Cash-Out Refinance
Replacing an existing loan with a larger one and taking the difference as cash. Investors use cash-out refinances to recover capital from appreciated or rehabbed equity — the engine of the BRRRR strategy.
A cash-out refinance replaces your current mortgage with a new, larger loan and hands you the difference in cash. If a property is worth $400,000 and you owe $200,000, a 75% LTV cash-out refinance pays off the old $200,000 and leaves you with roughly $100,000 in proceeds (before costs).
Cash Out ≈ (Value × LTV) − Existing Payoff − Closing Costs
Cash-out vs. rate-and-term refinance
There are two reasons to refinance:
- A rate-and-term refinance simply replaces the loan to change the rate or term — you take little or no cash.
- A cash-out refinance intentionally borrows more than you owe to extract equity.
Cash-out is the riskier of the two for the lender (higher leverage, money leaving the deal), so it usually carries a slightly lower LTV cap and a slightly higher rate than rate-and-term.
Why investors use it
Cash-out refinancing is how real estate investors recycle capital without selling:
- The BRRRR exit. It's the fourth 'R' in BRRRR — pull your rehab capital back out and redeploy it on the next deal while keeping the rental.
- Tap appreciation. Convert built-up equity into down payments for new acquisitions.
- No taxable event. Loan proceeds aren't income, so a cash-out refinance is generally not a taxable sale (consult a tax professional).
Typical investor terms
| Feature | Typical |
|---|---|
| Product | 30-year DSCR |
| Max LTV | 70–75% |
| Qualifies on | Property's rent / DSCR, not personal income |
| Seasoning | Often 3–6 months to use appraised (vs. purchase) value |
| Prepay | Common step-down |
The seasoning catch
The biggest variable on an investor cash-out is seasoning. If you bought below market and rehabbed, you want the lender to lend on the new higher appraised value. Many lenders require 3–6 months of ownership before they'll use appraised value instead of your purchase price — a delayed-financing exception sometimes shortens this. Confirm your lender's seasoning rule before you count on a specific payout, especially on a BRRRR.
Frequently asked questions
How much can I cash out on an investment property?
Most investor cash-out refinances cap at 70–75% LTV. So on a $400,000 property you could borrow up to roughly $280,000–$300,000; after paying off the existing loan and closing costs, the rest is your cash. The exact limit depends on the lender, the DSCR, and seasoning.
Is cash-out refinance money taxable?
Generally no — loan proceeds are borrowed money, not income, so a cash-out refinance is typically not a taxable event the way a sale is. This is a major reason investors prefer refinancing over selling to access equity. Confirm specifics with your tax professional.
How soon can I do a cash-out refinance after buying?
It depends on the lender's seasoning policy. Some allow a cash-out at the new appraised value after 3–6 months of ownership; others require longer or will only lend on your purchase price until seasoned. If you bought below market and rehabbed, seasoning determines when you can refinance at the higher value.