Would you still call it a BRRRR if $30k stays trapped?

Question

I’m starting to think the clean version of BRRRR is not what most deals actually look like right now.

On paper, the deal can still be fine. You buy it, rehab it, rent it, refinance it, and it cash flows. But then the appraisal comes in a little lower than expected, the lender uses a lower LTV, closing costs eat into the refi, and suddenly you’re not pulling all your money back out. You might still have $20k, $30k, or $40k stuck in the property.

At that point, is it still a good BRRRR, or is it just a decent rental with better marketing? For people doing BRRRRs now, how much cash left in the deal is acceptable before you pass?

Chris Seveney · Answer

The BRRRR method has always been a rebranded version of what value-add real estate investors have done for decades. The acronym just made it marketable. But you're hitting on something that actually matters more than the label: what is your invested dollar earning, and are you building equity?

The "infinite returns" pitch was always the sexy part of BRRRR, but that was also the exception, not the rule. Most deals, especially right now with rates above 6%, appraisals being conservative and lenders tightening LTV, leave capital in the deal. That's not a failed BRRRR. That's just real estate.

Here's how I think about it: forget the acronym and run a simple return on equity calc. If you have $30k stuck in a property, what is that $30k earning you annually between cash flow and principal paydown? If the answer is 8%, 10%, 12%+, that's a solid deployment of capital. If it's 3%, you've got an opportunity cost problem.

The question I'd push back on is the framing of "cash left in the deal is acceptable before you pass." The better filter is: what is every dollar in this deal earning me, compared to what else I could do with it? A $40k remaining investment earning a 15% combined return is a better deal than a full pull-out with $0 left in but mediocre long-term equity or cash flow fundamentals.

Unpopular opinion but BRRRR was never the strategy. Building equity efficiently and recycling capital intelligently is the strategy. The acronym just gave it a better business card.

Caleb Brown · Answer

I think it'll depend on so many factors like ARV, cashflow, area grading, etc. Many investors are leaving money in. If they are able to get a deal with cashflow, in a solid area and still less money in than doing 20% down + rehab then it's a win.

Tyler Ruppert · Answer

For me the dollar left in matters less than what that money earns and whether it still cash flows on the bigger refi loan. $30k stuck is fine if the rent covers the new payment with room and that cash is pulling a solid return. $30k stuck in something that barely breaks even is a pass, because then it's just dead money sitting there. On my BRRRRs I've been okay leaving money in when the cash flow held up. Curious where others draw their cash-flow line before they'll leave money in.

Jaycee Greene · Answer

Hey @Ali Kalaei! What "metric" are you using to determine if your return is high enough to be acceptable? I mostly work with investors that focus on either IRR or EMx and each one has their own minimum acceptable return.

Would you still call it a BRRRR if $30k stays trapped?

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