Home › Guides › The BRRRR method and the refinance

The BRRRR method explained: the refinance math, step by step

BRRRR stands for buy, rehab, rent, refinance, repeat. The idea is to put your cash into a fixer, raise its value, then refinance and pull much of that cash back out. Whether it works comes down to a handful of numbers you can check before you make an offer.

Updated October 20, 2026 · by Tidy Landlord

How it works

You buy below the finished value (often with cash or short-term money), rehab, rent it out, then refinance into a long-term mortgage based on the after-repair value (ARV) and use the proceeds to repay what you put in. The refinance makes or breaks it, because the lender decides how much you can borrow.

Step 1: Add up your all-in cost

Count everything you pay before the refinance: purchase price, closing costs, the rehab plus a contingency, and holding costs while it sits empty (short-term interest, taxes, insurance, utilities). If the rehab runs twice as long, holding costs double too.

Step 2: Estimate the after-repair value carefully

The ARV is what an appraiser will say the finished property is worth. Base it on recent sales of similar renovated properties nearby, not list prices. The loan is a percentage of the ARV, so a miss here flows straight into the cash you get back.

Step 3: Know the refinance limits

Lenders cap a cash-out refinance at a loan-to-value ratio (LTV). These are maximums; your lender can go lower, and you still have to qualify.

  • US conventional loans: Fannie Mae's eligibility matrix (March 4, 2026) caps a cash-out refinance of an investment property at 75% LTV for 1 unit and 70% for 2 to 4 units (Fannie Mae Eligibility Matrix).
  • Seasoning in the US: for a Fannie Mae cash-out refinance, at least one borrower must have been on title for at least six months before the new loan is disbursed, and an existing first mortgage being paid off must be at least 12 months old. A "delayed financing" exception can apply if you bought with cash, but the new loan is then limited to your documented purchase investment plus the new loan's closing costs, prepaid fees and points, so it doesn't refund the rehab (Fannie Mae Selling Guide B2-1.3-03).
  • Canada: the Bank Act says a bank can't refinance a residential mortgage above 80% of the property's value, counting any mortgage with an equal or prior claim, unless the excess is insured or another exception applies (Bank Act, s. 418). The FCAC uses the same 80% figure for borrowing against home equity, and lenders apply the stress test when you refinance.

Ask a lender before you buy how long you must own the property first.

Step 4: Work out the cash left in the deal

The key formula is simple:

Cash left in the deal = all-in cost − (new loan − refinance costs − any loan you pay off)

Zero or less means you got all your money back; anything more stays tied up until you sell or refinance again.

A worked example

These numbers are made up to show the method, not market data. A single-family house, bought with cash:

  • Purchase price $150,000, closing costs $4,500, rehab $40,000, holding costs $6,000: all-in cost $200,500
  • ARV $250,000; cash-out refinance at 75% LTV: new loan $187,500
  • Refinance closing costs $5,000, so net proceeds are $182,500 (no existing loan to pay off)
  • Cash left in the deal: $200,500 − $182,500 = $18,000, and you hold $62,500 of equity ($250,000 − $187,500)

At 7% over 30 years (monthly compounding), the loan costs $1,247.44 a month, $14,969.31 a year. Rent is $2,100 and operating expenses (taxes, insurance, repairs, reserves, vacancy, management) are $750, so net operating income (NOI) is $16,200 a year.

  • Cash flow: $16,200 − $14,969.31 = $1,230.69 a year, about $102.56 a month
  • Debt service coverage ratio (DSCR): NOI ÷ annual loan payments = $16,200 ÷ $14,969.31 = 1.08
  • Cash-on-cash return: $1,230.69 ÷ $18,000 = 6.8% on the cash still in the deal

If a lender allowed 80% instead, the loan would be $200,000 and only $5,500 would stay in the deal, but the payment rises to $1,330.60 a month and cash flow drops to about $19 a month (DSCR 1.02). More cash out means thinner cash flow, and one vacancy wipes out the year. Lenders that underwrite on rent usually want a DSCR above 1; check their minimum.

Step 5: Stress-test the deal

Rerun it with a lower ARV, a bigger rehab, a longer hold and a higher rate. If it only works when everything goes right, it's a bet. For a maximum offer, start from the loan you expect and subtract the rehab, holding and closing costs and the cash you're willing to leave in.

Taxes in the US

  • Interest: if you refinance for more than the old balance and use the extra for something unrelated to the rental, interest on that part generally can't be deducted as a rental expense (IRS Pub. 527).
  • Points: points are prepaid interest, generally deducted over the term of the loan. When a loan ends through a refinance, you may deduct the remaining points, but generally not if you refinance with the same lender.
  • The rehab: improvements are capitalized and depreciated (see depreciation vs CCA).

Taxes in Canada

  • Interest: interest on money borrowed to buy or improve a rental goes on line 8710 of Form T776. In the CRA's example in guide T4036, refinancing a rental for a down payment on your home means the extra interest can't be deducted against rental income, because the money went to personal use.
  • Financing fees: application, appraisal, brokerage and mortgage legal fees are deducted 20% a year over five years, whatever the loan's term; repay early and you deduct the rest then.
  • The rehab: capital improvements are claimed as capital cost allowance (CCA).

Keep the purchase, rehab and refinance paperwork together; you'll need it every year and when you sell.

Frequently asked questions

What does BRRRR stand for?

Buy, rehab, rent, refinance, repeat: buy a property that needs work, fix it up, rent it out, refinance it based on its new value to pull your cash back out, and use that cash on the next property.

How much can I borrow on a BRRRR cash-out refinance?

It depends on the lender and loan type. Fannie Mae's eligibility matrix caps investment-property cash-out refinances at 75% of the appraised value for 1 unit and 70% for 2 to 4 units. In Canada, the Bank Act limits a bank's refinance to 80% of the property's value unless the excess is insured.

How long do I have to wait before refinancing?

For a Fannie Mae cash-out refinance, at least one borrower must have been on title for six months, unless an exception such as delayed financing for a cash purchase applies. Other lenders and Canadian lenders set their own rules, so ask before you buy.

Is interest on a cash-out refinance deductible?

Interest on the part used for the rental is. Both IRS Publication 527 and the CRA's guide T4036 say interest on cash-out money used for personal purposes can't be deducted against rental income.

Sources

This guide is general information, not financial, lending, tax or legal advice. Lender rules change and vary by lender, province and state, and every figure in the worked example is made up to show the method. Check the official sources linked above, get a lender's written terms before you rely on a refinance, and ask a tax professional how the rules apply to you.

More free help: all landlord guides · free landlord calculators