The BRRRR method—Buy, Rehab, Rent, Refinance, Repeat—is one of the most powerful strategies for real estate investors looking to build wealth. By recycling capital, investors can scale their rental portfolio faster without constantly tying up cash. While the BRRRR method can be highly profitable, success depends on accurate calculations at every stage.
How do you measure profitability in a BRRRR deal?
Whether evaluating a new property or assessing returns after refinancing, key metrics like After-Repair Value (ARV), Cash-on-Cash Return, Cap Rate, and Return on Investment (ROI) help you determine whether your investment is a smart financial move.
Let’s break down how to calculate profitability using the BRRRR method.
Understanding the BRRRR Method
The BRRRR method follows a five-step process:
Buy – Acquire an undervalued or distressed property.
Rehab – Renovate to increase value and rental potential.
Rent – Secure tenants to generate rental income.
Refinance – Use a cash-out refinance to recover initial investment.
Repeat – Reinvest in the next property.
This strategy allows investors to build equity quickly, minimize out-of-pocket expenses, and scale their portfolios efficiently. However, you must analyze your numbers before and after buying a property to maximize profitability.
Key Metrics for Measuring Profitability
After Repair Value (ARV)
After Repair Value (ARV) is the property’s estimated market value after renovations. It’s crucial because lenders use ARV to determine refinance eligibility, and because it helps investors gauge potential profit margins.
Formula: ARV=Purchase Price+Value Added from Renovations
Example:
Purchase price: $150,000
Renovation costs: $30,000
Comparable properties (comps) suggest a post-renovation value of $225,000. In this case, the ARV is $225,000—a key figure when determining refinance potential and exit strategy.
Cash-on-Cash Return (CoC Return)
Cash-on-cash return measures how efficiently your cash investment generates income. Unlike ROI, which considers total returns over time, CoC return focuses on annual cash flow relative to the cash invested.
Formula: Cash-on-Cash Return=(Total Cash InvestedAnnual Pre-Tax Cash Flow)X100
Example:
- Annual rental income: $18,000 ($1,500/month)
- Annual expenses (mortgage, taxes, insurance, maintenance): $12,000
- Net cash flow: $6,000 per year
- Total cash invested (down payment + closing + rehab costs): $50,000
CoC Return=(6,000/50,000)×100=12%
A higher CoC return indicates a more profitable investment.
Capitalization Rate (Cap Rate)
The cap rate helps investors compare rental properties by measuring returns based on a property’s income and value.
Formula: Cap Rate=(Net Operating Income(NOI)/Property Value)X100
Example:
- Gross annual rent: $18,000
- Operating expenses (excluding mortgage): $5,000
- NOI = $13,000
- Property value (ARV): $225,000
Cap Rate=(13,000/225,000)X100=5.8%
A cap rate of 5-8% is typical for rental properties, but ideal rates vary by market.
Return on Investment (ROI)
ROI provides a big-picture view of profitability by factoring in total returns over time.
Formula: ROI=(Total Profit/Total Investment)X100
Example:
- Total profit (equity gained + rental income): $100,000
- Total investment (purchase + rehab + holding costs): $80,000
ROI=(100,000/80,000)×100)=125%
A high ROI signals a strong investment, especially if the BRRRR method allows you to pull out most of your initial capital for reinvestment.
How to Run the Numbers Before Investing
To ensure profitability in a BRRRR deal, careful financial planning is essential. Here’s what to keep in mind:
✔ Accurately estimate renovation costs – Unexpected expenses can eat into profits.
✔ Use conservative rental income projections – Don’t assume top-market rents if the area has vacancies.
✔ Factor in all costs. Projections should include closing costs, holding costs, and potential vacancy periods.
✔ Plan for refinance terms – Ensure the property’s ARV supports a cash-out refinance at favorable loan terms.
Running these numbers before investing helps avoid costly mistakes and maximizes returns.
Is the BRRRR Method Right for You?
The BRRRR method offers a scalable way to build long-term wealth through real estate, but its success depends on smart financial analysis. By tracking key metrics like ARV, CoC return, cap rate, and ROI, investors can make informed decisions and ensure every deal is profitable.
Get Expert Financing with Malve Capital
At Malve Capital, we offer investor-friendly loan options tailored to BRRRR projects. Whether you need acquisition funding, rehab financing, or a cash-out refinance, we can help. Contact us today to explore your loan options and grow your rental portfolio with confidence!