The five phases
1. Buy below market
The deal is made at acquisition. Target properties at 65–75% of ARV before rehab. Sources: foreclosures, probate, wholesalers, distressed MLS, off-market direct mail. Hard money or cash, not conventional financing.
Your buy price determines your equity. Every dollar below market = a dollar of equity captured after rehab.
2. Rehab to add value
Renovate to rentable condition and maximize ARV. Focus on value drivers: kitchen, bathrooms, flooring, paint, HVAC, roof, curb appeal. Track every expense. Your final rehab cost directly affects how much cash stays trapped in the deal post-refi.
Get 3 contractor bids. Add a 20% contingency buffer. Every overrun reduces your cash-out proceeds.
3. Rent to qualify for refinance
Place a tenant to establish rental income. DSCR lenders require a signed lease or proof of rent — that's the qualifying metric, not your W-2. Aim for DSCR 1.25+ at 75% LTV for the best terms. Section 8 tenants offer stable, government-backed income.
Use a property manager from day one — even if you self-manage later. Some DSCR lenders require it.
4. Refinance at ARV
Cash-out refinance based on the new appraised value (ARV). Most DSCR lenders go to 75% LTV. ARV $160k × 75% = $120k pulled out. If your all-in was $110k, you recovered all of it plus $10k surplus.
Use a DSCR lender, not a conventional bank. DSCR doesn't require tax returns or W-2s.
5. Repeat with recycled capital
Deploy recovered capital into the next deal. Done cleanly, the same $50k buys multiple properties sequentially. This is how operators build 10, 20, 50-unit portfolios from a single bankroll.
Worked example
| purchase price | $75,000 |
| rehab cost | $30,000 |
| closing + holding | $5,000 |
| all-in cost | $110,000 |
| ARV (post-rehab) | $155,000 |
| refinance @ 75% LTV | $116,250 |
| cash recovered | $110,000 (full) |
| monthly rent | $1,300 |
| mortgage P&I | $640 |
| monthly cash flow | $660 |
Top 5 BRRRR mistakes
- Overestimating ARV. Get a BPO or independent appraisal before closing. Never rely on Zillow or wholesaler numbers.
- Underestimating rehab. Use a hard number from a licensed GC, not a Pinterest estimate.
- No seasoning plan. Some DSCR lenders require 6–12 months ownership before cash-out. Know your lender's policy.
- Using a conventional lender. Conventional loans require owner-occupancy or high credit. Use DSCR or portfolio lenders for investment refis.
- Leaving capital in the deal. If you can't pull 100%, the BRRRR failed. Re-run the numbers and adjust buy price or rehab scope.