The Quick Read: A BRRRR investor compares the two exits by turning each into the same measure: the cash in hand after costs and taxes, plus the equity still working and the rent left over after every real expense. Selling gives one clean number. Holding gives a smaller check now and a stream of income later.
- Sale cash is price, minus selling costs, minus the payoff of the rehab loan, minus tax on the gain.
- Refinance cash is the new loan, minus the payoff, minus closing costs. The new loan is capped by leverage and by rent coverage.
- DSCR counts rent against the housing payment only. Passing it does not mean the property cash flows.
- On most standard rental files in the network, cash-out refinances top out around 75% LTV, so the refinance often returns less cash than a sale.
BRRRR stands for buy, rehab, rent, refinance, repeat. At the finish line you own a stabilized rental, and you have two doors. You can sell and realize the gain, or you can refinance and keep the asset. This guide shows how to price both doors on one page.
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As of Oct 8, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Rent, nightly rate, occupancy, taxes, and insurance are editable estimates. Short-term rental figures are estimates only and vary significantly by season, property type, management approach, and local short-term-rental rules — confirm local regulations before relying on them. Qualifying income for short-term rentals varies by program — some use appraisal market rent, others use documented STR history or projections — and is confirmed in underwriting. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
What Are You Actually Comparing?
You are comparing a one-time number to a recurring one. Net sale proceeds is a single after-cost, after-tax cash figure. Rental income is a monthly flow that sits on top of whatever capital you recover at the refinance.
Those two numbers do not measure the same thing, so the first job is to convert them. Convert the sale into cash you can redeploy. Convert the hold into cash recovered at the refinance, plus the annual surplus the rent produces after all costs.
A refinance is not a special BRRRR product. It is an ordinary cash-out refinance, and the BRRRR label describes what you do with the money. That matters because the lender reviews the property’s rental income in front of it. It does not care what your rehab plan said.
The Sell Side: Building Net Sale Proceeds
Start with the contract price. Then subtract in this order:
1. Selling costs: commissions, transfer charges and title fees.
2. The payoff of the hard-money or bridge loan, plus any liens.
3. The tax bill on the gain.
The tax line is where owners miscount. Your gain is the sale price, less selling costs, less your adjusted basis. Adjusted basis is what you paid, plus capital improvements, minus the depreciation you took.
The depreciation slice does not get the friendly rate. Stessa explains that recapture on a rental building is taxed at up to 25%, while the rest of the gain falls under long-term capital gains rates of 0%, 15% or 20%. Hiltzik CPA adds that a 3.8% net investment income tax can apply on top for higher earners, and that land carries no recapture because it is not depreciable.
A refinance is not a taxable sale, while a sale triggers both gain and recapture, and that difference matters for BRRRR exits. Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Run the sale waterfall with your own payoff letter and your own basis. A low basis and heavy depreciation make the tax line larger than most owners expect.
The Hold Side: What a DSCR Refinance Returns
The refinance has its own waterfall. It runs in five steps.
1. The lender orders an appraisal, which sets the new value. 2. The new loan is sized as appraised value times the LTV cap. 3. Cash released is the new loan, minus the old payoff, minus closing costs. 4. The lender checks rent coverage using an appraiser’s rent schedule (Form 1007) and sometimes a lease. 5. If rent coverage binds before equity does, the loan comes in smaller.
LTV means loan-to-value, the loan as a percentage of the property’s value. Across most programs we place files with, a cash-out refinance on a standard rental tops out around 75% LTV. A short-term rental cash-out sits lower, at 70% LTV. Lenders also commonly expect about 6 months of seasoning, meaning a waiting period after you take title before they size the loan on appraised value instead of cost.
DSCR stands for debt service coverage ratio. It is the property’s rent used for lender review divided by its monthly housing obligation: principal, interest, taxes, insurance and association dues, together called PITIA. The loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. That is why investors use it when personal debt-to-income limits would block a conventional refinance.
Here is the catch. A bigger loan raises the payment and lowers the ratio. Thin rent can therefore cap your cash-out before the LTV ceiling does. On many files, 1.00 is where select programs start, while a separate select-lender path takes coverage below 1.00 with leverage and terms adjusted. A stronger ratio generally opens better pricing and leverage.
What the ratio leaves out
DSCR does not count repairs, vacancy, management, utilities or capital expenses. A property can clear the ratio and still run thin on real cash flow. Subtract those costs yourself before you compare holding to selling. Otherwise you overstate the hold side every time.
Reserves also belong in the hold math. Commonly the lender wants about 6 months of PITIA in liquid funds, and files above $1,500,000 typically step up to about 9 months. That is cash you cannot redeploy, so count it against the refinance.
How Do You Put Both Exits on One Scale?
Convert both to dollars of capital and dollars of annual income, then ask how many years of hold income it takes to match the sale. A short worked example makes this concrete. Every figure below is a modeled assumption on an index, not market data. Call the appraised value 100.
| Line item | Sell | Hold (refinance) |
|---|---|---|
| Value or new loan | 100 sale price | 75 new loan |
| Selling or closing costs | −6 | −2 |
| Payoff of rehab loan | −68 | −68 |
| Tax on gain | −4 | 0 |
| Cash in hand | 22 | 5 |
| Equity still in the property | 0 | 25 |
Sale cash is 22. Refinance cash is 5, and 25 of equity stays in the building. The sale frees 17 more index points up front. The hold path keeps the asset, the depreciation shelter and the rent.
Now bring in the rent. Assume rent covers the new payment at roughly 1.15x. After repairs, vacancy, management and the other items DSCR ignores, suppose the property throws off an annual surplus of 2 index points. The sale’s 17-point cash advantage divided by that 2-point surplus is about 8.5 years. That is how long the hold path takes to catch up on income alone.
Appreciation and loan paydown shorten that horizon. Weak rent or a short appraisal lengthens it. This break-even figure is the cleanest way to turn two different kinds of number into one comparison.
Where the Comparison Breaks
The general rule is that the refinance recycles your capital and the sale realizes it. Several cases bend that rule.
A short appraisal. Run the same deal with an appraisal of 90 instead of 100. The 75% loan drops to 67.5. That is below the 68 payoff, so cash back is zero, and you may have to bring money to the table. BiggerPockets calls appraisal risk a core BRRRR danger, because a missed after-repair value makes the deal hard to repeat. The lender uses its own appraisal and its own rent figure, not your estimate.
Cost-basis sizing inside seasoning. Before the seasoning window ends, a lender typically sizes cash-out on what you paid and spent, not on the appraised value. The equity you created stays locked until the window ends. Seasoning runs from the date title was recorded, so finishing the rehab early does not shorten it.
Overspent rehab. The lender does not reimburse overruns. Any renovation dollar the appraiser does not recognize stays in the deal as your cash. Hand the appraiser a scope, invoices and renovated comparable sales, and have a signed lease in place.
Strong value, weak rent. In some markets resale value is high but rent is low relative to price. The property then fails the coverage test at the loan size you wanted. Selling wins when rent at the after-repair value cannot produce a workable ratio, however good the resale looks.
Short-term rentals. Purchases go up to 75% LTV, with refinances around 70% and cash-outs at 70%. Expect a 640+ score, about 12 months of hosting history and a 1.00 coverage floor on both purchases and refinances. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income. Lendmire also covers how to present short-term rental income net of platform fees. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Delayed financing. An all-cash buyer can sometimes recover cost shortly after purchase through a delayed-financing refinance. That returns what you paid, not the after-repair value, and a financed purchase generally disqualifies it. Lendmire’s piece How Much a BRRRR Investor Recovers With Delayed Financing on a Rental walks through the numbers.
Tax deferral and loss sales. A like-kind exchange can defer gain and recapture into a replacement property. IRS Publication 544 notes that ordinary-income recapture can attach to that replacement property, and installment-method sales still recognize recapture in the year of sale. If you sell at a loss, no recapture applies.
Ineligible properties. Manufactured homes, log homes and barndominiums are not offered in the network’s DSCR programs. If your rehab is one of those, the hold path needs a different plan.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
What the Practitioner View Looks Like in Practice
Across the files our brokerage places, the investors who regret a decision usually skipped a step. They compared the sale price to the refinance proceeds and forgot taxes on one side and operating costs on the other. Both omissions flatter the wrong exit.
The strongest files clear two tests at once. They have enough equity for the cash-out ceiling, and they have enough rent for the ratio. A larger down payment on a purchase lowers the payment and can lift the ratio, but it never erases leverage caps, credit floors, reserve rules or property eligibility.
Credit matters too. A 620 floor exists in parts of the network, and most programs want around 660. A 700+ score unlocks the strongest leverage tiers. Everything here is subject to lender guidelines and individual underwriting, and none of it is a commitment to lend.
Decision Rules You Can Test
Sell when one or more of these is true:
- Your all-in cost sits near the 75% cash-out ceiling, so the refinance recycles almost nothing.
- Rent cannot reach a workable ratio at the loan size you need.
- The appraisal comes in short and the refinance returns zero.
- You have a better use for the capital than the 8-to-10-year payback the hold math implies. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Hold when these are true:
- The refinance returns most of your cash and leaves real equity working.
- Rent clears the ratio with room to spare after non-PITIA costs.
- The depreciation shelter and a postponed tax event matter to your situation.
- You want the next purchase funded without realizing the gain.
A middle path exists as well. Refinance now, collect rent, and sell later when the hold-side break-even has run its course.
Gather These Before You Run It
- The payoff letter for the bridge or hard-money loan.
- A selling-cost estimate from a local agent.
- Your adjusted basis, including improvements and depreciation taken.
- The appraiser’s rent schedule or a signed lease.
- Estimates for repairs, vacancy, management and utilities.
- Your seasoning date, measured from title recording.
For the bigger picture on how these loans work, see Lendmire’s complete DSCR loans guide.
Key Terms Defined
Net sale proceeds: The cash you keep from a sale after selling costs, loan payoffs and taxes.
DSCR: Debt service coverage ratio, the property’s rent used for lender review divided by its PITIA.
PITIA: Principal, interest, taxes, insurance and association dues, the full monthly housing obligation.
Cash-out refinance: A new loan larger than the old payoff, with the difference paid to you after costs.
Seasoning: The waiting period a lender requires after you take title before sizing the loan on appraised value.
Recapture: Tax on the depreciation you claimed, which is applied when you sell the property.
ARV: After-repair value, your estimate of what the property is worth once the rehab is done.
Frequently Asked Questions
Is a refinance taxed the way a sale is?
No. A refinance is a loan, not a sale, so it does not trigger gain or recapture by itself. A sale does.
What if the appraisal comes in below my ARV?
Cash back shrinks fast, because the loan is sized on the appraised value. On the indexed example, a 90 appraisal dropped the 75% loan below the payoff and returned nothing. Bring a scope, invoices and renovated comparables to the appraiser, and consider selling if the refinance no longer recycles your capital.
Does clearing 1.00 mean the property cash flows?
No. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities and capital expenses sit outside the ratio, so subtract them before you judge the hold side.
Can I refinance the bridge loan right away?
Usually not at full value. Lenders commonly expect about 6 months of seasoning before they size the loan on appraised value, and before that, cash-out is typically limited to cost.
How do I know how long the hold path needs to catch up?
Take the extra after-tax cash the sale would free, then divide it by the annual surplus after all real costs. That gives a payback in years, before appreciation and loan paydown. Shorter paybacks favor holding.
Next Step
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. The sale-versus-hold decision gets easier once both sides are priced on the same page.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR loans are evaluated by the lender on rental income rather than personal income, subject to lender guidelines — a fit for LLC-owned portfolios, self-employed investors, and operators scaling beyond conventional loan caps. Recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
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References
1. Stessa, rental property depreciation recapture
2. Hiltzik CPA, depreciation recapture on rental property sale
3. BiggerPockets, the BRRRR method guide
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Cash Out One Short-Term Rental to Buy in Another Market · Rental Cash-Out Refinance Closing and Entity Rules in Several States · Cash-Out Refinance Appraisal Rules for a Paid-Off Rental
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.