Understanding The BRRRR Method & How Does It Work

Building long-term wealth through real estate investing requires more than just capital—it demands strategy, market knowledge, and careful planning. A popular strategy, and crowd favorite among pro investors, is the BRRRR method.

The BRRRR method is a systematic investment strategy that stands for Buy, Rehab, Rent, Refinance, and Repeat. Unlike traditional house flipping, which focuses on selling properties post-renovation, this strategy emphasizes creating sustainable passive income while leveraging equity to expand your portfolio.

This guide explores how the BRRRR method works, its benefits and risks, and whether it’s the right strategy for you. 

What is the BRRRR Method?

The BRRRR method is a real estate investment strategy designed to help investors build a portfolio of income-generating rental properties while maximizing returns and recycling capital. It is also an acronym that stands for Buy, Rehab, Rent, Refinance, and Repeat, outlining the five sequential steps involved in the process.

How Does BRRRR Work?

With BRRRR, the goal is to acquire undervalued properties, increase their equity through renovations, and leverage that equity to fund future investments. Here’s a detailed breakdown of each step in the process:

Step 1: Buy

The first step is purchasing a property below market value with the potential for significant equity growth after repairs. Many investors use short-term financing options like hard money loans or fix-and-flip loans to secure funds quickly for acquisition and renovations.

BRRRR investors often evaluate deals using key metrics:

• After-Repair Value (ARV): This is the estimated value of the property after renovations. It combines the original purchase price with the added value from improvements. Comparing similar properties in the area can help estimate this figure.
• Maximum Allowable Offer (MAO): This represents the highest price you can pay while ensuring profitability. It helps investors stay within budget.
• 70% Rule: A common guideline for BRRRR investors and house flippers, suggesting you should not pay more than 70% of the ARV minus repair costs. This ensures a financial cushion for renovation expenses and sufficient equity for refinancing.

For example, if a property’s ARV is estimated at $425,000, your maximum allowable offer would be $297,500. If extensive repairs are needed, you should aim for an even lower purchase price to remain within budget.

It’s also important to assess how long renovations will take. Delays in making the property move-in ready can postpone rental income and refinancing opportunities.

Step 2: Rehab 

‘Rehab’, also known as ‘renovate’, is the next step. Often, properties purchased for the BRRRR strategy are in various states of dereliction and require immediate repairs and upgrades before renting out. These necessary repairs and maintenance are paired with strategic refurbishments designed to increase the property value and appeal. 

A few renovation ideas might typically include:

High-Impact Rental Renovations

• Midrange Bathroom Remodel: Upgrade fixtures, add storage, and use quality materials.
• Minor Kitchen Remodel: Refresh cabinets, flooring, and backsplash.
• Bathroom Accessibility Updates: Install grab rails, non-slip flooring, or a walk-in tub to attract long-term tenants.

Easy Rental Updates

• Repaint: Use neutral colors for broad appeal.
• New Flooring: Hardwood and luxury vinyl provide durability and high ROI.
• Regrout Bathroom: An inexpensive way to keep bathrooms fresh and low-maintenance.
• Curb Appeal Enhancements: Clean exterior walls, add lighting, and improve landscaping.
• Update Appliances: Modern appliances increase rental appeal and energy efficiency.

Repair vs. Replace Considerations

• Floors & Carpets: Clean carpets between tenants; replace every 5 years.
• Appliances: Repair as needed; replace every 5 years.
• Cabinets: Fix hinges and doors; replace after ~7 years.
• HVAC & Windows: Regular maintenance is key; full replacements align with depreciation.

Related: Rental Renovations With The Best ROI For Landlords 

Funding for rehab expenses may come from cash reserves, hard money loans, or construction loans. To save on costs, some investors choose to handle minor repairs themselves rather than hiring contractors.

Step 3: Rent

This is where the BRRRR strategy differs from traditional fix-and-flip. Once the property is in renting condition, instead of selling it on and immediately recouping your investment the property is rented out. 

The objective here is to generate consistent rental income cash flow that will cover ownership expenses and mortgage payments. 

There are a few reasons that holding onto the property is beneficial. Firstly, due to market conditions, you may not be able to get the maximum value for the property. Secondly, by holding onto the property for longer, you can take advantage of the long-term capital gains tax rate, which could significantly reduce your tax bill when you do come to sell. Finally, when it comes to refinancing (the next step in the BRRRR strategy), lenders generally prefer properties with a rental income history when considering applications, allowing you to secure better interest rates for future investments. 

Proper tenant screening and competitive rent pricing are essential for ensuring steady cash flow.

Step 4: Refinance

Refinancing allows investors to access the equity gained from increased property value through renovations without having to sell the property. Refinancing is often the most efficient way to access this capital as it doesn’t trigger capital gains tax or depreciation recapture. It also means you get to keep a cash-flowing asset and continue to leverage the property’s long-term appreciation— essentially, it’s a wealth multiplier.

A cash-out refinance provides a lump sum of funds that can be used for purchasing the next investment property or paying down existing debt.

Key considerations for refinancing include:

• Seasoning Period: Many lenders require you to wait six months or longer after acquiring the property before refinancing.
• LTV Requirements: Lenders typically require at least 25% equity in the property. 
• Other Criteria: These include maintaining cash reserves (3–6 months), a credit score of at least 620, a debt-to-income (DTI) ratio below 50%, and proof of income.

Refinancing resets the loan term, which may extend repayment but can also lower your interest rate (or increase it) depending on market conditions.

Other options to explore when looking for financing the next investment include a Home Equity Line of Credit (HELOC) which is where you use the equity in your property as collateral to open a line of credit. HELOCs generally offer flexibility in terms of borrowing and repaying funds. Or alternatively, hard money loans and seller financing. 

Step 5: Repeat

After accessing your equity through refinancing, you can reinvest those funds into another undervalued property and repeat the process. Done right this strategy should, in theory, be infinitely repeatable (in practice of course any number of factors can impact the viability of this strategy, so always approach investment strategies with caution and do your due diligence). 

It allows you to recycle the majority of the cash you start with, leveraging equity, so you can build a base of cash flowing and appreciating assets. 

The speed at which you find your next deal depends on market conditions and available cash reserves. Patience and caution is key to avoiding unprofitable investments.

Related: The 3 Key Metrics for Refinancing Rental Properties

Example: Case Study of the BRRRR Method

To understand the BRRRR method better, let’s use a case scenario with Susan the Smart Investor. 

Susan Buys

Susan purchases a distressed property for $150,000 using a $30,000 down payment (20% of the purchase price) and secures a mortgage for the remaining $120,000. She targets this property because its post-rehab potential aligns with the 70% rule (e.g., if the After-Repair Value [ARV] is estimated at $210,000, her total investment in purchase and rehab costs stays below 70% of ARV).

Susan Rehabs

Susan invests $20,000 in renovations to address structural issues, modernize the interior, and enhance curb appeal. Strategic upgrades focus on increasing the property’s value and rental appeal.

Susan Rents

After rehab, the property is appraised at $210,000 and rented for $2,100/month. The rental income covers mortgage payments, property taxes, insurance, and maintenance, ensuring positive cash flow.

Susan Refinances

A year later, Susan refinances the property at 75% of its appraised value ($157,500). She replaces the original mortgage with a new loan, using the funds to:

• Pay off the initial mortgage: $120,000
• Pocket the remaining equity: $37,500 ($157,500 – $120,000)

This step leverages the equity gained from renovations and appreciation, allowing Susan to recover her initial down payment and rehab costs.

Susan Repeats

With the $37,500 from refinancing as a deposit, Susan acquires another undervalued property and repeats the cycle. This approach enables her to recycle capital without relying on new savings, accelerating portfolio growth.

Is the BRRRR Method Effective? (Pros and Cons)

Many professional real estate investors who have tried employing this strategy can testify to its effectiveness. The BRRRR strategy offers investors a structured path to wealth-building through real estate, combining cash flow generation, equity growth, and tax efficiency. 

Listen to our interview on the BRRRR Strategy with Matt Mckeever – Landlord Studio Podcast

Below are its key benefits and challenges,

BRRRR Method: Pros

• Maximized Cash Flow: Investors optimize rental income by pricing units at 0.8–1.1% of the property’s After-Repair Value (ARV). High occupancy rates and diversified portfolios further stabilize returns, enabling reinvestment into new properties.
• Rapid Equity Building: Strategic renovations boost property value, creating equity that can be tapped via refinancing. This allows investors to recycle capital into additional deals, accelerating portfolio growth.
• Flexible Exit Strategies: Investors can hold properties for passive income, sell for profit, or use them as collateral. This adaptability suits shifting market conditions or personal goals.
• Tax Benefits: Deductions for mortgage interest, property taxes, and depreciation reduce taxable income, enhancing net returns.

Related: 10 Tax Benefits of Investing in Rental Properties

BRRRR Method: Cons

• High Initial Capital: Acquiring and rehabbing properties requires significant upfront funds. Investors often rely on hard money loans or partnerships to bridge gaps.
• Market Volatility: Property values, rental demand, and renovation costs can fluctuate. Misjudging these factors may lead to vacancies or reduced profitability.
• Renovation Complexities: Budget overruns, hidden structural issues, and compliance hurdles are common. Contingency planning and experienced contractors mitigate risks.
• Management Demands: Managing tenants, maintenance, and rent collection is time-intensive. Leveraging quality software like Landlord Studio and outsourcing to property managers can streamline operations.
• Financing Risks: Low appraisals or unfavorable refinancing terms can stall equity access. Building lender relationships and staying informed about market trends helps navigate these challenges.

Tips for Success with the BRRRR Method

Mastering the BRRRR strategy requires strategic planning, efficient execution, and collaboration with industry professionals. Below are actionable insights to optimize your approach:

1. Target High-Potential Properties

Focus on distressed or undervalued properties in emerging neighborhoods with strong rental demand. Prioritize locations with indicators of growth, such as rising employment rates or infrastructure development. 

Use tools like the 70% rule (avoid paying more than 70% of the After-Repair Value [ARV] minus rehab costs) to ensure profitability. Partner with investor-friendly agents or wholesalers to access off-market deals.

2. Optimize Renovations for ROI

Develop a detailed rehab plan that balances budget and impact. Prioritize high-value upgrades like kitchen/bathroom modernization, energy-efficient retrofits, or curb appeal enhancements. 

For example, retrofitting insulation or installing new windows can justify higher rents while improving tenant satisfaction. Avoid over-spending by focusing on functional and aesthetic improvements that align with local market trends and appeal to a broad market.

3. Secure Strategic Financing

Explore short-term financing options like hard money loans or seller financing to cover acquisition and rehab costs. Build relationships with multiple lenders to negotiate favorable terms during refinancing, such as lower interest rates or extended repayment periods. 

Ensure thorough documentation (e.g., appraisals, rental agreements) to streamline refinancing approvals.

4. Assemble a Skilled Team

Collaborate with experienced contractors to manage renovations efficiently and avoid budget overruns. Work through your long-term financial plans with a skilled real estate CPA to ensure your tax strategy best suits your goals. And consider leveraging quality property management software to streamline operation, or outsourcing time consuming jobs like finding and screening tenants and property maintenance. 

Real estate agents with investment expertise can help identify undervalued properties and navigate market dynamics.

Related: Rental Property Analysis Spreadsheet [Free Template]

5. Mitigate Risks

• Market volatility: Analyze local trends (e.g., rental demand, property values) to adjust pricing or exit strategies.
• Renovation delays: Pad timelines with contingency funds and prioritize critical repairs first.
• Financing hurdles: Pre-qualify for loans and maintain cash reserves to address unexpected costs.

BRRRR Method Alternatives

For investors seeking strategies beyond the BRRRR approach, several alternatives exist, each with distinct advantages and trade-offs. Below are key options:

1. Traditional Rental Investing

This involves purchasing a move-in-ready property with minimal renovations, then renting it immediately. While requiring less upfront effort than BRRRR, it typically offers lower returns due to higher purchase prices and limited value-add opportunities. However, it provides steady rental income to offset mortgage costs and generates passive cash flow.

2. House Flipping

House flipping focuses on quick resale after renovations. Investors buy distressed properties, renovate them rapidly, and sell for profit. Unlike BRRRR, flipping prioritizes short-term gains over long-term rental income. It suits those comfortable with renovation risks and market timing, but lacks the equity-recycling benefits of BRRRR.

3. Turnkey Real Estate Investing

Turnkey properties are pre-renovated and tenant-ready, eliminating the need for rehab work. Investors purchase these homes through specialized providers, who handle management and maintenance. While convenient, turnkey investments often involve higher upfront costs and lower margins compared to BRRRR.

4. Raw Land Investing

Investing in undeveloped land involves purchasing plots with future development potential. Investors may subdivide the land or wait for zoning changes to increase value. This strategy carries long-term risks (e.g., market stagnation) but avoids tenant management and renovation hassles.

Who is the BRRRR Method Most Suitable For?

The BRRRR method is ideal for:

• Experienced investors with knowledge of real estate markets.
• Those with access to upfront capital or financing options.
• Individuals comfortable managing rental properties and overseeing renovations.

Note: It may not be suitable for beginners due to its complexity and financial risks.

Maximize the BRRRR Method With Landlord Studio

The BRRRR method is a powerful strategy for building wealth through real estate, but its success hinges on precision, scalability, and adaptability. That’s why we recommend property management tools like Landlord Studio for property owners using BRRRR.

Landlord Studio empowers investors to automate cash flow tracking, optimize tax deductions, and streamline refinancing—critical steps for maximizing the BRRRR method. Whether you’re managing one property or scaling a portfolio, its tools help you recycle capital faster, reduce vacancies, and build wealth sustainably.

Create your free Landlord Studio account today and transform your BRRRR strategy into a scalable, profit-driven system.