BRRRR Strategy Calculator

The Five Phases

1. Buy

Find a property below market value. Most BRRRR investors target distressed properties, foreclosures, or motivated sellers. The purchase price plus rehab cost should stay below 75% of the ARV (the 75% rule). Initial financing is typically hard money or private lending at 10-14% interest rates with 1-3 points, because traditional lenders will not finance properties that need significant work.

2. Rehab

Renovate the property to bring it to market-standard condition. This is not a luxury flip. Focus on functional updates that increase appraised value: kitchens, bathrooms, flooring, paint, and systems (HVAC, electrical, plumbing). During rehab, you are paying holding costs with zero income: hard money interest, insurance, taxes, and utilities. Every extra month of rehab eats into your returns.

3. Rent

Place a tenant and stabilize the property with consistent rental income. Most lenders require the property to be rented for 3-6 months before they will do a cash-out refinance (called a "seasoning period"). Use this time to demonstrate that the property performs as projected.

4. Refinance

Once the seasoning period is complete, refinance with a conventional or DSCR loan based on the new appraised value (ARV). Typical refinance terms are 70-80% of appraised value. If the deal was bought right, the new loan pays off the hard money and returns most or all of your cash investment.

5. Repeat

Take the recovered cash and do it again. This is the compounding engine of the BRRRR strategy. If you pull all your cash out, your cash-on-cash return is technically infinite because you are earning cash flow on a property with zero dollars of your own money left in the deal.

Understanding Hard Money Loans

Hard money loans are short-term, asset-based loans used to fund the acquisition and rehab. They are not like traditional mortgages:

• Interest-only payments: You pay only interest during the loan term, no principal reduction. A $120,000 loan at 12% costs $1,200/month in interest.
• Points: Lenders charge 1-3 points (1-3% of the loan amount) as an origination fee, due at closing.
• Short term: Typically 6-12 months. You must refinance or sell before the term expires, or face extension fees or default.
• Speed: Hard money lenders can close in 7-14 days versus 30-45 days for conventional loans. This makes your offers more competitive.

Common BRRRR Mistakes

Underestimating rehab timeline

Every extra month of rehab costs you hard money interest, insurance, taxes, and utilities. A 3-month rehab that stretches to 6 months can add $5,000-10,000 in holding costs. Get detailed contractor timelines with milestone deadlines, and build a 1-month buffer into your analysis.

Overestimating ARV

Your ARV determines how much cash you get back at refinance. If the appraisal comes in low, you leave more money in the deal than planned. Use conservative comps, and always get a pre-rehab opinion from an appraiser or experienced agent. Err on the low side.

Forgetting the seasoning period

Most conventional lenders require 6-12 months of ownership before a cash-out refinance. DSCR lenders sometimes allow refinance after 3-6 months. Factor this into your timeline. You will be paying hard money rates during the seasoning period unless you refinance into a bridge loan first.

Frequently Asked Questions

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