BRRRR vs Fix and Flip: Same House, Two Exits, Very Different Math
By Brad Geisen
· 5 min read
In this article
Same house. Same rehab. Same after-repair value. The only decision is what you do on the day the work is finished: list it, or lease it and refinance. That one decision changes the return, the taxes, the risk, and the shape of the next five years.
This post runs both exits on one property with every number shown, then explains which conditions favor each.
The property
The 70% rule would put the maximum purchase at 70% × $290,000 − $45,000 = $158,000. We are paying $180,000, which is where many real deals land. The comparison at the "correct" price is at the end.
Cash in through rehab (identical for both exits)
| Item | Amount |
|---|---|
| Down payment (10%) | $18,000 |
| Purchase closing costs | $5,400 |
| Rehab | $45,000 |
| Hard money points (2%) | $3,240 |
| Hard money interest (6 months at 12%) | $9,720 |
| Holding costs (6 months) | $900 |
| Total cash invested | $82,260 |
Financing details are in hard money vs DSCR loans. The point here is that both strategies spend the same $82,260 to get to the same finished house.
Exit A: fix and flip
Sell at ARV, pay selling costs of 8% (agent commissions plus seller closing costs), pay off the hard money.
| Item | Amount |
|---|---|
| Sale price (ARV) | $290,000 |
| Selling costs (8%) | −$23,200 |
| Purchase price | −$180,000 |
| Rehab | −$45,000 |
| Purchase closing | −$5,400 |
| Points + interest + holding | −$13,860 |
| Net profit | $22,540 |
Return on cash: 27.4% in six months, about 55% annualized if you could repeat it back to back. You walk away with your $82,260 plus $22,540, and no property.
Two sensitivities worth knowing:
- Sell in four months instead of six: interest and holding drop by about $3,540 and profit rises to $26,080.
- ARV comes in 5% low ($275,500): selling costs fall a little, but profit drops to $9,200. A 5% miss on ARV took 59% of the profit. Flips live and die on the appraisal.
Exit B: BRRRR (buy, rehab, rent, refinance, repeat)
Lease the property, then refinance into a 30-year loan at 75% of appraised value and pay off the hard money.
| Item | Amount |
|---|---|
| New loan (75% of $290,000) | $217,500 |
| Refinance closing (3%) | −$6,525 |
| Pay off hard money | −$162,000 |
| Cash returned at refinance | $48,975 |
| Cash left in the deal | $82,260 − $48,975 = $33,285 |
| Equity (ARV − new loan) | $72,500 |
Now the hold. Rent $2,300. Operating expenses about $877/month: taxes and insurance on the $290,000 value (about $532) plus 15% of rent for vacancy, maintenance, and reserves ($345). NOI is $17,080/year. The new payment is $1,304/month, $15,648/year.
- Cash flow: $1,432/year, about $119/month
- Cash-on-cash on the $33,285 left in: 4.3%
- DSCR: 1.09 (thin; see how to calculate DSCR)
- Loan paydown, year one: about $2,700, rising each year
Sensitivity: appraisal comes in 5% low ($275,500). The refinance shrinks to $206,625, cash returned drops to $38,426, and you leave $43,834 in the deal. Painful, but you still own the house. The same miss that erased most of the flip's profit costs the BRRRR about $10,500 of liquidity.
Run these numbers on a real property.
Run both exits on a property you are watching →Side by side at $180,000
| Fix and flip | BRRRR | |
|---|---|---|
| Cash back at exit | $104,800 (your $82,260 + $22,540 profit) | $48,975 |
| Cash left in | $0 | $33,285 |
| Profit / equity created | $22,540 realized | $72,500 unrealized |
| Ongoing income | None | ~$119/month + loan paydown |
| Tax character (typical) | Ordinary income | Not a taxable event; depreciation on the hold |
| Exposure to ARV miss | Severe (5% miss = −59% profit) | Moderate (5% miss = $10,500 less cash out) |
| Exposure to rates | Low (6-month hold) | High (30-year payment set at refinance) |
| Time to next deal | Immediate | Immediate, with less cash |
The flip returns more cash. The BRRRR creates more value and keeps producing. At $180,000, neither is a great deal: the flip's margin is thin for a six-month project with construction risk, and the BRRRR's DSCR is thin for a 30-year hold.
The same comparison at the right price
Run it at the 70% rule price, $158,000, and both exits change character.
| Fix and flip | BRRRR | |
|---|---|---|
| Cash invested | $77,706 | $77,706 |
| Profit / cash returned | $46,894 profit (60% ROI) | $68,775 returned |
| Cash left in | $0 | $8,931 |
| Cash flow | — | $119/month (16% cash-on-cash on $8,931) |
| DSCR | — | 1.09 (unchanged) |
Two lessons. First, the purchase price is the whole game for both strategies; $22,000 less on the buy doubled the flip's profit and turned the BRRRR into a near-infinite-return hold. Second, price does not fix DSCR. The refinance is sized on the appraisal, not on what you paid, so the monthly payment and the rent are the same either way. A thin DSCR is a rent-to-value problem, and the fix is a different property or a smaller refinance, not a better negotiation.
That is why DealGapIQ computes a separate Target Buy and Deal Gap for flip and for BRRRR. On this house they diverge: the flip's Target Buy is set by ARV and selling costs; the BRRRR's is set by the refinance and the rent.
When to flip
- The market has active retail buyers and comps are tight, so ARV is defensible.
- You need the cash back to fund the next deal.
- Rent-to-value is weak (the house would not cover a 75% refinance from rent).
- Your hard money term is short and rates are high; every month of holding is expensive.
- You are set up to do volume and are treating the business as income, not as a portfolio.
When to BRRRR
- Rent covers the refinanced payment at 1.20+ DSCR on the investor method, not just the lender's.
- The market has slow, steady appreciation and low vacancy.
- You want to defer taxes and build a portfolio rather than take income now.
- You can afford to leave some cash in; most real BRRRRs are not "infinite return."
- You have a DSCR or conventional lender lined up before you buy, with their seasoning rules in hand.
The fallback
Plan the flip, underwrite the BRRRR. If the flip market softens during your rehab, the BRRRR is the exit that lets you keep the house instead of cutting the price. The reverse is also true: if a BRRRR appraisal disappoints, the flip is often still there. Knowing both numbers before you buy is the difference between a fallback and a panic.
The BRRRR strategy guide and the fix and flip strategy guide cover each in depth.
We analyze. You decide. Not financial, legal, or investment advice. Figures are illustrative and use editable assumptions; confirm tax treatment with a CPA.
Frequently asked questions
- Which makes more money, BRRRR or fix and flip?
- A flip produces cash sooner; a BRRRR produces equity and income over time. On the example in this post, the flip nets $22,540 in six months. The BRRRR leaves $33,285 in the deal against $72,500 of equity, plus about $119 a month of cash flow and loan paydown that averages roughly $3,500 a year over the first decade. Over ten years the BRRRR usually wins on total return; over one year the flip wins on cash. The right answer depends on whether you need the cash back.
- Is BRRRR more tax efficient than flipping?
- Generally yes. Flip profits are typically taxed as ordinary income, and frequent flippers may be treated as dealers. A BRRRR refinance is a loan, not a sale, so the cash you pull out is not taxable income, and the rental generates depreciation that offsets cash flow. Tax treatment depends on your facts; confirm with a CPA before choosing an exit on tax grounds.
- Can you switch from a flip to a BRRRR mid-project?
- Yes, and it is a common fallback when a flip market softens. The rehab is the same. What changes is the exit: instead of listing, you lease the property and refinance into a 30-year loan. Check two things before committing: that the post-rehab rent covers the new payment at the lender's DSCR minimum, and that your hard money term leaves room for a lease-up and a refinance, which often takes 60 to 90 days.
- What is the 70% rule and does it apply to BRRRR?
- The 70% rule says pay no more than 70% of after-repair value minus rehab costs. On a $290,000 ARV with $45,000 of rehab, that is $158,000. It was built for flips, where the 30% covers selling costs, financing, and profit. For a BRRRR it is still a useful ceiling because a 75% refinance of ARV returns nearly all your cash only when the all-in cost is at or below about 72% of ARV.
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Written by
Founder of DealGapIQ. Previously founded Foreclosure.com and built HomePath.com for Fannie Mae and HomeSteps.com for Freddie Mac. 35+ years in real estate data.
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Hard Money vs DSCR Loans: Cost, Speed, and Which Deal Each One Fits
Hard money buys speed and rehab money; DSCR loans buy 30-year hold financing. Full cost comparison on a $180K BRRRR, when to use each, and how to switch.
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