How to model a BRRRR rental
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. Start with the purchase price, purchase closing costs, and the rehab budget. Enter how many months you expect to hold the property before refinancing and the monthly costs during that period. These could include utilities, insurance, taxes, and other carrying costs. The calculator assumes you buy in cash and refinance without an existing loan balance to pay off.
Enter an after-repair value, or ARV, based on comparable properties in similar condition. Then set the refinance loan-to-value ratio, interest rate, loan term, and closing costs. The 75% LTV starting value is a scenario assumption. Use the terms your lender is willing to quote. Finally, enter monthly rent and recurring operating expenses. Include a vacancy allowance, routine maintenance, management, taxes, insurance, HOA dues, and any reserves you plan to set aside.
How cash back and rental returns are calculated
Total cash invested before refinance is the purchase price plus purchase closing costs, rehab, and holding costs. Holding costs equal months held times monthly holding costs. The gross refinance loan is ARV multiplied by LTV. Subtract refinance closing costs from the loan to get net cash-out. Subtract that net amount from the initial cash invested to see what remains in the deal. If net proceeds exceed the initial cash, the calculator shows the surplus as money pulled out.
The new mortgage payment uses fixed-rate principal and interest. Monthly cash flow is rent minus recurring operating expenses and the new mortgage payment. Multiply the monthly cash flow by 12 and divide it by cash left in the deal to get annual cash-on-cash return. If there is zero or negative cash left, the calculator displays “infinite” as shorthand for having no positive cash invested to divide by. Monthly cash flow still tells you whether the rental supports itself.
Worked example with a $250,000 ARV
Suppose you buy for $150,000, spend $4,500 on purchase closing costs and $30,000 on rehab, and hold the property for four months at $1,000 per month. Your cash invested before refinance is $188,500. At a $250,000 ARV and 75% LTV, the gross loan is $187,500. With $5,000 in refinance closing costs, you receive $182,500 net and leave $6,000 invested.
At 6.75% for 30 years, the new principal and interest payment is $1,216.12. Monthly rent of $2,200 and expenses of $750 leave $233.88 in monthly cash flow. The annual cash-on-cash estimate is 46.78%, calculated before rounding the monthly cash flow. A small remaining investment can produce a high percentage even when monthly cash flow is modest.
Common mistakes before you refinance
Stress-test a lower appraisal and a longer rehab timeline. In the example, a $10,000 drop in ARV cuts gross loan proceeds by $7,500 at the same LTV. A delayed refinance can add another month of carrying costs, and a higher rate can raise the mortgage payment. If you use a purchase loan, calculate the payoff and financing costs separately before relying on the cash-out figure.
Compare the property’s operating income with the cap rate calculator. Use the mortgage calculator to see how the refinance loan pays down over time. A deal can return most of your initial cash and still need a monthly subsidy if rent falls or expenses rise.
Frequently asked questions
What does ARV mean in a BRRRR deal?
After-repair value is the estimated market value after renovation. Use comparable sales for similar finished properties and test what happens if the appraisal comes in lower.
How much can I borrow against the ARV?
This model multiplies ARV by the refinance LTV you enter. A $250,000 ARV at 75% LTV produces a $187,500 gross loan. Actual proceeds depend on loan terms and closing costs.
What does cash left in the deal mean?
It is the initial cash invested minus the net refinance proceeds. A positive number is cash still invested. If proceeds exceed the initial investment, the calculator shows the excess.
Why does the calculator say the return is infinite?
There is no positive remaining cash investment to use as the denominator. Look at monthly cash flow and the dollar amount recovered to interpret that scenario.
Are taxes and insurance included in the new mortgage payment?
The mortgage output covers principal and interest. Include taxes and insurance in monthly operating expenses so they are counted once in cash flow.