5 steps to calculate your BRRRR real estate numbers

The BRRRR method stands for Buy, Rehab, Rent, Refinance, Repeat. It is a strict process for building a real estate portfolio without constantly needing to inject fresh capital. You buy a distressed property, fix it up, rent it out, and then use a cash-out refinance to pull your original investment back out. If done right, you can recycle that exact same pool of cash into your next property while the first one pays off its own debt.

To make this work, you have to track the money going in, the bank’s money coming out, and the cash flow that remains once the dust settles. Here is how the math breaks down.

1. Figuring out your “all-in cost”

Before a property makes a single dime, you are spending money. Your all-in cost is every dollar you pay out of pocket up to the point the house is rented.

All-in cost = Purchase price + Rehab cost + Holding costs

The purchase price and your contractor’s bid are obvious numbers. Holding costs, however, are the silent budget killers. If a renovation takes four months, you are still on the hook for utilities, builder’s risk insurance, property taxes, and the interest payments on any short-term acquisition loans you used to buy the place. Always add a buffer. Renovations routinely run 10 to 20 percent over the initial estimate, and those overages come directly out of your final profit.

2. Estimating the ARV and refinance loan

Once the paint dries and the floors are finished, the property is worth more. You then go to a lender for a cash-out refinance based on this new appraised value, which investors call the After-Repair Value (ARV).

Banks will not hand you a loan for 100 percent of the ARV. They limit their risk by using a Loan-to-Value (LTV) ratio. Conventional lenders usually cap cash-out refinances on investment properties at 75 percent LTV. Some local portfolio lenders might push that to 80 percent, while others might drop it to 70 percent to give you a slightly lower interest rate.

Refinance loan = ARV × LTV percent

If the renovated house appraises for $200,000 and your lender allows a 75 percent LTV, your new refinance loan will be $150,000. You can figure out exactly what your new monthly payments will look like using a standard mortgage calculator or refinance calculator.

3. Calculating cash left in the deal

This is the make-or-break metric for a BRRRR project. It shows exactly how much of your own cash is trapped in the property after the bank cuts your refinance check.

Cash left in deal = All-in cost − Refinance loan

Imagine your all-in cost is $130,000 and the new refinance loan is $150,000. Your cash left in the deal is $0. The bank’s loan covers your entire investment, and you actually walk away from the closing table with an extra $20,000 in cash.

On the flip side, if your all-in cost balloons to $170,000 but the refinance loan stays at $150,000, you have $20,000 left in the deal. You cannot use that $20,000 for your next down payment because it is tied up in the bricks and mortar of this property.

4. Determining cash flow

Pulling all your capital out of a property feels like a win, but it is dangerous if the house loses money every month. The rental income must cover the new, larger debt you just placed on it.

Monthly cash flow = Gross rent − Operating expenses − Mortgage payment

Operating expenses cover everything that repeats: property taxes, insurance, homeowners association dues, routine maintenance, property management fees, and a reserve fund for when the property sits vacant. The mortgage payment is the Principal and Interest (PI) on your new refinance loan.

Many investors use the 1 percent rule to quickly screen properties before doing the heavy math. This guideline says the gross monthly rent should be at least 1 percent of your all-in cost. If your all-in cost is $130,000, you want to see $1,300 a month in rent. In highly competitive or expensive markets, a true 1 percent is incredibly hard to find, so investors often relax their target to 0.7 or 0.8 percent.

5. Finding the cash-on-cash return

Cash-on-cash return measures the efficiency of your capital. It compares the actual cash the property generates over a year to the cash you currently have tied up in the deal.

Cash-on-cash return = (Annual cash flow ÷ Cash left in deal) × 100

A common target for a stabilized BRRRR property is a 10 percent cash-on-cash return or higher. But a perfect BRRRR creates a mathematical quirk. If your cash left in the deal is zero, you are dividing your annual cash flow by zero. Mathematically, this gives you an infinite return, often written as ∞. Because you have none of your own money left in the deal, any positive cash flow is technically an infinite return on your currently invested capital.

A worked example

Let’s look at how the numbers flow on a complete project.

Assume you secure a cash-out refinance at 75 percent LTV on a 30-year fixed loan with a 7 percent interest rate.

First, find the all-in cost. A $100,000 purchase plus $30,000 in rehab and holding costs equals $130,000.

Next, calculate the refinance loan. The $180,000 ARV multiplied by 0.75 gives you a $135,000 loan.

Now, look at the cash left in the deal. Subtract the $135,000 loan from your $130,000 all-in cost. The result is less than zero. You recover all your original capital, plus an extra $5,000.

Then, check the monthly cash flow. A $135,000 loan at 7 percent over 30 years costs about $898 per month in principal and interest. Take your $1,800 rent, subtract the $400 in operating expenses, and subtract the $898 mortgage payment. You are left with $502 per month, which works out to $6,024 a year.

Finally, the cash-on-cash return is infinite (∞), because all your initial capital was successfully pulled back out.

This is a textbook deal. In modern, higher-priced real estate markets, a flawlessly clean exit is rare. A much more common outcome leaves $20,000 to $40,000 stuck in the property, which might yield an 8 to 12 percent cash-on-cash return.

Hidden costs to watch out for

Standard BRRRR formulas are helpful, but they do not capture every point of friction. Buying and refinancing real estate means paying closing costs twice. You will also pay appraisal fees, potential points on your loans, and eventual tax bills. In practice, these line items easily consume another 2 to 4 percent of your deal. A smart practice is to bake those expected fees straight into your holding costs early on.

Also, remember that everything hinges on the ARV. Your spreadsheet might look fantastic, but the ARV is entirely theoretical until a licensed appraiser signs the paperwork. Base your ARV estimates on at least three recent comparable sales in the exact same neighborhood, rather than relying on active listing prices or sheer optimism. If an appraisal comes in 10 percent lower than you expected, your refinance loan shrinks right along with it, and the cash trapped in your deal will jump.

To run your own numbers and instantly check your cash flow and capital recovery, use our BRRRR Calculator.