The BRRRR method — Buy, Rehab, Rent, Refinance, Repeat — is the wealth-building engine for serious rental investors. The key to making it work is understanding the math at every stage: knowing your after-repair value before you buy, calculating your cash-out refinance proceeds, and verifying your cash-on-cash return after refinance.
Total cost basis = acquisition price + closing costs + rehab budget + holding costs. Example: $110K purchase + $3K closing + $45K rehab + $5K holding = $163K total cost basis. This is the number you need to recover in the refinance.
After renovation, a cash-out refinance is based on the After-Repair Value (ARV). Most lenders refinance at 70–75% LTV on investment property. Example: $240K ARV × 75% = $180K refinance. Your $163K cost basis is fully covered with $17K in remaining equity. This is the ideal BRRRR scenario — you've recycled all your capital to invest in the next deal.
After refinance, your remaining investment in the property is zero (or close to it). Now calculate cash-on-cash return. If you pulled $163K out and the property generates $400/month positive cash flow: $4,800/year on $0 effective investment is infinite cash-on-cash return. Even if you left $20K in, $4,800/$20K = 24% cash-on-cash.
Dan White is a licensed Virginia real estate agent at Pearson Smith Realty and founder of FreeDealCalc.com. He has been investing in Northern Virginia real estate for 20+ years.