What Most Investors Forget in the BRRRR Process (And It’s Not the Rehab)

Question

Everyone talks about the BRRRR method like it’s a formula — Buy, Rehab, Rent, Refinance, Repeat.

But after working with a lot of investors, I’ve noticed one thing that often gets overlooked:The “tax” side of BRRRR.

Most people focus on the deal numbers — the purchase price, the ARV, the refinance rate — but forget that how you structure and record those costs can make a huge difference down the line.

For example:

• Tracking your rehab costs separately helps you depreciate correctly later.
• Timing your refinance can change when interest expenses become deductible.
• And keeping good records on improvements vs. repairs can save you thousands when you sell or do a cash-out refi.

The BRRRR method is powerful because it lets you build equity fast — but if your books aren’t clean, you’ll end up leaving money on the table when tax season comes around.

The investors who scale fastest aren’t just great at finding deals — they’re great at documenting them.

Curious — how do you track your rehab and refinance expenses during a BRRRR project?Spreadsheet? Bookkeeper? Or still figuring out your system?

James Jones · Answer

You’re spot on, most investors lose money in BRRRR not on the buy, but in the bookkeeping. The numbers can look great on paper, but if you track things incorrectly, you kill your depreciation, misclassify costs, or inflate your tax bill for no reason.

Here’s how we handle it across a couple hundred BRRRR rehabs:

1. Rehab is always tracked as its own cost center
Labor, materials, subcontractors, permits, all separate line items. That’s what keeps your depreciation schedule clean and lets you break out improvements vs. repairs later.

2. Financing costs get their own bucket
Points, underwriting fees, appraisal, inspection, credit pulls, all treated as loan costs so they’re amortized correctly. I see a lot of beginners bury these in rehab or closing costs and leave money on the table.

3. Every project gets a clean timeline of payments
This matters more than people realize. The date you spend vs. the date you refi affects what’s deductible and when.

4. Improvements vs. repairs are documented with photos
Not for the IRS, for my own memory. I don’t want to be guessing two years later whether that $8,900 plumbing bill was a repair or a replacement.

5. Everything is stored in one folder per property
Before, during, after photos
Invoices
Scope of work
Permits
Final receipts
Refi docs
Appraisal
Closing statements (buy/refi)

If you ever sell, refi again, or get audited, you save yourself a world of pain.

At scale, BRRRR becomes a bookkeeping business disguised as a real-estate business.

Jake Baker · Answer

@William Thompson

A few areas that really make a difference are:

- Understanding the difference between repairs and capital expenditures

- Knowing that different capex items follow different depreciation schedules

- Tracking how improvements and depreciation affect your basis

- Amortizing the financing and closing costs from both the purchase and the ref

For my flipping business, I prefer to use fewer software programs to streamline things. It's easy to get bogged down by too much software in today's world. We use DealCheck to underwrite deals and QuickBooks Online for everything related to accounting and numbers. All of this can be tracked clearly in QBO if set up correctly.

Taylor Campbell · Answer

I completed my first BRRRR this year and my documentation of taxes is a little scattered at the moment. I would say I know where everything is and it is documented, however I am trying to find a better / more organized / automated system. I recently signed up for baselane, so I am hoping this could maybe help down the road. I didn't just sign up for it for tax stuff, but it is added bonus. Curious to see how other people handle this though.

Scott Chilton · Answer

You’re absolutely right to bring up the tax side, William. It’s one of those things that doesn’t seem important until it costs you later. I always tell new investors to stay organized from the start and keep track of every dollar that goes into the property. Separate what adds long-term value from what’s just a repair, since that can really change your tax outcome. Even using a simple tracking system helps you see where your money’s going and keeps you ready when it’s time to refinance or file taxes. Good records don’t just keep you compliant, they help you keep more of your profit.

James Jones · Answer

Really solid breakdown, especially on the capex vs repairs distinction. That’s one of the biggest areas I see newer BRRRR investors misclassifying, and it completely screws up their basis tracking later when they go to refi or sell.

I’m with you on depreciation schedules too. Once you understand how each bucket depreciates, 5-year, 7-year, 15-year, 27.5-year, you start making rehab decisions differently because you can forecast the tax impact alongside the construction impact.

On my side, because I run a decent volume of BRRRR and Section 8 rentals in Memphis, I’ve had to build a system that keeps everything tied back to the property’s basis and the future refi plan. The more accurate the categorization, the cleaner the numbers I hand to the lender when we're pulling ARV comps or submitting the refi package.

I also agree on minimizing the software stack. Too many tools creates more chances for things to fall through the cracks. I use:
• DealCheck for underwriting
• QBO for all accounting + amortization schedules
• A simple class and tag system for rehab tracking
• A separate depreciation file for my CPA

If you’ve dialed in a process that works well for flips, I’m always open to comparing systems — it’s rare to find investors who take the backend as seriously as the front-end deal finding.

Appreciate you sharing your workflow.

Janae Chavis · Answer

I am in the middle of my first BRRR and the lack of organization is keeping me up at night. I have taken off next week to focus on the getting my receipts in order and establishing an efficient process to use going forward. I plan to use excel for the time being, but I have also heard good things about the Stessa software for expense tracking. The only catch it that it does not have a budget tracking feature.

Max Emory · Answer

Great points. We see incorrect recordings of the purchase and capital expenditures most frequently. Even most professional bookkeepers don't understand how to record some of these items. It takes an REI bookkeeping specialist the majority of the time.

- Time Capital Bookkeeping (REI myself since 2019)

James Jones · Answer

Hey Janae, totally get where you’re coming from, the bookkeeping side of a BRRRR can feel way more overwhelming than the rehab itself, especially on your first one. The good news is once you build a simple system, you’ll never go back.

Here’s what I always recommend for new investors:

1. Excel is perfect for your first project.
You don’t need fancy software yet, a clean sheet that tracks:
• Budget vs actual
• Invoices/receipts
• Category (materials, labor, holding costs, etc.)
• What’s capitalized vs expensed
• What’s part of unamortized loan costs

Once you set it up, staying organized becomes way easier.

2. Stessa is great for rentals, but it’s not ideal for BRRRR construction bookkeeping.
You’re right, it doesn’t have true budget-tracking for rehab phases. It’s better for ongoing property management after stabilization.

3. Create a weekly “receipt ritual.”
Pick one day a week (even 20 minutes) to:
• Enter receipts
• Match charges
• Update your budget
This alone eliminates 90% of the stress.

4. Make a folder system that mirrors your spreadsheet.
Example:
• 01 – Rehab invoices
• 02 – Materials
• 03 – Utilities/holding costs
• 04 – Loan docs
• 05 – Before/after photos
When the lender asks for docs during the refi, you’ll be ready in seconds.

What Most Investors Forget in the BRRRR Process (And It’s Not the Rehab)

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