Why the 25% Margin Matters in Texas BRRRR Investing
In Texas real estate, the BRRRR strategy—Buy, Rehab, Rent, Refinance, Repeat—remains one of the strongest ways to build a rental portfolio using recycled capital. The key number that makes the entire model work is the ARV (After Repair Value), and specifically, the 25% equity margin that lenders and savvy investors rely on.
Understanding the ARV Ratio
Most Texas lenders will refinance a completed BRRRR property at 75–80% of its ARV. This loan-to-value limit is standard across DSCR lenders, small banks, and credit unions throughout the state. For investors, this means your total all-in cost—purchase, rehab, and holding—should be no more than 75% of the property’s ARV.
Why This Leaves a 25% Margin
This built-in 25% margin serves two important purposes:
1. It Protects You as the Investor
If you stay at or below 75% of ARV, that remaining 25% becomes your instant equity. It cushions you against:
- Rehab overruns
- Appraisals coming in lower than expected
- Market fluctuations in fast-changing Texas metros
It also allows you to recover most or all of your original capital during the refinance—fueling the “Repeat” in BRRRR.
2. It Protects the Lender
Texas lenders cap BRRRR refinances at 75–80% ARV because it limits their exposure. A 25% equity buffer means:
- Lower foreclosure risk
- Protection if values drop
- Stronger loan performance across their portfolio
The lender’s safety requirement conveniently aligns with what investors need for the strategy to function.
Why This Matters More in Texas
Texas markets—especially DFW, Houston, San Antonio, and Austin—can move quickly, with rehab costs rising faster than older national BRRRR calculators assume. The 25% margin helps ensure a deal remains profitable even with changing labor costs, insurance increases, or temporary value dips.
For BRRRR investing in Texas, the 75% all-in rule is both a safety measure and a wealth-building tool. Stay at or below this threshold, and you create immediate equity, secure a favorable refinance, and keep your capital moving into the next opportunity.
Ready to BRRR Texas?
Contact Lauren Byington
Hill Country Real Estate Specialist
📧 lauren@hillcountryinsider.com
📱 830-556-1091
🌐 HillCountryInsider.com
Disclaimer: The information provided is for educational and general informational purposes only and should not be construed as financial, legal, or tax advice. Real estate markets, lending guidelines, and property values can change rapidly, and past performance is not indicative of future results. All figures, examples, and projections are estimates only. Investors and buyers should independently verify all information and conduct thorough due diligence, including but not limited to: professional inspections, contractor evaluations, surveys, appraisals, title research, and consultation with qualified legal, tax, and financial professionals. Local regulations, zoning, municipal services, and property tax rates may change based on state or local government decisions and can materially affect property performance. You are solely responsible for all investment decisions and outcomes.
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