BRRRR financing
BRRRR Financing: How to Fund Each Step of the Cycle
BRRRR lives or dies on the financing. Here is how to fund each step so you can pull your capital back out and do it again.
BRRRR stands for buy, rehab, rent, refinance, repeat. The strategy is well known; the part that trips investors up is the financing. Done right, the refinance returns most or all of your capital so you can roll into the next deal. Done wrong, your cash gets stuck.
Run your own deal first on the free BRRRR calculator.
Ready to pick lenders? See how to choose a BRRRR lender.
Planning the exit? See how to refinance hard money into a DSCR loan.
Step by step, as a financing plan
- Buy and rehab. Use a short-term fix-and-flip or hard money loan that funds the purchase and the renovation against the after-repair value.
- Rent. Place a tenant and a lease. The rent is what the long-term loan will qualify on.
- Refinance. Replace the short-term loan with a long-term DSCR loan, ideally a cash-out refinance based on the new, higher appraised value.
- Repeat. The cash you pulled out funds the next acquisition.
The numbers that decide it
The refinance is the whole game. A cash-out DSCR refinance is typically capped around 70 to 75 percent of the new appraised value. If you bought and rehabbed well below that, the refinance returns your capital. If the finished value comes in low, some cash stays trapped.
Two details to confirm with a lender before you start: the seasoning period, meaning how long you must own the property before they will refinance at the new appraised value, and the maximum cash-out loan-to-value. Both vary by lender and change the math.
Run your own numbers first
Use the DSCR calculator to confirm the finished rental will cover the long-term payment, since that is what the refinance qualifies on. If the DSCR is strong, the BRRRR works. If it is thin, the deal may not refinance the way you hoped.