A cash-out refinance on an investment property replaces your rental's current mortgage with a larger one and pays you the difference in cash. Investors use it to pull equity from properties that have gone up in value and put that money to work, often as the down payment on the next rental.
How Much Cash Can You Take Out?
Lenders cap the new loan at a percentage of the appraised value, called the loan-to-value ratio (LTV). Your cash is the new loan minus your current balance and closing costs.
Example: a rental appraises at $600,000, and you owe $280,000. At 75% LTV, the new loan can be up to $450,000. After paying off the $280,000 balance, you'd receive about $170,000, minus closing costs.
DSCR vs. Conventional Cash-Out
| DSCR cash-out | Conventional cash-out | |
|---|---|---|
| Qualifies on | The property's rent vs. its payment | Your personal income and debt-to-income ratio |
| Tax returns | Not required | Required |
| Max LTV, 1 unit | Usually 70–75%; up to 80% with 720+ at some | Up to 75% |
| Max LTV, 2–4 units | Usually 70–75% | Up to 70% |
| Close in an LLC | Yes | Generally no |
| Number of financed properties | No cap at most lenders | Capped |
| Pricing | Usually higher | Usually lower |
| Prepayment penalty | Common, and can often be bought down | None |
If your tax returns show strong income and you have few financed properties, a conventional cash-out may cost less. If your returns show heavy write-offs, you own many properties, or you want to close in an LLC, a DSCR cash-out is usually the better fit. Many investors use both. See DSCR vs. conventional for the full comparison.
DSCR Cash-Out Requirements
| Guideline | Typical | Strongest files, at some lenders |
|---|---|---|
| Credit score | 660–680 | From about 640, at lower LTV |
| Max LTV | 70–75% | Up to 80% with 720+ |
| DSCR | 1.00x | Lower with some programs, at lower LTV |
| Seasoning to use appraised value | 6 months | Less at a few lenders |
| Lease | Signed lease | Vacant allowed at some, with tighter terms |
| Reserves | 2–6 months | Cash-out proceeds count at some |
| Cash in hand | Capped at higher LTVs at many | Higher caps at lower LTVs |
Seasoning: When Can You Cash Out?
Seasoning is how long you've owned the property. It decides whether the lender will use today's appraised value or your original purchase price.
- DSCR loans: six months of ownership is the most common rule for using the full appraised value. Before that, many lenders cap the loan based on your purchase price plus documented improvements.
- Conventional loans: generally require at least one borrower to have been on title for six months, and an existing first mortgage being paid off generally must be at least 12 months old.
Delayed Financing for Cash Purchases
If you bought the property with cash, delayed financing lets you take cash out soon after closing, without waiting out the usual seasoning. Both conventional and many DSCR lenders offer it. The new loan is usually limited to what you paid plus eligible costs, and you'll need to document where the purchase money came from.
Cash-Out Caps
Many DSCR lenders limit how much cash you can receive at higher LTVs. Caps vary widely by lender, and they're often higher, or removed, at lower LTVs. If you're pulling out a large amount, tell me the number up front so I can match you with a lender that allows it.
What to Do With the Proceeds
- Buy another rental: the most common use. The proceeds can typically be used for a down payment and reserves.
- Pay off short-term debt: such as a hard money or bridge loan. See the BRRRR refinance playbook and DSCR vs. hard money.
- Improve the property: upgrades that raise rent improve your DSCR on the next refinance.
- Hold as reserves: many lenders count cash-out proceeds toward reserves.
Generally, loan proceeds aren't treated as taxable income, but how you use them can affect what interest is deductible. Ask your CPA.
Is a Cash-Out Refinance Worth It?
Run three checks before you do it:
- Cash flow: will the rent still cover the new, larger payment? Use the DSCR calculator.
- Rate: if your current rate is much lower than today's, a HELOC or second loan on the rental may keep that rate while still giving you cash, at lenders that offer them on investment properties.
- Plan for the cash: equity sitting in a bank account costs you interest. Have a use for it.
Cash-Out Refinance FAQ
How soon can I do a cash-out refinance on a rental?
For a DSCR loan, usually after six months of ownership to use the full appraised value. Delayed financing can work right away if you bought with cash, up to your cost.
What's the maximum LTV for a cash-out refinance on an investment property?
Usually 70–75%. Some DSCR lenders go to 80% for borrowers with 720+ credit and strong files.
Do I need tax returns for a cash-out refinance on a rental?
Not with a DSCR loan. It qualifies on the property's rent. Conventional cash-out loans do require them.
Can I do a cash-out refinance in an LLC?
Yes, with a DSCR loan. See DSCR loans for LLCs.
Can I cash out on a vacant rental?
Some lenders allow it using the appraiser's market rent, usually with a higher score, higher DSCR, lower LTV, and more reserves.
In the financial industry since 2015. Licensed loan officer in Los Angeles, California. NMLS #1493724, with UTM Financial, LLC (NMLS #2591548). More about Ivan
This article is general education, not financial, tax, or legal advice. Loan guidelines vary by lender and change often. Not a commitment to lend.