contingency before you start.
• ARV miss. If the appraisal comes in 10% below your estimate on a $220,000 ARV deal, you lose $16,500 of refinance proceeds. Model a conservative ARV, not an optimistic one.
• Rent doesn't support the loan. A deal with full capital recovery but negative monthly cash flow isn't a win — you're now subsidizing a rental property indefinitely. Run the DSCR before you buy.

The decision rule

Before you make an offer on any BRRRR deal, answer these four questions:

1. What is my conservative ARV and what comps support it?
2. What is my maximum all-in cost if I use the conservative ARV and a 75% LTV refinance?
3. Does the projected rent support a DSCR of at least 1.20 at today's rates on that loan amount?
4. If the appraisal comes in 10% below my conservative ARV, how much capital stays in the deal and is the cash-on-cash return on remaining equity acceptable?

If you can answer all four, you know whether the deal works. If any answer is uncertain, the deal needs more diligence before you proceed.

Run your rental and cash flow numbers before you make an offer using RE Data Metrix's Rental Property Calculator — free, no account required. It models IRR, cash-on-cash, NOI, and year-by-year cash flow so you can see the long-term picture before you commit.

Frequently asked questions

What is the 75% rule in BRRRR investing?

The 75% rule is a go/no-go filter for BRRRR deals: your total all-in cost — purchase price plus rehab plus all carrying and closing costs — should not exceed 75% of the after-repair value (ARV). This ensures the refinance loan (typically capped at 75% LTV) can cover your full investment. If your cost stack exceeds 75% of ARV, you'll leave capital in the deal that you can't recover at refinance.

What is a good DSCR for a BRRRR refinance?

Most DSCR lenders require a minimum ratio of 1.20–1.25. A ratio of 1.25 or above typically qualifies for the best rates and terms. A ratio below 1.0 means the rent doesn't cover the debt service — the investor must contribute cash monthly to cover the loan. At current interest rates (7–8%), achieving a strong DSCR requires either higher rents, a lower loan amount, or both.

How do I calculate capital left in a BRRRR deal?

Capital left in the deal = Total cost stack − Refinance loan amount. Total cost stack includes purchase price, rehab, contingency, hard money interest, all closing costs on both the acquisition and refinance, and carrying costs (taxes, insurance, utilities) during the hold period. The refinance loan amount is ARV × LTV cap (typically 75%, subject to lender constraints and appraisal).

Is it realistic to do a BRRRR deal with zero money left in the deal?

It's possible but less common in the current rate environment. Full capital recovery requires buying at a significant discount to ARV — typically keeping the total cost stack at or below 75% of ARV — and executing the renovation on budget. Most well-executed BRRRR deals today leave $15,000–$35,000 in the deal. The measure of success isn't zero capital left — it's the cash-on-cash return on remaining equity.