Why It Matters
The 75% Rule answers one question before you buy: will the refinance give me my money back? Here's the formula:
Maximum All-In Cost = After-Repair Value × 0.75
"All-in cost" is everything — purchase price, rehab budget, closing costs, and holding costs through the refinance. If that total lands at or under 75% of ARV, a standard cash-out refinance at 75% loan-to-value can return most or all of your invested capital, so you can roll it into the next deal. Recycling capital is the entire point of BRRRR.
Go over the line and the rule still helps: it quantifies exactly how much cash will stay trapped. All-in at 80% of ARV instead of 75%? Roughly 5% of ARV is stuck. That's not automatically a bad deal — it's a deal you should enter with your eyes open.
At a Glance
- Formula: Maximum All-In Cost = After-Repair Value × 0.75
- What "all-in" means: Purchase price + rehab + closing costs + holding costs through refinance
- Why 75%: It mirrors the ~75% loan-to-value ceiling on an investment-property cash-out refinance
- What it screens: Whether the BRRRR refinance step returns your invested capital
- Not the 70% Rule: The 70% Rule is a flipper's offer formula with profit baked in; the 75% Rule is a BRRRR all-in ceiling
- What it ignores: Cash flow, neighborhood quality, deal quality — it measures only capital efficiency
Maximum All-In Cost = After-Repair Value × 0.75
How It Works
The line, and why it's 75%. The rule is reverse-engineered from how lenders refinance rentals. On a cash-out refinance of a non-owner-occupied home, most conventional and DSCR lenders lend up to about 75% of appraised value. So if your all-in cost equals 75% of ARV and the appraisal hits ARV, the refinance loan equals what you spent — your cash comes back. The rule is that lender ceiling turned into a buying constraint.
Running the screen. Start with an honest ARV, supported by recent sales of comparable renovated properties. Multiply by 0.75 — that's your maximum all-in number. Work backward: if ARV supports a $150,000 ceiling and rehab plus costs run $45,000, your maximum purchase price is $105,000. Offer above that and you're choosing to leave cash in the deal.
Not the same as the 70% Rule. Investors confuse them constantly — keep the 70% Rule in its own lane. It is a fix-and-flip offer formula whose multiplier bakes in a flipper's resale profit; the 75% Rule is a BRRRR all-in ceiling whose multiplier mirrors a refinance LTV. The FAQ below spells the contrast out — for now, just don't apply the flip rule to a hold deal.
What the rule assumes. It's only as good as four inputs: an ARV the appraisal will support, a rehab budget that survives contact with the property, a lender genuinely offering 75% LTV, and a seasoning period you can wait out before refinancing. Every input is a place deals go wrong. The rule is a fast screen, not a guarantee.
Real-World Example
Priya is underwriting a BRRRR deal. Comparable renovated sales put the after-repair value at $200,000.
She applies the rule: $200,000 × 0.75 = $150,000 maximum all-in cost.
She builds her numbers to fit under that ceiling:
- Purchase price: $108,000
- Rehab budget: $36,000
- Closing and holding costs: $6,000
- Total all-in: $150,000
She buys, rehabs, and rents the property, waits out the lender's seasoning period, and does a cash-out refinance. It appraises at the full $200,000, and her lender refinances at 75% LTV — a $150,000 loan. That loan returns her cash. Priya now owns a rented, refinanced property with effectively none of her own capital left in it.
Run the alternative: the rehab overruns to $51,000 and all-in hits $165,000. The refinance still caps at $150,000 — so $15,000 of Priya's cash stays trapped. The deal can still cash-flow and still be worth keeping. But she has $15,000 less for the next one, and the 75% Rule told her that in advance.
Pros & Cons
- A fast go/no-go screen — One multiplication tells you whether a deal can fully recycle your capital
- Calibrated to real lending — The 75% line mirrors the actual LTV ceiling on investment-property cash-out refinances
- It quantifies trapped capital — Even when a deal fails, the rule tells you exactly how much cash will be stuck
- Market-portable — The ratio works in any market; only the ARV input changes
- It disciplines the offer — Working backward from the ceiling sets a hard maximum purchase price
- Only as honest as the ARV — An inflated after-repair value makes any deal pass on paper and fail at the appraisal
- It ignores cash flow — A deal can pass and still be a weak rental, or fail and still cash-flow well
- It assumes 75% LTV is available — If your lender caps a cash-out refinance at 70%, the real ceiling is lower
- It can reject sound deals — Plenty of good buy-and-hold properties simply won't let you pull every dollar back out
- It trusts your rehab budget — The rule can't tell you whether that budget is realistic
Watch Out
Build your ARV from renovated comparable sales, not hope. The rule collapses the instant ARV is inflated — and the lender's appraiser will use real comps regardless. If your ARV and the appraiser's diverge, the appraiser's number is the one that funds your refinance.
Confirm your lender's actual cash-out LTV before you buy. The rule assumes 75%. Some lenders cap an investment-property cash-out refinance at 70%, or apply overlays that lower it. Your lender's real number, not 75%, is your true ceiling.
Count every holding-period cost in "all-in." Investors underwrite purchase and rehab and forget the months of mortgage payments, taxes, insurance, and utilities before the refinance. Leave those out and you'll quietly blow past 75%. And don't treat exceeding 75% as an automatic "no" — it means trapped capital, which can still be worth it on a strong cash-flowing deal. Just decide it deliberately.
Don't refinance before the seasoning period — it changes the math. The rule assumes the refinance is based on ARV. But many lenders, before a seasoning period of roughly 6-12 months, will lend against your cost (purchase plus rehab) rather than the higher appraised ARV. Refinance too early and the loan is smaller than the rule predicts, stranding cash in a deal that genuinely passed at 75%. Confirm your lender's seasoning requirement up front and treat it as part of the plan, not a surprise.
Ask an Investor
The Takeaway
The 75% Rule is the BRRRR investor's reality check on the refinance. It turns a single number — 75% of after-repair value — into a hard ceiling on what you can spend buying and fixing a property if you want your cash back. Stay under the line and the refinance recycles your capital into the next deal, which is the whole engine of BRRRR. Go over it and the rule tells you, before you sign, exactly how much money will be stranded. It is not a measure of whether a deal is good — it doesn't see cash flow or neighborhood — and it is only as honest as the ARV you feed it. Use it as the fast first screen, then underwrite the deal that passes.