Understanding Capital Recovery Rate

Capital Recovery Rate is the percentage of your total invested cash returned to you through the refinance. It is calculated as: cash returned at refinance ÷ total cash invested before refinance. It is the single most important metric for BRRRR investors because it determines how fast you can recycle capital into the next deal.

Why It Matters More Than Cash-on-Cash

Cash-on-cash return tells you what annual yield your remaining invested capital earns. Capital Recovery Rate tells you how much of that capital you still have available to invest elsewhere.

A deal with 8% cash-on-cash but 40% capital recovery traps 60% of your capital. A deal with 6% cash-on-cash but 95% capital recovery frees almost all your capital for the next deal. The second deal is almost always better for portfolio growth.

The Thresholds

  • 80%+ (Green): Strong recovery. Most of your capital comes back. The deal is self-funding for the Repeat phase.
  • 60-80% (Yellow): Workable but imperfect. Significant capital stays in the deal. You need additional capital for the next purchase.
  • Below 60% (Red): More than 40% of your cash is trapped. The BRRRR cycle stalls — you cannot repeat efficiently.
  • 100%+ (Infinite Return): You recover all invested capital and potentially receive additional cash. The property costs you nothing out of pocket going forward.

What Drives Capital Recovery

Three factors determine your capital recovery rate:

  1. The spread between all-in cost and ARV. The wider the gap between what you spend and what the property appraises for, the more the refinance returns.
  2. Refinance LTV. 75% LTV returns more cash than 70%. But higher LTV means higher monthly payment and lower DSCR.
  3. Seasoning. Under 6 months, lenders may cap your loan at cost basis instead of ARV, destroying recovery on value-add deals.

The Trade-Off With DSCR

Capital recovery and DSCR often pull in opposite directions. Higher LTV improves recovery but increases the monthly payment, which lowers DSCR. The Rabbyt calculator shows both metrics together so you can see the tension and find the LTV that balances them.

Calculate Your Capital Recovery

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