Buy, rehab, rent, refinance, repeat: see how much of your cash the refinance pays back, the new payment, monthly cash flow and cash-on-cash return
A BRRRR deal works when the cash-out refinance on the after-repair value (ARV) returns most of the money you spent buying and fixing the property. Cash left in the deal = purchase + closing + rehab + holding costs − (new loan − refinance costs − any purchase loan paid off). In the default deal $201,200 goes in, a 75% refinance on a $260,000 ARV is a $195,000 loan, and only $12,200 stays in the property while it cash flows $-103.47 a month.
Holding cost = months of rehab × monthly carrying costs (taxes, insurance, utilities, interest on a purchase loan). New loan = ARV × refinance LTV. The monthly payment uses the standard amortization formula: $1,363.47 on $195,000 at 7.5% for 30 years. Cash flow = rent × (1 − vacancy) − operating expenses − payment. Cash-on-cash return = yearly cash flow ÷ cash left in; when the refinance returns everything you put in, the return is unlimited because none of your money is left in the deal.
| Refi LTV | New loan | Cash left in | Monthly cash flow | Cash-on-cash |
|---|---|---|---|---|
| 65% | $169,000 | $38,200 | $78.33 | 2.46% |
| 70% | $182,000 | $25,200 | $-12.57 | -0.60% |
| 75% | $195,000 | $12,200 | $-103.47 | -10.18% |
| 80% | $208,000 | $-800 | $-194.37 | All cash back |
Everything hangs on the appraisal after the rehab. A lower appraisal shrinks the loan dollar for dollar times the LTV, leaving more cash in the property. Run a conservative ARV from recent sales of renovated comparable homes, not list prices.
| ARV | New loan | Cash left in | Monthly cash flow | Equity after refi |
|---|---|---|---|---|
| $230,000 | $172,500 | $34,700 | $53.85 | $57,500 |
| $245,000 | $183,750 | $23,450 | $-24.81 | $61,250 |
| $260,000 | $195,000 | $12,200 | $-103.47 | $65,000 |
| $275,000 | $206,250 | $950 | $-182.13 | $68,750 |
| $290,000 | $217,500 | $-10,300 | $-260.79 | $72,500 |
Fannie Mae's Selling Guide (B2-1.3-03, cash-out refinance) requires at least one borrower to have been on title for six months before the new loan, and a first mortgage being paid off must be at least 12 months old; buyers who paid cash can use delayed financing instead. Lenders cap cash-out on investment property, commonly at 70% to 75% of the appraised value. DSCR lenders size the loan on the rent instead of your income; the calculator shows the debt service coverage ratio so you can see whether rent covers the payment.
A common screen for the purchase price: pay no more than 70% of ARV minus the rehab. For a $260,000 ARV and $40,000 rehab that is $142,000. It is a rule of thumb, not a guarantee; run the full numbers above.
Buy, rehab, rent, refinance, repeat: buy a property below its potential value, renovate it, rent it out, refinance based on the higher value to pull your cash back out, then use that cash on the next property.
Total cost (purchase, closing, rehab, holding) minus what the refinance returns (new loan − refinance costs − any purchase loan). In the default deal: $201,200 − $189,000 = $12,200.
One where most or all of your cash comes back at the refinance and the rent still covers the new payment and expenses with a margin. Many investors look for a DSCR of 1.2 or more and positive monthly cash flow.
For a Fannie Mae cash-out refinance, six months on title. If you used a purchase loan, that loan generally must be 12 months old before it can be paid off with cash-out; buyers who paid cash can use delayed financing. Portfolio and DSCR lenders set their own seasoning.
Commonly 70% to 75% of the appraised value for investment property cash-out. Enter your lender's figure; the table shows how much it changes the cash left in.
Loan proceeds are not income, so a cash-out refinance isn't taxed when you receive it. The interest on the part used for the rental is a rental expense.
Tax rules, limits and pay data change. Check the current figures with the primary source before acting on them.