BRRRR fails on the fourth R. Buy, rehab, and rent are execution problems and most operators handle them. Refinance is a math problem, and it gets decided before you ever swing a hammer — at the moment you agree on a purchase price.
Here's how to model the whole cycle up front.
The model
Every BRRRR reduces to one comparison:
All-in cost vs. Refinance proceeds
If proceeds exceed all-in cost, you've recycled your capital and the deal is infinitely repeatable. If they don't, you've left money in the property, and your next deal is smaller.
A worked example
Take the deal on our bridge page and run it properly.
Step 1 — All-in cost
| Line | Amount |
|---|---|
| Purchase price | $220,000 |
| Renovation budget | $45,000 |
| Closing costs on the bridge (~3%) | $6,400 |
| Bridge interest, 6 months at 12% on $212,000 | $12,720 |
| Taxes, insurance, utilities during hold | $4,200 |
| Refinance closing costs (~2.5%) | $7,100 |
| Total all-in | $295,420 |
That's the number to keep. Not $265,000, which is what purchase-plus-rehab looks like on a napkin. The $30,000 of carry and closing costs is where BRRRR models quietly break.
Step 2 — ARV, honestly
Say the after-repair value comes in at $380,000. Two disciplines here:
- Use closed comps within 0.5 miles and 90 days, adjusted for square footage and condition. Not active listings. Actives tell you what sellers hope for.
- Then subtract 5%. Appraisers on refinance transactions are not looking for a number to justify a contract price — there's no contract. Refinance appraisals come in conservative more often than purchase appraisals do.
Conservative ARV: $361,000.
Step 3 — The refinance
DSCR cash-out at 75% LTV:
- $361,000 × 75% = $270,750 loan amount
- Less bridge payoff of $212,000 = $58,750 back to you at closing
Step 4 — Did you recycle?
| Line | Amount |
|---|---|
| Cash you put in (all-in less bridge proceeds) | $83,420 |
| Cash back at refinance | $58,750 |
| Left in the deal | $24,670 |
So no — not a full recycle. You've left roughly $25,000 in the property.
That is not a failure. You own a $361,000 asset with $270,750 of debt on it — $90,000 of equity — for $25,000 of trapped capital. That's a good outcome. It just isn't the "infinite return" version, and knowing that before you buy is the entire point of building the model.
The DSCR test the refinance has to pass
The refinance also has to clear DSCR, which people forget until the appraisal is already ordered.
At $270,750, roughly 7.99%, 30-year amortization:
| Line | Amount |
|---|---|
| Principal + interest | $1,986 |
| Taxes | $340 |
| Insurance | $145 |
| PITIA | $2,471 |
| Market rent | $2,800 |
| DSCR | 1.13x |
1.13x qualifies. But it's tight — a $200 insurance surprise or a rent comp that lands at $2,650 pushes you under 1.05x and changes your pricing.
Two fixes if the ratio is short: take interest-only, which drops P&I to roughly $1,803 and lifts DSCR to about 1.24x; or take less cash out. Reducing the loan to $250,000 lifts DSCR to about 1.20x and costs you $20,750 of proceeds.
The two numbers that decide everything
1. The 75% ARV ceiling. Your maximum refinance proceeds are 75% of the appraised value, minus the payoff. Work backwards from that at the offer stage. If you need $270,000 of proceeds, you need a $360,000 ARV — and if the comps don't support $360,000, the deal is priced wrong no matter how good the rehab plan is.
2. Days in the bridge. At 12% on $212,000, every day costs about $70. Every 30 days of overrun eats $2,100 of your profit. Contractors slip. Permits slip. Build 30–45 days of slack into the model and treat beating it as upside, not as the plan.
Common ways the model lies to you
- Using purchase + rehab as "all-in." It's typically 10–12% low once carry and two sets of closing costs are in.
- Using list-price comps for ARV. Closed only.
- Assuming 75% of a number you haven't verified. The lender's appraiser sets ARV, not your ARV spreadsheet.
- Forgetting seasoning. Some programs require 3–6 months of ownership before they'll lend on the new appraised value rather than your purchase price. Confirm the seasoning requirement before you buy, not after the rehab is done.
- Modeling zero vacancy. One month of turnover per year is a realistic default.
The one-page version
- All-in cost = purchase + rehab + bridge closing + bridge interest (with 30 days of slack) + carry + refi closing.
- Conservative ARV = closed comps, minus 5%.
- Max proceeds = ARV × 75% − bridge payoff.
- Check DSCR at that loan amount before you commit.
- Capital left in deal = cash in − proceeds. Decide if that number is acceptable before you write the offer.
Run those five lines in ten minutes and you'll kill four deals for every one you do. That ratio is correct.
No W2