How does the refinance step of BRRRR work?
The refinance step of BRRRR, meaning Buy, Rehab, Rent, Refinance, Repeat, is a cash-out refinance, typically into a DSCR loan, that pays off the initial purchase and rehab financing and returns as much of your invested cash as the new appraised value at 70 to 75 percent loan-to-value allows. For the strategy to work as intended, the after-repair value needs to be high enough relative to total cash invested that most or all of your capital comes back out.
The BRRRR sequence and where refinance fits
| Step | What happens |
|---|---|
| Buy | Purchase, often with a bridge or hard money loan, or cash |
| Rehab | Renovate to increase value and rentability |
| Rent | Lease the property at market rent |
| Refinance | Cash-out refinance at 70 to 75 percent of new appraised value, ideally returning most invested cash |
| Repeat | Use the returned cash for the next deal |
The math that makes it work
Total cash invested = down payment + rehab costs + closing costs + carrying costs during rehab and lease-up. Cash returned = new loan amount minus payoff of any existing debt minus refinance closing costs. For a true BRRRR, cash returned should approach or exceed total cash invested, meaning the after-repair value comfortably exceeds the total cost basis.
A worked example
Purchase $220,000 cash, rehab $60,000, closing and carrying costs $15,000. Total invested: $295,000. Property rents at $2,600, appraises after rehab at $410,000. Cash-out refinance at 72 percent: $295,200. After refinance closing costs of about $6,000, net proceeds are roughly $289,200, close to a full return of invested capital, leaving the property owned with a new loan and most of the original cash freed up.
What breaks the math
ARV comes in low. The single most common failure. If the appraisal comes in at $370,000 instead of $410,000, the 72 percent loan is $266,400, well short of the $295,000 invested.
Seasoning delays the refinance. Most DSCR lenders want 3 to 6 months minimum, some cash-out programs want 6 to 12; carrying costs during that wait add to the total invested.
Coverage ratio fails. If the rent does not support the loan amount the value would otherwise allow, the loan gets sized down to whatever ratio the lender requires, leaving less cash returned than the value alone suggests.
Rehab overruns. Every dollar over budget raises total invested without necessarily raising ARV proportionally.
Making BRRRR refinances more reliable
- Underwrite the ARV conservatively before buying, using comps you have vetted yourself.
- Keep a 10 percent rehab contingency.
- Document the renovation thoroughly for the appraiser.
- Confirm the coverage ratio works at the target loan amount before assuming full cash-out.
- Know the seasoning rule of your target DSCR lender before the purchase, so the timeline is realistic.
How CommFi handles it
Our lending desk underwrites the exit refinance at the same time as the purchase and rehab loan, so the BRRRR math is tested before you buy, not after. It funds direct when it fits, and when a DSCR lender with the seasoning and coverage terms your deal needs is the better match, the desk searches a database of 7,000+ lenders and the ones that fit compete for the file. Zero upfront fees.
Related reading
Related questions
- What is the refinance step of BRRRR?
- A cash-out refinance, typically into a DSCR loan, that pays off the purchase and rehab financing and returns invested cash based on the new appraised value.
- How much cash can I get back with a BRRRR refinance?
- Up to 70 to 75 percent of the new appraised value, minus any existing debt and closing costs. Whether it covers all your invested cash depends on the ARV relative to total cost.
- What is the biggest risk to a BRRRR refinance?
- The after-repair value coming in lower than projected at appraisal, which shrinks the cash-out amount below what was invested.
- How long do I have to wait before the BRRRR refinance?
- Typically 3 to 6 months of seasoning for most DSCR lenders, though some cash-out programs require 6 to 12.
- Does the property need to be rented before I can refinance?
- For a DSCR refinance, usually yes, or the appraiser's market rent estimate needs to support the coverage ratio if vacant.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.