How the BRRRR math works
A BRRRR is two deals back to back: a short-term rehab project, then a long-term rental financed by a new loan. The calculation follows the cash.
- Cash in. Down payment, closing costs, loan points, any rehab you pay out of pocket, and the holding costs while the work is done: loan interest, taxes and insurance.
- The refinance. The new loan is the after-repair value times the lender’s loan-to-value limit. It pays off the purchase loan and its own closing costs. Whatever is left comes back to you.
- Cash left in the deal. Cash in minus cash back. This is the number your return is measured against.
What “infinite return” means
If the refinance returns every dollar you put in, there is no cash left in the deal, and dividing cash flow by zero gives an infinite cash-on-cash return. It is real, but it has a cost: the larger loan means a larger payment. Check that the property still cash flows and that the DSCR still satisfies the lender.
Where BRRRR deals go wrong
- The appraisal comes in low. A 10% miss on value can leave tens of thousands of dollars stuck in the deal.
- The rehab runs over. Both the budget and the timeline; every extra month is another month of hard-money interest.
- Seasoning periods. Many lenders require you to own the property for several months before they will lend against its new appraised value.