Cash Out Refinance for Investment Property

A cash out refinance replaces your existing loan with a larger one and returns the difference to you in cash. On an investment property this is how equity that is sitting idle becomes capital for the next acquisition. On a business purpose program it is underwritten on the property, so there are no tax returns and no debt to income calculation.

What determines how much you can take out

Two limits apply at the same time and the lower of the two wins.

1. The loan to value ceiling, commonly up to seventy five percent on a cash out refinance of a rental
2. The debt service coverage ratio, because the new larger payment still has to be covered by the rent

Investors regularly focus only on the first limit. A property can have plenty of equity and still fail on coverage, because pulling more cash raises the payment and drops the ratio. Model the new payment with the DSCR calculator before assuming a number.

Seasoning and why it matters

If you recently purchased the property, most programs will lend against your purchase price rather than the current appraised value until a seasoning period has passed. This is the single most common surprise on a cash out file, particularly for investors executing the BRRRR strategy. Confirm the requirement before you plan around the proceeds.

What the money is actually for

A cash out refinance is not free money, it is a larger obligation against the same asset. It makes sense when the returned capital earns more in the next deal than the incremental interest costs on this one. It makes less sense when the proceeds fund something that does not produce a return, because you have permanently raised the carrying cost of a property you still have to operate.

Frequently asked questions