BRRRR Deal Analysis: Running the Numbers Through All Five Stages

BRRRR stands for buy, rehab, rent, refinance, repeat. The idea is simple: add value, put a tenant in, then refinance into a long-term loan that pays back most of the cash you put in. The catch: every stage has to work. A good purchase can't save a bad refinance.

Here is a way to analyze the whole cycle before you spend a dollar.

Stage one: what you pay and what you put in

Start with the price and the as-is value. Short-term rehab lenders usually size the purchase loan off whichever of the two is lower, so overpaying shows up immediately as more cash at closing.

Then build the rehab budget line by line with a contractor. Add a contingency, often 10% to 15% on a typical rehab and more on older houses. Add closing costs, points, and holding costs (interest, taxes, insurance, utilities) for the full rehab and lease-up period. The total is your all-in cost. That number matters more than the purchase price.

Stage two: what it will be worth and what it will rent for

The after-repair value (ARV) decides how big your refinance can be. Support it with recent, nearby closed sales that match the finished house in size, layout and condition. Leave out outliers.

Next, estimate rent from current lease comps, not asking rents. DSCR (debt service coverage ratio) lenders compare that rent to the new monthly payment, including taxes and insurance. If the ratio falls below the lender's minimum, the refinance shrinks or fails.

Stage three: model the refinance

The cash-out loan is a percentage of the appraised value, often 70% to 75% for investor rental loans. Compare that loan amount to your all-in cost.

Example, round numbers only:

• Purchase: $160,000
• Rehab plus contingency: $50,000
• Closing, points and holding costs: $15,000
• All-in cost: $225,000
• ARV: $300,000
• Refinance at 75% of value: $225,000

Here the new loan matches the all-in cost, so nearly all of your cash comes back, before refinance closing costs. Now drop the appraisal to $270,000. The loan falls to about $202,500, and roughly $22,500 stays in the deal. Still workable. Just know the number going in.

After the refinance, compute cash-on-cash return: annual cash flow divided by the cash still in the deal. Very little cash left in can mean a very high return, as long as cash flow stays positive.

Stage four: stress test it

Run three bad-case versions:

• ARV comes in 10% low
• Rehab runs 15% over
• The house takes two extra months to rent

If the deal still cash flows and you can live with the cash left in, it's a real deal. If it only works when everything goes right, pass or renegotiate.

What this means for you

Analyze BRRRR backward from the refinance. Know your all-in cost, support your ARV with real comps, confirm the rent covers the long-term payment, and decide in advance how much trapped cash you can accept.

RSC's DSCR Rental program allows cash-out refinances up to 75% loan-to-value (LTV), with a minimum DSCR of 0.75x and a minimum FICO of 660. Treat 0.75x as the lender's floor, not your cash flow target.

Planning a BRRRR? Send RSC Private Lending your scenario for a term sheet in 24 hours. Subject to underwriting.