Every week we review BRRRR scenarios from investors who are one spreadsheet away from either recycling capital or trapping it for twelve months of carry. The question is never “Is BRRRR good?” — it is whether this acquisition, this rehab scope, this rent roll, and this refinance lane produce enough spread to justify the risk.
This walkthrough uses a simplified but realistic Midwest duplex so you can mirror the math on your own file. For the full framework, see our master BRRRR strategy guide. For Chicago-specific seasoning and RLTO friction, see the Chicago BRRRR guide.
The deal on paper
| Line item | Amount |
|---|---|
| Purchase price | $185,000 |
| Rehab (full mechanical + cosmetic) | $62,000 |
| Closing + carry (6 months) | $18,000 |
| All-in | $265,000 |
| Stabilized gross rent | $2,350/mo |
| Target appraised value | $285,000 |
Acquisition is distressed: both sides vacant, panel and HVAC at end of life, kitchens from 1998. The sponsor plans hard money for buy + rehab, then DSCR cash-out once leased.
Step 1 — Buy: does basis leave room?
Rule of thumb: you need 15%+ equity spread after rehab for a DSCR exit to return meaningful capital. Here, all-in $265K vs. $285K ARV is only 7.5% — thin.
Verdict: Negotiate purchase to $170K or trim rehab to $50K with scope discipline. Without that, the refi likely leaves too much cash trapped.
Step 2 — Rehab: can draws match the schedule?
Hard money releases rehab in draws tied to inspections. Budget line items:
- Electrical panel + partial rewire: $12K
- HVAC (two systems): $14K
- Kitchens/baths (both units): $22K
- Flooring, paint, exterior: $14K
If your contractor wants 50% upfront, you float payroll between draws — model $8K–$12K liquidity beyond the holdback.
Step 3 — Rent: will a DSCR lender believe the roll?
$2,350/mo gross on a renovated duplex is credible if you show executed leases and comps within a half-mile. Underwrite:
- 7% vacancy → $2,185/mo effective gross
- Taxes $3,600/yr, insurance $1,800/yr, maintenance 8% → stressed NOI near $1,450/mo
At a $285K value, DSCR at 75% LTV = $213,750 loan. Monthly P&I near $1,420 at 7.5% / 30yr → DSCR ~1.02 — borderline.
Verdict: Either push ARV to $300K+ with stronger comps or accept a partial BRRRR that leaves $30K–$40K in the deal.
Step 4 — Refinance: seasoning and documentation
Many DSCR programs require 3–6 months from acquisition unless you document heavy rehab. Package:
- Before/after photos
- Paid contractor invoices >25% of purchase price
- New leases dated after certificate of occupancy
- Appraisal with condition adjustment narrative
Missing any one item can push you into conventional 12-month seasoning — killing BRRRR velocity.
Step 5 — Repeat: what capital comes back?
If refi proceeds pay off $240K hard money (acquisition + partial rehab drawn), you might extract $0–$15K cash on this thin file. A good BRRRR returns 80%+ of cash invested. This deal, as written, is a learning deal — not a capital recycler.
Red flags that kill BRRRR deals
- ARV optimism without three sold comps in the same school district
- Rehab scope creep without change-order discipline
- Pro forma rent with no lease or market study
- Ignoring taxes — reassessment after rehab can erase NOI gains
- Wrong exit product — trying conventional cash-out on a non-owner-occupied duplex still in rehab
Green lights that suggest a good move
- All-in cost ≥15% below conservative ARV
- Rehab timeline ≤6 months with permit path confirmed
- Gross rent supports 1.15+ DSCR at your target LTV
- Hard money terms include 100% rehab holdback with draw schedule you can hit
- You have 6 months carry in reserves beyond closing
BRRRR go/no-go scorecard — four gates
Run these before hard money at 8.99%–13.5%:
| Gate | Pass threshold |
|---|---|
| Spread | ARV minus all-in ≥ $40K (adjust by market) |
| DSCR | Stabilized rent ÷ PITIA ≥ 1.0–1.25 at 5.75%–10.5% |
| Timeline | Rehab + lease ≤ hard money term minus 2 months |
| Seasoning exit | No-seasoning DSCR available OR 6-mo reserve for carry |
Use DSCR calculator · fix and flip calculator · Gary no-seasoning case study · BRRRR strategy guide.
The bank rate is not the bridge rate
The average 30-year fixed mortgage was 7.28 percent as of October 1, 2026. It was 7.03 percent the week before and 6.34 percent a year earlier. The 15-year average was 6.60 percent, versus 5.55 percent a year earlier. Source: Freddie Mac PMMS.
That survey is prime conforming purchase money for an owner-occupant. The duplex in the table above is vacant, needs mechanical work, and is a business-purpose buy. Jaken Finance Group funds that buy on fix-and-flip or bridge at 8.99%–13.5% interest-only, closing in 7–10 business days. The refinance, once leased, is a DSCR loan at 5.75%–10.5%, closing in about 14 business days.
National prices rose 0.3 percent in July 2026 and 2.6 percent over the prior year. Source: FHFA monthly House Price Index, data through July 2026, released September 29, 2026. A 2.6 percent national year will not create the missing spread on a $265,000 all-in cost against a $285,000 appraisal. You still have to cut basis or cut scope.
Why so many bank refinances were denied
In 2023, first-lien investment-property purchase originations on site-built one-to-four-unit homes were 276,000, down from 373,000 in 2022. Investment refinances were 101,000, down from 211,000. The overall refinance denial rate was 32.7 percent in 2023, versus 24.7 percent in 2022 and 14.2 percent in 2021. Home-purchase denials were 9.4 percent. Source: the CFPB’s December 2024 report, 2023 Mortgage Market Activity and Trends, with figures in the PDF.
Those denial rates are not limited to BRRRR. They do explain a pattern. Investors who wait for a conventional cash-out often meet a seasoning wall and a high denial rate. A DSCR exit underwrites the lease. Cash-out can reach 80 percent of value in select markets for qualified borrowers. The illustration above tests 75 percent, which is inside that cap, not above it.
Depreciation does not fix a thin refinance
If you keep the duplex, residential rental property is depreciated over 27.5 years under the general depreciation system. Source: IRS Publication 527. On a building basis of $200,000 after you allocate land out, one year of straight-line depreciation is about $7,273. That is a tax deduction. It is not cash you can use to pay the hard-money interest.
The $265,000 all-in figure on this deal includes rehab and closing. Land is not depreciable. Do not divide $265,000 by 27.5 and call it a reserve. Have a tax preparer split land and building. This is a description of the IRS publication, not advice on your return.
A single-member LLC that holds the duplex is disregarded for income tax unless it elects corporate treatment. You can still get an EIN for the bank account. Source: IRS, single-member LLCs. Vesting and the tax form are separate. See LLC investment property loans.
A second illustration with room to recycle
Example only. Do not overwrite the $185,000 duplex above. That file is thin on purpose.
Purchase $160,000. Rehab $45,000. Closing and six months of carry $14,000. All-in $219,000. Appraised value after lease-up $290,000. Spread is $71,000, about 24 percent of all-in cost. That clears the 15 percent rule of thumb used earlier on this page.
Seventy-five percent of $290,000 is $217,500. Eighty percent, the cash-out cap for qualified borrowers in select markets, is $232,000. A 75 percent loan pays off a $205,000 hard-money balance and returns about $12,500 before refinance costs. An 80 percent loan returns about $27,000 before those costs, if the ratio clears.
Gross rent $2,200. Principal and interest on $217,500 at 7.0 percent for 30 years is about $1,447. Taxes $280 a month and insurance $140 a month bring the full payment to about $1,867. Rent divided by that payment is about 1.18. The rate sits inside 5.75%–10.5%.
If rent comes in at $2,000 instead, the ratio falls to about 1.07. The deal still lives at a lower loan amount. It no longer returns most of the cash. That is a partial BRRRR. Name it before you wire earnest money.
Checklist before earnest money
- Three sold comps in the same school district, not a citywide average.
- Rehab bids split by draw, with a holdback you can float between inspections.
- Tax bill after rehab, not the seller’s homestead bill.
- A DSCR quote at both 75 percent and 80 percent loan-to-value.
- Hard-money term long enough for rehab, lease, and about 14 business days to close the rental loan.
- Six months of carry in cash if seasoning is required on your file.
Run the payment in the DSCR calculator and the cost stack in the fix and flip calculator. Program rules sit on DSCR loans and fix and flip requirements.
One more gate on the thin duplex. Interest-only at 11 percent on a $247,000 hard-money balance is about $2,264 a month. That balance is the $185,000 purchase plus the $62,000 rehab, with closing and carry still outside the note. Four months of interest is about $9,056. If the refinance is delayed into month eight, those four extra months cost the same $9,056 again. The $20,000 spread between $285,000 value and $265,000 all-in cost does not survive that delay plus selling or refinance fees. That is why the verdict above calls the file a learning deal unless you cut the purchase or the scope.
Submit your scenario
Want a second set of eyes? Find your loan match in minutes or call (833) 264-7776. We underwrite BRRRR files daily — purchase, rehab, and DSCR exit in one conversation.
Sensitivity table — when BRRRR fails
| Variable | Base | Stress | DSCR impact |
|---|---|---|---|
| Rent | $1,850/mo | -$150 | Fails 1.0x at 75% LTV |
| Rate | 7.25% | +1% | −0.08x DSCR |
| Rehab overrun | $45K | +$15K | Less cash-out at refi |
| Hold +2 months | 7 mo | 9 mo | +$3.5K IO at 11% |
Stress every file before hard money 8.99%–13.5%. DSCR calculator · master BRRRR guide · rehab loans.
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