BRRRR capital recovery: the one number that decides whether the deal repeats

Buy, rehab, rent, refinance, repeat. The strategy's whole appeal is the fifth word: if the refinance returns the cash you put in, you can do it again with the same money. If it does not, you own a rental with your capital trapped inside it, which is fine, but it is not BRRRR.

So the number that matters most is not cash flow, not cap rate, and not even ARV on its own. It is capital recovery: how much of the cash you put in comes back out at the refinance.

The calculation

Cash in            = Purchase + Rehab + Closing + Holding costs (less any acquisition loan)
Refinance loan     = Refinance LTV × Appraised ARV
Cash back          = Refinance loan − Payoff of any acquisition loan − Refi closing costs
Capital recovery   = Cash back ÷ Cash in
Cash left in deal  = Cash in − Cash back

Recovery of 100% means the refinance handed back every dollar. Above 100% you walked away with more than you put in (tax-free, because it is loan proceeds, not income). Below about 70% a large share of your capital is stuck, and the "repeat" step needs fresh money.

A worked example

A house bought for cash at $150,000, with $40,000 of rehab and $10,000 of closing and holding costs. Cash in: $200,000. After the renovation it appraises at $260,000 and rents for $2,100 a month. If you are not confident in that $260,000, read how to build an ARV from comps first, because everything below is a multiple of it.

The refinance lender offers a 30-year loan at 6.75%. Here is the same deal at three loan-to-value levels, which is exactly what the BRRRR calculator shows side by side. Operating expenses use REIzer's defaults (5% vacancy, 8% management, 5% maintenance, 5% reserves) plus $2,400 of taxes and roughly 0.6% of value in insurance, for NOI of about $15,444 a year.

Read across the recovery row and the deal gets better with every column. Read across the DSCR row and it gets worse. That is the trade-off.

The trade-off nobody mentions

A refinance is a percentage of the appraised value. So a higher ARV, or a higher LTV, does not mean "the same loan against more equity." It means a bigger loan. Once you have recovered all of your cash, every extra dollar of borrowing adds payment without adding anything you needed.

In the example, going from 75% to 80% LTV pulls out an extra $13,000 and turns a deal that barely covers its mortgage (DSCR 1.02) into one that does not (0.95): you are now feeding the property about $60 a month to hold the $8,000 you took out. Most lenders will not write that loan in the first place, since they typically want DSCR of 1.20 to 1.25, but the ones that will are not doing you a favor.

This is why a higher ARV can lower a BRRRR score in REIzer's scoring engine. Recovery is capped in the rubric: past 100% it stops earning points, while cash flow and DSCR keep losing them.

What a good BRRRR looks like

The deals that actually repeat have both halves:

• Recovery near 100% at a conservative LTV, usually 70 to 75%, so the number does not depend on finding an aggressive lender.
• DSCR at or above 1.20 after the refinance, so the property carries the bigger loan on its own rent, with room for a vacancy or a rate bump.

In the example, that means the deal is close but not there. Two fixes move it: buy for $140,000 instead of $150,000, which lifts recovery to about 103% at 75% LTV with the same loan; or find $150 more in monthly rent, which takes DSCR from 1.02 to roughly 1.11. Do both and it is a deal that repeats.

The BRRRR analyzer computes the minimum ARV your deal needs to hit full recovery, and its stress tests show what a low appraisal does to the whole chain. Run those before you close, not after the appraiser calls.