The 75% Rule in Real Estate: How BRRRR Investors Use It

The 75% Rule Is the BRRRR Investor's Version of the 70% Rule

If you've spent any time in real estate investing circles, you've heard the 70% rule for house flippers. But buy-and-hold and BRRRR investors operate under a slightly different set of math — and the 75% rule is the heuristic they reach for first. Same spirit, different margin target. This guide explains how it works, when to use it, and what happens when you ignore it.

What Is the 75% Rule in Real Estate?

The 75% rule is a quick-filter formula real estate investors use to determine the maximum price they should pay for a property. It states that your total acquisition cost — purchase price plus rehab — should not exceed 75% of the property's After Repair Value (ARV).

75% Rule: Purchase Price + Rehab Costs ≤ ARV × 0.75

Or, if you want to back-calculate the maximum offer price from a known ARV and estimated rehab:

Max Offer = (ARV × 0.75) − Estimated Rehab Costs

The 25% buffer that remains after applying this rule is not pure profit — it covers closing costs, holding costs, financing fees, and the cushion needed to refinance at a favorable LTV. If a deal doesn't clear the 75% threshold, something in the numbers has to change before it makes financial sense to pursue it.

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Who Uses the 75% Rule?

BRRRR Investors (Primary Users)

BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. The strategy only works if you can pull your capital back out through a cash-out refinance. Most lenders cap a cash-out refi at 75% LTV — so your all-in cost must sit at or below 75% of ARV to get all your money back. This is the mathematical backbone of the entire BRRRR model.

Buy-and-Hold Investors

Investors acquiring rentals with conventional or DSCR loans use the 75% rule as a quick sanity check on purchase price before running full cash flow analysis. A deal that fails the 75% test almost certainly overpays relative to the asset's income potential.

Fix-and-flip investors typically use the 70% rule instead. They need a tighter margin because they're holding the property, paying financing costs, and selling with agent commissions — which eat into the 5% spread between the two rules quickly. If you're flipping, use the 70% rule. If you're holding, 75% is the appropriate benchmark.

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Step-by-Step Worked Example

Let's walk through a real BRRRR deal using the 75% rule.

The property: A distressed 3-bed/1-bath single-family home in Indianapolis, IN

Scenario inputs:

Estimated ARV (after full rehab): $195,000
Estimated rehab costs: $38,000

Step 1: Calculate the 75% Threshold

75% ARV Ceiling = $195,000 × 0.75 = $146,250

This is the maximum total dollars you can have invested in the deal (purchase + rehab combined) for the BRRRR to work.

Step 2: Back Out Rehab to Find Max Offer

Max Offer = $146,250 − $38,000 = $108,250

You should not pay more than $108,250 for this property if you want to stay within the 75% rule.

Step 3: Run the Refinance Check

After rehab, the property is worth $195,000. A lender doing a cash-out refi at 75% LTV will lend:

$195,000 × 0.75 = $146,250

Your all-in cost was $108,250 (purchase) + $38,000 (rehab) = $146,250.

Result: You refinance out exactly what you put in. All capital recycled, rental property retained. This is the BRRRR model working exactly as designed.

In practice, build in a $5,000–$10,000 buffer below the theoretical max. Rehab costs almost always run over, and you'll need cash for closing costs on both the purchase and the refi. Targeting 72–73% of ARV gives you that buffer while still allowing a successful cash-out.

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75% Rule vs. 70% Rule: When to Use Which

Use the 70% Rule When Flipping

You're buying, rehabbing, and selling. Your target exit is the retail market, not a refinance. The 30% spread covers your profit margin, holding costs, agent commissions (5–6%), and closing costs. Flipping on 75% math consistently leads to thin or negative margins.

Use the 75% Rule When BRRRRing

You're buying, rehabbing, renting, and refinancing. Your target exit is a cash-out refi at 75% LTV. The 25% spread covers closing costs, minor overruns, and lender fees — but you're not selling, so you don't need to absorb agent commissions in the margin.

Adjust for Market Conditions

In hot, low-inventory markets some BRRRR investors push to 78–80% of ARV. At those levels you won't recycle 100% of your capital — but you might still achieve a strong cash-on-cash return on the remaining equity. Know what you're accepting before you make the offer.

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What the 75% Rule Doesn't Cover

The 75% rule is a screening tool, not a complete underwriting process. It answers one question: "Is my all-in cost low enough relative to the asset's value?" It does not tell you:

Whether the property will generate positive cash flow after refinancing
Whether your ARV estimate is accurate (garbage in, garbage out)
Whether your rehab estimate is realistic
What the DSCR will be on the refinanced loan
Whether rental demand in that neighborhood supports your rent estimate

The most common way investors blow up a BRRRR deal is by overestimating ARV. If you think the ARV is $195,000 but the actual market supports $175,000, your 75% ceiling drops to $131,250 — a $15,000 difference in your max offer. Always run comparable sales analysis before accepting any ARV figure at face value.

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Getting Your ARV Right: The Foundation of the Entire Formula

The 75% rule is only as good as your ARV. If the ARV is wrong, everything downstream is wrong. ARV is not the Zestimate. It's not the tax-assessed value. It's the price your property would sell for on the open market after professional renovation, based on recent comparable sales (comps) of similar homes in the same area.

Quick ARV Checklist Before Applying the 75% Rule

Pull 3–5 recently sold comps within 0.5–1 mile (closer is better)
Match on property type, bed/bath count, and within ±150 sq ft
Prioritize sales within the last 3–6 months
Adjust for condition differences (updated kitchen/baths vs. original)
Weight the most recent, most similar sales most heavily

DealBeast automates this process: paste an address, and it pulls live comps, applies adjustment logic, and gives you a defensible ARV estimate in under a minute. That number is what you plug into the 75% formula.

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Accounting for the Costs the 75% Rule Doesn't Show

The 75% buffer is not free money. Here's where the 25% typically goes on a BRRRR deal:

| Cost Item | Typical Range | |---|---| | Purchase closing costs | 2–3% of purchase price | | Rehab overrun buffer | 10–15% of rehab estimate | | Carrying costs (insurance, utilities, taxes) | $500–$1,500/month | | Refinance closing costs | 2–3% of loan amount | | Cash not returned (lender 75% LTV cap) | Varies |

Worked Example: Where the 25% Goes

ARV: $195,000 All-in cost: $146,250 (purchase + rehab) Refi loan at 75% LTV: $146,250

The gap between ARV and all-in cost: $195,000 − $146,250 = $48,750 of equity.

This equity is not liquid — it stays in the property as collateral. But it provides the down payment buffer the lender requires, gives you protection if the market softens, and builds your long-term net worth. It's also what keeps the deal out of a short-sale situation if rents drop or rates spike.

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How to Use the 75% Rule as a Deal Filter

Professional investors run dozens of properties through a quick filter before running full underwriting. Here's how to use the 75% rule at scale:

Quick-Filter Process

Get asking price and property details. (Zillow, wholesaler email, MLS, driving for dollars.)
Estimate ARV quickly. Use DealBeast's quick analysis or pull 2–3 nearby sold comps by hand.
Estimate rehab costs. Use a rough $/sqft rule: light cosmetic = $15–$25/sqft, moderate = $25–$40/sqft, gut rehab = $40–$60/sqft. Refine with a contractor walk if it passes the initial screen.
Apply the 75% formula. Max Offer = (ARV × 0.75) − Estimated Rehab.
Compare to asking price. If the asking price is above your max offer, the deal doesn't work at this price. If it's below, run full cash flow analysis.

This process takes 10–15 minutes per property. You can screen 20+ deals per week without burning out on analysis paralysis.

Wholesale sellers will push back on your numbers. Know your math. If the ARV is $195,000 and rehab is $38,000, your max is $108,250 — not because you're lowballing, but because that's where the BRRRR math breaks even. If they can't justify an ARV above $195,000 with comps, the price needs to come down or the deal doesn't work for a BRRRR investor.

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Combining the 75% Rule With Cash Flow Analysis

Passing the 75% rule is table stakes, not a green light. Once a deal clears the filter, run the cash flow numbers:

Estimate market rent for the rehabbed property
Model vacancy (5–8% for most SFR markets)
Calculate NOI (rent − expenses, typically 40–50% of gross rent)
Calculate debt service on the refinanced loan
Confirm positive monthly cash flow after refi

A deal that passes the 75% rule but cash flows at −$200/month is still a bad BRRRR — you've recycled your capital but you're subsidizing a negative-cash-flow rental every month. Both tests must pass.

How to Calculate Rental Property Cash Flow walks through the full five-step calculation with a comparable worked example.

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When the 75% Rule Fails: Red Flags

🚩 ARV Too High

Sellers and wholesalers routinely inflate ARV to make deals look viable. If you can't find 3+ comps that support the number, the ARV is wrong. A $10,000 ARV overestimate on a $195,000 property reduces your max offer by $7,500 — a deal that looked tight suddenly fails entirely.

🚩 Rehab Cost Too Low

Contractors give initial quotes low to win the job. Budget 10–15% above any estimate until you have a signed scope with specific line items. If your rehab math is off by $15,000, your max offer drops by $15,000 — you've overpaid by exactly that amount.

🚩 Lenders Below 75% LTV

Some DSCR or portfolio lenders cap cash-out refis at 70% LTV in their current underwriting guidelines. Always confirm the lender's LTV ceiling before buying, not after rehab. A 70% cap means your all-in must be ≤ 70% of ARV — the same math at a tighter threshold.

🚩 Soft Rental Market

A great BRRRR deal on paper falls apart if the neighborhood can't support the rent you need to cover debt service. Run rental comps with the same rigor you apply to sold comps. Market rent is the third variable — after ARV and rehab — that determines whether the deal works.

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How DealBeast Supports the 75% Rule Analysis

Applying the 75% rule accurately requires three reliable data inputs: ARV, rehab cost, and rental income. DealBeast handles the first and third automatically.

Paste in an address and DealBeast returns:

ARV estimate built from comparable sales pulled from live market data, with the same comp-selection logic a professional investor would apply
Rental income estimate sourced from Zillow rent data and local comp rentals
Cash flow and ROI analysis that projects what the deal looks like post-refi

That gives you the two of the three numbers you need for the 75% rule — and the rehab estimate is the only variable that requires a physical walk-through to nail down. For a first-pass screen, rough rehab estimates using a $/sqft rule are enough to know whether to schedule the walk-through or move on.

Screen Your Next BRRRR Deal in Under a Minute

Stop guessing on ARV. DealBeast pulls live comps and rental data so you can apply the 75% rule with real numbers — not estimates from a wholesaler's pitch deck.

Analyze Your Next Deal Free

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Quick Reference

The 75% Rule — Everything You Need

Formula: Max Offer = (ARV × 0.75) − Rehab Costs

Who uses it: BRRRR investors, buy-and-hold investors

Why 75%? Most lenders cap cash-out refis at 75% LTV — the rule keeps your all-in cost at or below the refi ceiling so you can recycle your capital.

Compare to: The 70% rule — used by fix-and-flip investors who need wider margin to cover selling costs and agent commissions.

After a deal passes: Run full cash flow analysis to confirm positive monthly income post-refinance.

DealBeast: Automates ARV and rent estimates so you can apply the formula to real market data, not guesswork.

This article is for educational purposes only and does not constitute financial or investment advice. Lender LTV requirements, market conditions, and rehab costs vary significantly. Always verify numbers with qualified professionals before making investment decisions.