Study Design: How They Measured BRRRR Performance
Researchers at the Urban Investment Lab at the University of Chicago wanted to answer a question that real estate investors debate constantly: does the BRRRR strategy actually work at scale, or is it survivorship bias from a few loud success stories?
To find out, they identified 4,216 BRRRR transactions across 28 U.S. metropolitan areas between 2018 and 2023. A transaction qualified as "BRRRR" if the investor purchased a distressed property, completed renovations costing at least 15% of the purchase price, leased the property to tenants, then refinanced within 18 months of acquisition. Data came from MLS records, county assessor filings, mortgage origination databases, and property management records (Liu & Chen, 2024)Liu, J. & Chen, M. (2024). "Capital Recycling in Residential Real Estate: BRRRR Strategy Outcomes, 2018–2023." Journal of Real Estate Finance & Economics, 68(3), 412–441..
The study tracked three metrics: capital recovery rate (what percentage of invested capital investors pulled back out at refinance), net monthly cash flow (rent minus all expenses including debt service), and total annual return (combining cash flow, appreciation, and principal paydown). This approach lets us see not just whether BRRRR works, but how well, for whom, and under what conditions.
Key Findings
(Liu & Chen, 2024, Table 3)Table 3 shows mean capital recovery of 67.3% (SD = 12.8%). Median recovery was 71.2%, indicating a left skew from outliers with severe cost overruns.
(Liu & Chen, 2024, Table 5)Table 5: Median cash flow was $185/month. Top quartile averaged $480/month. Bottom quartile averaged −$120/month, indicating negative cash flow risk.
(Liu & Chen, 2024, Table 7)Table 7: BRRRR investors averaged 18.4% total return vs. 11.2% for buy-and-hold. Difference driven primarily by capital recycling enabling faster portfolio growth.
(Liu & Chen, 2024, Section 4.3)Section 4.3 defines "financial independence" as net rental income exceeding median household expenses in the investor's metro area. Threshold varied by market.
(Liu & Chen, 2024, Figure 4)Figure 4 shows a clear inflection in Q2 2022 when rates exceeded 5.5%. DSCR ratios below 1.25 disqualified many refinances at the target 75% LTV.
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What This Means For You
If you're evaluating your first rental property purchase, this study provides something rare: a large-sample, data-backed answer to whether BRRRR works. The short version: it works — but with significant caveats that change your approach.
The capital recycling advantage is real. Recovering 67% of your invested capital means a $100,000 deal returns roughly $67,000 to redeploy. Traditional buy-and-hold locks up 100% of your capital in one property. Over three BRRRR cycles, you control three properties with the capital that buy-and-hold investors spread across one. This compounding effect is what drives the 18.4% total return — it's not that each deal is dramatically better, it's that your capital works harder (Liu & Chen, 2024)The study found that BRRRR investors acquired properties at a rate of 2.4 per year vs. 0.8 for buy-and-hold investors, driven by capital recycling efficiency..
But the rate environment matters enormously. The drop from 74% to 58% success rate as rates rose is the most important finding for anyone executing this strategy in the current market. When you refinance at 7% instead of 4%, your monthly payment increases by roughly 35% on the same loan amount. That crushes cash flow and may push your debt service coverage ratio below the 1.25 threshold most lenders require. Before pursuing BRRRR, model your refinance at current rates — not the rate you wish existed.
Practical framework based on the data: Target properties purchased at 60–70% of after-repair value (ARV). Keep total rehab costs under 25% of ARV. Budget for a refinance at current rates plus 0.5%. Ensure projected rent supports a 1.25× debt service coverage ratio. If the numbers don't work at current rates, the deal doesn't work — regardless of what worked in 2021.
Study Limitations
Important Caveats
- Rate environment: The 2018–2023 period included historically low interest rates (2.7–5.0% for most of the window). The strategy's performance in a sustained 6.5%+ rate environment is not fully captured by this data.
- Investor experience bias: The sample includes both first-time and experienced investors, but the researchers note that repeat BRRRR investors (3+ cycles) significantly outperformed first-timers — suggesting a learning curve that inflates average returns.
- Geographic concentration: While 28 metros were studied, the sample over-represents Sun Belt markets (Phoenix, Atlanta, Dallas, Tampa). Results may not generalize to Northeast, Pacific Northwest, or rural markets.
- Survivorship bias: Failed BRRRR attempts — properties where investors abandoned the strategy mid-process — are not captured in public records. Actual success rates are likely lower than reported.
- Funding source: The National Association of Realtors funded the research. While the methodology is sound, readers should note the institutional interest in promoting residential real estate investment.
Our Take
Editorial Interpretation
This study confirms what experienced BRRRR investors have observed anecdotally: the strategy works as a capital efficiency tool, not a magic formula. The 67% capital recovery rate means you're not getting all your money back — you're still leaving 33% in each deal. That's fine if the deal cash flows and appreciates, but it means BRRRR is a growth strategy, not a liquidity strategy.
The most underappreciated finding is the 58% success rate in 2022–2023. In a higher-rate environment, nearly half of BRRRR attempts failed to hit the investor's refinancing target. That's not a footnote — it's a fundamental constraint that should reshape how new investors approach the strategy. The days of buying at 65% ARV, doing a light cosmetic rehab, and pulling all your capital out at 3% interest rates are likely over for this cycle.
Our read: BRRRR remains the most capital-efficient strategy for scaling a rental portfolio, but it now requires more conservative underwriting, larger cash reserves, and realistic expectations about capital left in deals. The investors who succeed in this environment will be the ones who run the numbers at today's rates — not the ones who watch YouTube videos recorded in 2020.
Full Citation
DOI: 10.1007/s11146-024-09987-x
Funded by the National Association of Realtors Research Division.