Here's the kind of house we're looking at right now. The purchase price is around $225,000, it needs about $30,000 of renovation, and it should be worth somewhere between $325,000 and $340,000 when it's done.
That's a textbook BRRRR deal. Buy, rehab, rent, refinance, repeat. We've built most of our portfolio this way.
A lot of people will tell you BRRRR is dead. I don't think that's right. In our market, finding a house that works has never been the problem. What changed is how much it pays and how hard you have to work for it.
The Formula
BRRRR comes down to two ratios. (The full walkthrough is here.)
First, the purchase price plus the renovation should come to about 75 to 80 percent of what the house is worth when you're done. That's what lets you refinance and pull most of your cash back out. This deal is about $255,000 all-in on a house worth at least $325,000, or roughly 78 percent. It passes.
Second, once it's rented, the rent has to cover the mortgage, taxes, and insurance with room to spare. Lenders call that debt service coverage, and about 1.3 times is a comfortable target. That's where interest rates come in.
Same Deal, Two Rates
Say we put 20 percent down, pay for the renovation in cash, and refinance after a year at 75 percent of the new value. That's $75,000 of our money going in. Rent on a house like this in our market is about $2,400 a month, and taxes and insurance run about $6,000 a year.
In 2021 we were borrowing at 3.5 percent. Today, in the fall of 2026, it's about 7 percent. Here's the same deal at both rates, using the conservative $325,000 value.
| 3.5% | 7% | |
|---|---|---|
| Cash back at refinance | $67,000 | $66,000 |
| Monthly payment with taxes and insurance | $1,595 | $2,122 |
| Debt service coverage | 1.51 | 1.13 |
| Monthly cash flow after vacancy and repairs | +$445 | −$82 |
Illustrative example: 30-year fixed, 75% refinance after one year, 5% vacancy and 10% repairs, before income taxes. Not a guarantee.
Look at the first line. The deal itself didn't get worse. Same price, same discount, nearly the same cash back out.
What changed is everything after the refinance. At 3.5 percent this is a solid long-term rental. At 7 percent the same house, with the same tenant paying the same rent, loses a little money every month. More of every rent check just goes to the bank.
Less Money, More Work
So we don't plan to run it as a long-term rental. We plan to run it as a short-term rental.
That's a very different business. Long-term rents on similar houses land in a tight range. Short-term rental comps are all over the place, from $2,000 a month to $6,000, and the house is only part of the story. A plain house with a great host can do very well. A beautiful house that's run poorly can struggle.
Our base case is $3,000 to $4,000 a month. After the extra costs of utilities, supplies, platform fees, and wear and tear, it needs about $3,050 just to break even. It needs about $3,550 to match what the plain long-term rental would have made at 3.5 percent.
Those two numbers are the whole story. A few years ago, a house like this paid us to put a tenant in it. Today, to earn about the same thing, we have to run a small hospitality business, with guests, cleaners, reviews, pricing, and a lot more phone calls.
It also makes the refinance harder. On long-term rent alone, the coverage is too thin for the loan we want. To count the short-term rental income, lenders want a documented track record, so we'll need to show real proof of consistent income and bookings on the calendar, and carry the original loan until we can.
If it doesn't work, we can still sell. After about 6 percent in commission and closing costs and a year of carrying costs, we'd make roughly $30,000 on our $75,000. That's a fine outcome, but it's a one-time profit, not a rental that keeps paying.
Still Worth Doing
None of this means the deal isn't worth doing. It means the math is different.
That's the advantage of owning a business instead of a stock. When you own an index fund, you take what the market gives you. For most of the money most people have, that's the right approach, and it's why good investing is usually boring. When you own a rental house, you can decide to do more work when the easy version stops paying. My wife acting as our general contractor keeps the renovation cost low enough for the refinance to work. Running the house as a short-term rental makes up for the higher rate. Those are choices we get to make.
The trade is real, though. We're taking on more work and more uncertainty to earn about what we used to earn with less of both.
It Isn't Just Real Estate
This isn't unique to rental houses. Most businesses that run on borrowed money have the same problem right now. A homebuilder carrying land, a car dealer financing the cars on the lot, and a private equity firm buying a company with debt are all in the same spot. The business can be every bit as good as it was in 2021 and still earn less, because more of every dollar goes to the lender.
When rates were low, cheap debt did some of the work for the owner. Now the owner has to do more of it.
That's where rental real estate is today. The deals are still there. You just make a little less and work a little harder for it. For us, it's still worth it, and we'll keep pursuing these deals. That may not always be the case. If the math gets much skinnier, there's a point where the extra work stops paying for itself.