BRRRR Math. The Formulas Every Investor Needs to Know Before Buying

BRRRR isn’t driven by emotion—it’s powered by math. From acquisition to refinance, your success hinges on a few essential formulas. Mastering these numbers helps you evaluate deals confidently, avoid overpaying, and stay on track to hit your returns. Let’s break down the BRRRR math that separates good investors from lucky ones.

1. The 70% Rule (Buy Smart)

Formula:
(ARV × 70%) – Rehab = Max Purchase Price
Why it matters:
This keeps a profit margin and ensures you can recover most of your capital at refinance.

Example:
ARV: $300,000 | Rehab: $30,000 → Max Purchase = $180,000

2. All-In Cost vs. ARV (Exit Readiness)

Formula:
(Purchase + Rehab + Holding + Closing Costs) ÷ ARV = Investment Ratio
Target:
Stay at or below 75%. That’s your path to pulling out most (or all) of your capital.

3. The 1% Rule (Quick Cash Flow Filter)

Formula:
Monthly Rent ≥ 1% of Purchase Price
Use case:
A fast screening tool for cash flow potential. If it fails here, dig deeper—or move on.

4. Debt Service Coverage Ratio (DSCR)

Formula:
Net Operating Income ÷ Monthly Mortgage Payment
Minimum threshold:
Most lenders require a DSCR ≥ 1.2 to approve rental property loans. It’s also a good check on your property’s debt capacity.

5. Refinance Loan Amount

Formula:
ARV × Refinance LTV (typically 75%) = Max Loan
Purpose:
This tells you how much equity you can extract after the value-add is complete.

6. Cash-on-Cash Return (Pre-Refi ROI)

Formula:
Annual Cash Flow ÷ Cash Invested = % Return
Use:
A crucial metric to evaluate how well your money performs before refinancing.

7. Break-Even Rent After Refinance

Formula:
Monthly Expenses ÷ Rent = Break-Even Ratio
Why it matters:
It keeps your post-refi numbers sustainable. The lower this ratio, the better your buffer.

Putting It All Together — Quick Example

• Purchase Price: $170,000
• Rehab: $30,000
• Total Investment: $200,000
• After-Repair Value (ARV): $280,000
• Refinance at 75% LTV: $210,000

You’ve recovered nearly all your capital. That’s the BRRRR method in motion—de-risked, repeatable, and ready for the next deal.

Conclusion
BRRRR is a formula-first framework. These calculations are your early warning system—and your green light indicators. If the numbers don’t work, the deal doesn’t work. Use the math, ditch the emotion, and scale smart.