The BRRRR 75% Rule: Formula, Examples and When It Fails

What the BRRRR 75% rule says

In a BRRRR deal you recover your capital at the refinance step: the lender issues a new loan against the property's after-repair value, and that loan pays you back. Most lenders cap a cash-out refinance on an investment property at 75% loan-to-value. That cap is where the rule comes from.

All-in cost means everything, not just the purchase price:

• Purchase price
• Buy-side closing costs, typically about 2%
• The rehab budget, including a 10% to 20% contingency
• Holding costs while you renovate and season: taxes, insurance, utilities, and interest on any bridge or hard-money loan

Leaving any of those out is the most common way an investor convinces themselves a deal passes when it does not. Holding costs in particular are invisible on the day you make the offer and very real nine months later.

The 75% rule and the 70% rule are not the same

The two rules get conflated because they look alike. They answer different questions, for different exits.

A deal can pass the 75% rule and fail the 70% rule. That only means it works as a BRRRR and not as a flip. The reverse is rare: a property cheap enough to flip profitably almost always refinances cleanly.

Two worked examples

Same house, same $400,000 after-repair value, same 75% refinance. The only difference is what each investor spent to get there.

Example uses public listing data for illustration. See disclaimer.

When the 75% rule fails you

The rule assumes the property appraises at your ARV and that the lender will lend 75% of it. Both assumptions fail often enough to plan for.

1. The appraisal comes in low. Appraisals commonly land 5% to 10% off a projected ARV. A deal that passes at your number and fails at ARV minus 5% has no margin of safety. Stress-test the ARV, not just the verdict.
2. DSCR caps the loan below 75% LTV. Lenders also require the rent to cover the new payment, usually at a debt service coverage ratio of 1.2 or higher. In low-rent, high-price markets that check can cap the loan well below 75% of ARV, so you pass on paper and still cannot pull the full amount out.
3. Your lender is not a 75% lender. Some stop at 70% LTV on investment cash-outs; a few go to 80%. Seasoning requirements of 6 to 12 months also vary. Confirm both with the refinance lender before you buy, then run the rule with their actual LTV.
4. Failing the rule is not always failing the deal. Leaving $20,000 to $40,000 in a strong rental can still beat a conventional 20%-down purchase, where you would leave far more. Judge the leftover cash by the cash-on-cash return it earns.

Turning the rule into a maximum purchase price

The most useful form of the rule is inverted. Instead of asking whether a deal passes, ask: given this ARV, rehab budget and holding costs, what is the most I can pay and still get every dollar back at the refinance? That is a number you can negotiate with.

The BRRRR calculator solves this automatically. It shows all-in cost as a share of ARV on a gauge, flags the verdict, and prints the exact maximum purchase price for full capital recovery beside the cash-left waterfall and the refinance risk read.

Example uses public listing data for illustration. See disclaimer.

Want to run the numbers yourself first? The free BRRRR calculator runs the whole waterfall, including the 75% check and the maximum purchase price, online with no signup. The same math is available as a spreadsheet with live formulas.