Buy distressed below market. Rehab to rentable condition. Rent to establish income. Refinance at the new appraised value to pull out your invested capital. Repeat with the recycled capital on the next deal.
Buy $120k + Rehab $40k = $160k all-in. After-repair value $220k. Cash-out refi at 75% LTV = $165k. You pull out $165k on a $160k investment — recovering 100%+ of your capital while keeping the property and its cash flow.
BRRRR works best in markets where you can buy significantly below ARV, where rental demand is strong enough to satisfy DSCR requirements for the refi, and where appreciation supports the post-rehab appraisal. Thin margin markets make the refi math difficult.
Most cash-out refis on investment properties require 1.25x DSCR — the property's monthly rent must be 125% of PITI. Run this calculation before you buy. If the rental income won't support the refinanced loan amount, the BRRRR math breaks.
Over-rehab that doesn't appraise. Appraisals coming in below expectations. Rental market softness reducing DSCR. Refinance rates moving against you between purchase and refi. Model conservative scenarios before you commit to the strategy.
Dan White is a licensed Virginia real estate agent at Pearson Smith Realty and founder of FreeDealCalc.com. He has executed BRRRR deals across Northern Virginia and the Shenandoah Valley.