Buy a property that needs work, Rehab it, Rent it, Refinance into a long-term loan, and use the cash from the refinance to Repeat on the next one.
The idea is to pull most or all of your cash back out at the refinance so the same money can fund the next deal. It works when the numbers do, and it fails when they don’t. This page explains where that happens.
The five steps, and the financing for each
1. Buy You need fast, flexible money because these properties are usually distressed. Common options: cash, a hard-money loan, or a private lender. These are short-term loans, often 6 to 18 months, at higher cost than a standard mortgage. Know your exit before you sign: the refinance has to pay this loan off.
2. Rehab Budget for the work, a contingency of [10–20]%, and the holding costs while the property is empty (interest, taxes, insurance, utilities). Most BRRRR deals that go wrong go wrong here: the rehab runs over budget or late, and the holding costs grow. See our renovation loan page if you finance the work separately.
3. Rent Get the property rented, or at least know what the market rent is. Some DSCR programs qualify a vacant property on appraiser-supported market rent, and others want an executed lease.
4. Refinance This is the step that makes or breaks the strategy. A DSCR refinance replaces your short-term loan with a long-term one. We qualify the loan mainly on the property’s rent compared with its monthly costs (the DSCR), not on your personal tax returns. Three things decide how much cash you get back:
- Appraised value. The loan is a percentage of the value after the rehab (the “after-repair value,” or ARV), and the lender’s appraiser decides it, not you.
- Seasoning. Some lenders limit the loan to your purchase price plus documented rehab costs until you’ve owned the property for a set time ([6–12] months). That can cut the cash you pull out.
- Cash-out or rate-and-term. Paying off a hard-money loan is generally treated as rate-and-term. Getting extra cash-out is generally considered a cash-out refinance.
5. Repeat Use the cash you took out for the next deal. Each deal also adds a loan, so your total debt and monthly obligations grow with every property.
Illustrative example (numbers are examples only)
| Purchase price | $300,000 |
| Rehab | $60,000 |
| Holding and closing costs | $[20,000] |
| Total cash in | $380,000 |
| After-repair value (appraisal) | $480,000 |
| Refinance at [75]% of value | $360,000 |
| Cash left in the deal | $20,000 |
| Market rent / monthly costs (PITIA) | $3,400 / $3,000 |
| DSCR | 1.13 |
In this example you get back most, but not all, of your cash, and the property pays for itself with a thin cushion. Change any one number, such as an appraisal that comes in $30,000 lower or rent that is $300 less, and the picture changes. Actual loan amounts, ratios, and rates depend on the lender and the file.
What can go wrong
- The appraisal comes in low. You can’t take out as much, and the hard-money loan is still due.
- The rehab runs over. More cash in, less pulled out, and more holding costs.
- The rent doesn’t cover the payment. DSCR loans generally need the property to cover its costs. There are exceptions to go below 1 DSCR.
- The prepayment penalty. Most DSCR loans carry one, so selling or refinancing early costs money. Plan to hold.
- Rates and costs at the refinance can differ from what you modeled. Run your deal at conservative numbers.
- Doing it repeatedly raises your exposure. More properties means more debt, more vacancy risk, and less cushion if the market turns.
“Infinite return” (getting all your money back) is a best case, not an expectation. Plan for leaving some cash in the deal.
Where Specialty Home Loans fits
We help with the refinance step (a DSCR loan that pays off your short-term loan and lets you keep the rental) and can compare programs across lenders.
We also can talk through your plan before you buy, so the refinance works when the rehab ends. We can also assist with the purchase or rehab money.
Frequently asked questions
How long do I have to wait before I can refinance? It depends on the program. Some allow a refinance soon after the work is done and the property is complete. Others require a seasoning period of [6–12] months. Ask before you buy.
Do I need a tenant in place? Some programs accept appraiser-supported market rent, and others require a signed lease or collected rent.
Can I pull out all my cash? Sometimes, but not always, and you shouldn’t count on it. It depends on the appraisal, your total costs, the lender’s loan-to-value limit, and how the loan is classified.
Does this work for short-term rentals? Some DSCR programs allow short-term rentals, often using an income estimate, but not all do.
Does this work in my state? We’re licensed for home loans in WA, CA, OR, ID, TX, and FL, and we offer business-purpose loans in additional states. See where we lend.