BRRRR Method Math: Cash Left In, Cash Flow and DSCR Explained

BRRRR calculator math has two parts: what the cash out refinance returns, and whether the rent carries the new loan. Cash left = cash invested − (new loan − refinance costs − purchase loan); cash flow = NOI − payment; DSCR = NOI ÷ payment. Example house, refinanced at 75% of a $320,000 ARV: new loan $240,000, $30,600 left in the deal, DSCR 0.88 at $2,400 rent.

The five BRRRR steps

BRRRR stands for buy, rehab, rent, refinance, repeat. The first two steps are the same money as a flip: a house bought below its finished value, a renovation, a few months of holding. The exit is different: you rent the house, borrow against its new value with a long-term loan and use the cash that comes back for the next house.

1. Buy a house whose price plus rehab is well below its ARV (after-repair value, what the house will appraise for once the work is done), with cash or a short-term purchase loan.
2. Rehab it to rental standard: durable rather than showy, with the same discipline as a flip on unknown costs.
3. Rent it to a tenant. The lease and the rent are what the refinance lender underwrites.
4. Refinance with a long-term loan sized on the appraised value, typically 75% of it. The new loan pays off the purchase loan; what is left after the refinance costs comes back to you.
5. Repeat with that cash.

The math answers two separate questions: how much of your cash stays in the house, and what the house earns each month once it carries the new loan.

How the refinance works: the new loan at 75% of ARV

The cash-out refinance lender appraises the finished, rented house and lends a share of that value, the LTV (loan to value). Seventy-five percent is a common cap for investment property and the app's default, as are 7% a year over 30 years; all three are editable, and your lender's terms will differ.

Cash invested = Price + Rehab with contingency + Purchase closing + Holding + Purchase loan points and interest − Purchase loan
New loan = ARV × LTV
Refinance costs = New loan × refinance cost %
Cash out = New loan − Refinance costs − Purchase loan payoff
Cash left in the deal = Cash invested − Cash out

On a cash purchase the purchase loan is $0 and cash invested is simply the total cost. With a hard money purchase the points and interest join the costs and the loan is paid off out of the new loan. Either way the new loan depends only on the appraisal and the LTV; what you paid decides how much of it comes back.

Worked example: cash left in the example house

The example house used across this site, bought with cash: ARV $320,000, price $200,000, rehab $48,000 with 10% contingency, purchase closing 2% of price, holding $1,500 a month for the 6 months most lenders want before a refinance.

So $30,600 stays in the house, 88.5% of the cash comes back, and the house carries a $240,000 loan against an appraised $320,000. For all the cash to come back, the total cost would have to be no more than the cash out, $235,200: about $30,000 less, which on this house is the difference between paying $200,000 and about $170,000.

The appraisal is the number everything hangs on. How to calculate ARV from sold comps matters more for a BRRRR than for a flip, because a flip sells to a buyer who may pay more than the comps, while a refinance lender pays exactly what the appraiser writes. An appraisal 5% lower, $304,000, makes the new loan $228,000 and leaves $42,360 in the deal.

How to compute NOI, cash flow and DSCR

The second half of the math is the monthly operation. NOI (net operating income) is the rent after vacancy and running costs but before the loan payment. The app's starter defaults for running costs are rules of thumb, shown as editable: vacancy 5% of rent, management 8%, maintenance 5%, capital reserves (capex) 5%, property taxes 1.1% of value a year, insurance $1,800 a year. Replace them with the house's own tax bill and insurance quote as soon as you have them.

NOI = Rent − Vacancy − Management − Maintenance − Capex − Taxes ÷ 12 − Insurance ÷ 12 − Other
Payment = standard amortized payment on the new loan (principal and interest)
Cash flow = NOI − Payment
DSCR = NOI ÷ Payment
Cash-on-cash = Cash flow × 12 ÷ Cash left in the deal

The payment on $240,000 at 7% over 30 years is $1,596.73 a month, from the standard amortization formula: loan × r ÷ (1 − (1 + r)^−360), with r = 0.07 ÷ 12. Here are the figures at two rents, because the rent estimate is the input that moves everything below it:

At $2,400 the rent does not carry the loan: every month costs $192.06 after the running costs, and the DSCR of 0.88 is below the 1.0 where the rent just covers the payment and below the 1.2 or so many DSCR lenders want. At $2,800 the house covers the payment with $115.94 to spare and a DSCR of 1.07. With these defaults, the break-even rent on this loan is about $2,650 a month, and a DSCR of 1.2 needs about $3,065.

What cash-on-cash means when cash left is small

Cash-on-cash return is the yearly cash flow divided by the cash still in the deal. When most of the cash comes back, the denominator is small and the ratio swings. On the example house, $1,391 a year on $30,600 is 4.5%; the same cash flow with $10,000 left in would be 13.9%; with nothing left in, the ratio has no meaning and the app shows none. A high cash-on-cash figure on a BRRRR says that little cash is in the house, not that the house earns a lot.

Read the three figures together. Cash left says how much of your money the house keeps. Cash flow says what it earns or costs each month in dollars. DSCR says how much room there is between the rent and the payment. None of them is a verdict; a house with $30,600 left in and −$192 a month is a different proposition from one with $80,000 left in and +$400 a month, and only you know which fits your plan.

What the BRRRR numbers do not tell you

The calculation is only as good as four inputs, and all four are estimates until the day they are not.

• The appraisal. The new loan is 75% of what the appraiser writes, not of what you think the house is worth. Use comps and a conservative figure.
• The rent. A rent estimate is external data: nearby rentals, a property manager's opinion. The cash flow changes sign between $2,650 and $2,400 on this house. Confirm it before you buy.
• The months. Six months of holding is $9,000 here; nine is $13,500, and each month on a purchase loan adds interest too.
• The running costs. The defaults are rules of thumb. An older house with a tenant needs real maintenance money; a county with 2% property tax changes the NOI by hundreds a month.

Costs and rents vary by market, and the example house is an example. Run the deal with the appraisal 5% lower, the rent 10% lower, the rate 1% higher and three more months, together, and see what is left.

How Flip Investor OS shows BRRRR next to the flip

In Flip Investor OS a deal has two exits on the same house: sell it after the work, or refinance and rent it. The flip reading shows the profit, the margin and the maximum offer; the BRRRR reading shows the cash left in the deal, the cash flow, the DSCR and the maximum offer that leaves no more than the cash you are willing to keep in. Both use the same price, rehab, closing and holding figures. See flip vs BRRRR for how to read them side by side.

The running costs and the refinance terms are your defaults, editable per deal, and the deal says when the tax or the insurance is an assumption rather than the house's own figure. The stress tests (appraisal −5%, rehab +20%, three more months, rent −10%, rate +1%, and all together) sit under the base case. The app never says whether to do the deal; it shows what the house keeps and what it earns.

The free BRRRR calculator takes the price, ARV, rehab, rent and months, applies the starter running costs and a cash purchase, and returns the cash left, the cash back, the payment, the cash flow, the DSCR and the cash-on-cash. A blank input is unknown, not $0, and nothing is saved. Open the free calculator and run your own house through it.