The BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) grew rapidly in popularity with the rise of DSCR (Debt Service Coverage Ratio) loans. These loans made it easier and faster to scale rental portfolios by qualifying borrowers based on rental income rather than personal income.
But as interest rates have climbed and remained high over the last two years, many investors have felt the strain. The rapid portfolio growth that DSCR loans enabled often outpaced the operational or financial systems needed to sustain it.
Now, the market is correcting, exposing weak points and offering smart investors a chance to reset, refocus, and build stronger foundations going forward. Here’s what’s happening and how to invest smarter from here.
What Went Wrong With BRRRR
1. Overly Optimistic DSCR Assumptions
Many loans were underwritten at a minimum 1.20x DSCR. Once real expenses such as vacancy, capex, insurance, and management are factored in, actual DSCR often falls closer to 0.90x, leading to negative cash flow.
Investor Tip: Underwrite conservatively. Target 1.30x or higher DSCR to absorb fluctuations and protect long-term margins.
2. Inflated Appraisals
High ARVs during the boom allowed for generous cash-out refinances, but those values often don’t hold up. As the market cools, loan-to-value ratios tighten, and cash flow shrinks.
Investor Tip: Always stress test values. “Would this deal still work if the value drops 10 percent?” If not, reconsider.
3. Relying on Refinance Proceeds
Too many portfolios are sustained by cash-out refinances instead of actual operating income. This model breaks down when valuations slip or credit tightens.
Investor Tip: Run your business on net operating income, not borrowed funds. Refinancing should fuel growth, not cover basic operations.
Why Now Is the Time to Reset
Higher rates, sticky prices, and slowing rent growth are exposing unsustainable practices. Many investors who entered in 2021 through 2023 are seeing reserves run thin and properties underperform.
But this isn’t the end of BRRRR. It’s a chance to refine your strategy. Those who focus on fundamentals now will be best positioned for the next cycle.
4 Habits of Sustainable Investors
In today’s environment, smart beats fast. Anchor your approach with these four practices:
- Underwrite with Real Costs: Budget for all operating expenses. Target 1.30x or greater DSCR.
- Verify Values: Do not over-rely on ARVs. Build in downside protection.
- Operate on NOI: Let rental income, not refinance proceeds, fund your business.
- Scale with Intention: Focus on profitable, well-managed properties, not just unit count.
Final Thoughts: Sustainable Growth Is Still Within Reach
Real estate remains one of the strongest vehicles for long-term wealth, but it requires discipline, especially now. With accurate underwriting, clear cash flow, and thoughtful growth, investors can still build durable and profitable portfolios even in a higher-rate world.
Focus on cash flow. Prioritize fundamentals. Build for the long run.
INVESTOR TAKEAWAYS
Yes, but it requires more discipline. BRRRR remains a powerful strategy when executed with accurate underwriting, conservative valuations, and a focus on cash flow – not just rapid growth. Investors must adapt to today’s cost of capital and avoid overleveraging to make it sustainable.
While many lenders allow a minimum DSCR of 1.20x, experienced investors often aim for 1.30x or higher. This provides a buffer against rising expenses, vacancy, or unexpected repairs, helping maintain positive cash flow even in tougher market conditions.
Stress-test your numbers. Ask: “Would this deal still work if the after-repair value drops 10%?” If the answer is no, it’s likely too risky. Verifying comps and budgeting conservatively helps ensure your investment holds up even if the market softens.
Key missteps include underestimating real expenses, over-relying on aggressive appraisals, and scaling too fast without solid operations. Many investors grew portfolios based on paper gains rather than true performance, which became exposed as rates rose and margins compressed.
Focus on fundamentals: realistic underwriting, healthy cash flow, and intentional scaling. Prioritize well-managed properties that pay for themselves, not just units that look good on a spreadsheet. Sustainable investors operate on income—not speculation.
