BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. It is one of the most popular ways to build a rental portfolio, because when it works, investors can pull much of their capital back out of a property and use it on the next deal.
The strategy depends on two different loans working together. A short-term loan funds the purchase and renovation. A long-term rental loan then pays off the short-term loan once the property is improved and leased. This guide walks through how that hand-off works and where deals tend to go wrong.
The Five Steps
- Buy a property below its potential value, usually one that needs work.
- Rehab it to rental-ready condition, adding value.
- Rent it to a qualified tenant at market rent.
- Refinance into a long-term loan based on the new, higher value and the rental income.
- Repeat with the capital you recovered.
Stage One: Short-Term Financing for the Buy and Rehab
The first loan is typically a fix-and-flip or bridge loan. These are designed for properties that need renovation and would not qualify for long-term financing in their current condition.
Key features usually include:
- Financing for the purchase price and some or all of the renovation budget
- Renovation funds released through construction draws as work is completed
- Interest-only payments over a short term, often 12 to 18 months
- Loan limits based on both total project cost and after-repair value
On qualified deals, high-leverage programs can finance up to 100% of the purchase and renovation costs, capped at 75% of ARV. That keeps more of your cash available for reserves and the next property. See our 100% fix-and-flip financing program for details.
Stage Two: The DSCR Refinance
Once the property is renovated and rented, you refinance into a long-term rental loan. Many investors use a DSCR loan for this step.
DSCR stands for debt service coverage ratio. Instead of qualifying mainly on your personal income and tax returns, a DSCR lender looks at whether the property’s rent covers its monthly payment, including principal, interest, taxes, insurance and any HOA dues.
DSCR = monthly rent ÷ monthly housing payment
A property renting for $2,100 with a $1,750 total monthly payment has a DSCR of 1.20. Many programs look for a ratio at or above 1.0, with better terms often available at higher ratios. For a full walk-through, read How to Calculate DSCR for a Rental Property and DSCR Loan Requirements.
How Much Cash Can You Pull Out?
A cash-out refinance is limited by a maximum loan-to-value, often in the range of 70% to 75% for investment properties, depending on the program, credit and DSCR.
Here is a simplified example:
| Item | Amount |
|---|---|
| Purchase price | $140,000 |
| Renovation | $45,000 |
| Total project cost | $185,000 |
| Appraised value after rehab | $260,000 |
| Refinance at 75% LTV | $195,000 |
The new $195,000 loan pays off the short-term loan and can return capital to the investor, before closing costs. Whether you actually walk away with cash depends on your short-term loan balance, fees, and the value and rent the appraiser supports.
Watch the Seasoning Period
Seasoning is how long you must own a property before a lender will refinance it based on the new appraised value rather than your original purchase price. Requirements vary widely by program, from a few months to a year.
If you refinance before seasoning is met, some lenders will cap the new loan at your cost basis instead of the higher value. That can leave cash trapped in the deal. Ask about seasoning rules before you buy, and make sure your short-term loan term leaves room for the rehab, lease-up and refinance.
Common BRRRR Pitfalls
- Overestimating value. The refinance depends on the appraisal. Use conservative ARV estimates based on closed rental-grade comps.
- Underestimating rent. Check what similar renovated homes actually lease for, not asking rents.
- Ignoring the payment. Taxes and insurance can push the monthly payment higher than expected and drag down your DSCR.
- Running out of time. Delays in renovation or leasing can push you toward the end of your short-term loan term.
- Over-renovating. Rental-grade finishes usually make more sense than high-end flip finishes.
- No backup exit. If the refinance numbers fall short, could you sell the property instead?
Plan Both Loans Up Front
The most successful BRRRR investors plan the refinance before they close on the purchase. Know the target rent, expected value, DSCR and seasoning rules from day one, and choose a short-term loan with enough runway.
Borrowers Capital offers access to both sides of the strategy: fix-and-flip and bridge financing for the acquisition and rehab, and DSCR rental loans for the long-term hold. Submit your scenario and tell us your plan, and we can review both stages together.
Disclosure
Borrowers Capital LLC provides access to business-purpose real estate financing through correspondent and private lending channels. Program availability, leverage, pricing, fees, loan amounts and approval requirements vary by transaction and are subject to applicable lender guidelines, borrower and property eligibility, valuation, due diligence, underwriting and final approval. References to 100% financing describe the potential financing of eligible project costs and do not guarantee a zero-cash transaction or loan approval. Borrowers Capital LLC may receive compensation in connection with arranging a transaction. This article is general information and does not constitute a commitment to lend, an offer of credit, or financial, legal or tax advice.