LBO is BRRRR for PE, Prove Me Wrong#
Real estate investors love the BRRRR strategy, Buy, Rehab, Rent, Refinance, Repeat because it turns a single acquisition into a compounding machine. Private equity funds do something that looks surprisingly similar, just with different tools, different risks, and typically much bigger numbers.
Here’s the argument: a leveraged buyout (LBO) is basically BRRRR applied to operating companies. You buy with leverage, improve the asset, stabilize cash flow, recapitalize, and then do it again.
This guide breaks down BRRRR vs. LBO step-by-step, explains where the analogy is strong (and where it breaks), and shows what buyers and sellers should watch for in real deals especially if you’re considering buying or selling a business through Openfair.
Table of Contents#
What BRRRR actually optimizes#
BRRRR is a capital efficiency play. The core goal isn’t only owning a property it’s getting your cash back out after improvements, so you can redeploy it into the next deal.
If the “rehab” meaningfully increases value and the “rent” stabilizes income, the “refinance” can replace expensive capital (your cash) with cheaper capital (a mortgage). That spread between improved value and cost of capital is where BRRRR can compound quickly.
The model works best when you control the renovation budget, you can reliably raise rent or occupancy, and lenders recognize the new value. It struggles when rehab timelines slip, financing tightens, or the exit appraisal doesn’t match expectations.
What an LBO actually optimizes#
An LBO is also a capital efficiency play, but for businesses. A sponsor (private equity fund, search fund, independent sponsor, or even a strategic buyer using leverage) acquires a company using a mix of equity and debt, then aims to improve cash flow and reduce risk over time.
In simple terms, the company’s cash flow helps pay down the acquisition debt. If the business becomes larger, more profitable, and more “financeable,” it may qualify for cheaper debt or a larger recap later.
A well-executed LBO can generate returns from multiple levers: operational improvement, debt paydown, multiple expansion, and add-on acquisitions. A poorly executed LBO can fail fast because businesses don’t have the same forgiveness that long-term housing demand sometimes provides.
BRRRR vs LBO: step-by-step mapping#
Buy (BRRRR) = Buy (LBO)#
Both start with acquiring an asset at a price that leaves room for upside. In real estate, that might mean buying below market or finding a property with fixable problems. In M&A, it might mean buying a business with operational inefficiencies, weak go-to-market, messy finances, or an owner who hasn’t institutionalized operations.
In both cases, the entry price matters because it defines how much improvement you need to justify the refinance/recap later. Overpaying can kill the play before it starts.
Rehab (BRRRR) = Improve operations (LBO)#
“Rehab” is where the real work happens. In real estate, it’s physical upgrades and deferred maintenance. In businesses, it’s operational and financial upgrades often more complex, but also more scalable.
Common business “rehab” initiatives include:
Professionalizing financial reporting (monthly close, clean KPIs).
Improving margins (pricing, vendor terms, labor efficiency).
Stabilizing growth (repeatable marketing/sales motion).
Reducing customer concentration and key-person risk.
This is also where good buyers look different from lucky buyers. The best operators know exactly which upgrades change cash flow quality—not just cash flow size.
Rent (BRRRR) = Stabilize recurring cash flows (LBO)#
Rent makes a property underwriteable. For businesses, predictable cash flow is the equivalent especially recurring or contracted revenue, stable gross margins, and diversified demand.
This is why many sponsors love “boring” businesses: steady services, B2B recurring revenue, essential maintenance categories, and industries with repeat purchasing. Stability reduces the risk of leverage and improves financing options.
In both models, lenders care less about your story and more about the durability of income.
Refinance (BRRRR) = Recap / refinancing (LBO)#
This is the heart of the comparison. In BRRRR, you refinance after the property is improved and stabilized, ideally pulling out most (or all) of your initial cash.
In LBO-land, the parallel is a recapitalization or refinancing: replacing expensive debt with cheaper debt, raising new debt because earnings increased, or taking a dividend recap (controversial, but common) if the business can support it.
The idea is similar: if the asset is now “worth more” and “safer,” capital providers will lend more (or lend cheaper) against it. That frees up equity for new deals, reduces cost of capital, or returns capital to investors.
Repeat (BRRRR) = Buy-and-build / fund redeployment (LBO)#
BRRRR repeats by buying the next property. Private equity repeats by redeploying capital into:
Add-on acquisitions (buy-and-build).
New platforms.
Follow-on investments in the same company (new products, new geographies).
This is why many PE strategies look like compounding engines. Once a fund has a proven playbook, each repeat can get faster and more confident until market conditions change.
Where the analogy breaks (important)#
BRRRR and LBOs rhyme, but they aren’t identical. The differences matter because they define the true risk.
Key breaks in the analogy:
Real estate value can be anchored by comps; business value depends on future cash flows and market multiples.
Tenants rarely demand a “product roadmap”; customers do.
A property can sit vacant and still exist; a business can lose talent, reputation, suppliers, or distribution momentum quickly.
Financing risk is different: mortgages tend to be long-term and asset-backed; business debt often has covenants and tighter performance expectations.
So yes, LBO can be “BRRRR-like,” but operational execution risk is usually higher in businesses—and that risk cuts both ways.
How value is created in both models#
In BRRRR, value creation is often a mix of forced appreciation (rehab), better income (rent), and cheaper cost of capital (refi). In LBOs, it’s similar, but with more levers.
The four big LBO value levers mirror BRRRR thinking:
Entry discipline (buy well).
Forced improvement (operations, pricing, systems).
Income stability (recurring revenue, retention, diversification).
Capital structure optimization (refinance/recap, debt paydown).
The most overlooked lever is “quality of earnings.” Buyers pay more and lenders lend more when the earnings are clean, repeatable, and defensible.
What this means if you’re buying or selling#
If you’re buying a business, treat it like a BRRRR investor treats a property: don’t just ask “Is this asset cheap?” Ask “Can I improve it in a way lenders and future buyers will underwrite?”
If you’re selling, realize sophisticated buyers aren’t only buying your trailing numbers they’re buying the financeability of your future cash flow. Clean financials, documented processes, and reduced owner-dependence often increase buyer confidence more than a small revenue bump.
Openfair is built around this reality. On Openfair, buyers and sellers can move faster because the process is designed to reduce friction matching the right parties, improving transparency, and supporting decisions with data (including a free business valuation for owners who want a starting point before going to market).
If BRRRR is about turning improvements into refinancable value, selling a business well is about turning operational clarity into bankable confidence.
FAQ#
Is an LBO really the same as BRRRR?#
No, but it’s a useful mental model. Both strategies aim to increase asset value and stabilize income so you can refinance or recapitalize and redeploy capital.
What’s the business version of “rehab”?#
Operational improvement. Think pricing, margins, reporting, systems, sales execution, retention, and risk reduction.
Why do PE funds use leverage?#
Leverage can amplify equity returns when cash flows are stable and improvements are achievable. It also introduces downside risk if performance drops or financing tightens.
Can a small business be an LBO target?#
Yes. Many acquisitions use SBA loans, bank debt, seller notes, or other leverage structures. The “LBO logic” exists well below mega-fund deal sizes.