The BRRRR Math That Most Investors Get Wrong
Most new real estate investors hear about BRRRR and immediately make the same mistake: they focus on purchase price instead of the spread.
Here's what I mean.
The Wrong Way to Evaluate a BRRRR Deal
❌ "I found a house for $80K, that's cheap, must be a deal."
Price alone tells you nothing. A $80K house in a neighborhood where renovated homes sell for $100K is a terrible BRRRR deal. You'll trap capital and bleed cash flow on a property that doesn't appreciate.
The Right Way
✅ Focus on the spread between your all-in cost and the after-repair value (ARV).
The formula:
Max Purchase Price = (ARV × 0.70) − Rehab Cost − Closing Costs
Example:
Component | Amount |
|---|---|
ARV (based on renovated comps) | $200,000 |
70% of ARV | $140,000 |
Estimated rehab | $35,000 |
Closing costs | $5,000 |
Max purchase price | $100,000 |
If you can buy at $100K or less, you have a BRRRR-able deal. At 75% LTV refinance ($150K loan), you recover your capital and walk away with a stabilized rental producing cash flow.
If the seller wants $130K? Walk away. The math doesn't work.
The Three Numbers That Matter
ARV — What will this property be worth after renovation? (Pull 3-5 comps of recently sold, renovated homes within 0.5 miles)
Rehab cost — What will it actually cost to get the property to ARV condition? (Not your optimistic estimate. Your real, contractor-quoted, 10%-contingency-added estimate.)
Rent — What will it cash flow after the refinance? (Use Rentometer or check active listings in the area. The deal needs to cash flow $200+/month after PITIA.)
Why 70% and Not 75% or 80%?
The 70% rule builds in margin for:
Closing costs on both acquisition and refinance
Holding costs during rehab (hard money interest, insurance, utilities)
Unexpected rehab overruns (they happen on every deal)
A cushion if the appraisal comes in slightly low
Investors who buy at 80% of ARV minus rehab regularly get stuck with capital trapped in deals. The 70% rule is how you keep the BRRRR machine running.
Bottom Line
BRRRR is a capital recycling strategy. If you can't pull your capital back out on the refinance, it's just a regular buy-and-hold — and an expensive one at that.
Run the numbers first. Every time. No exceptions.