Cash-Out Refinance on a Rental Property: How to Pull Equity Without Selling
A cash-out refinance replaces your loan with a larger one and hands you the difference. Learn how the numbers work, what lenders check, and how to weigh the trade-offs.
By Jennifer Walsh, Mortgage & Lending Writer · Last reviewed: August 3, 2026 · 9 min read
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How a Cash-Out Refinance Works
A cash-out refinance replaces your existing mortgage with a new, larger loan. You pay off the old balance and pocket the difference in cash, using the equity built through appreciation and loan paydown.
On a rental, the new loan is sized against the property appraised value and the lender maximum loan-to-value. The equity you can access is the gap between that new loan and what you still owe, minus closing costs.
Calculating Your Cash Out
Cash Out = (Appraised Value x Max LTV) - Existing Loan Balance - Closing Costs
Suppose a rental appraises at $400,000 and the lender allows 75% loan-to-value on a cash-out refinance. The new loan can be up to $300,000.
If you still owe $180,000 and closing costs run $8,000, your cash out is $300,000 minus $180,000 minus $8,000, or about $112,000. That is the capital you could redeploy into another property or reserves.
What Lenders Check on an Investment Property
- Loan-to-value limits are usually tighter on rentals than on a primary home, often around 70% to 75%.
- Lenders confirm the property cash flows, frequently using DSCR or debt service coverage tests.
- A seasoning period may be required before you can refinance based on the new, higher value.
- Expect a higher interest rate than an owner-occupied refinance because rentals carry more risk.
- Credit, reserves, and rental history can all affect approval and the rate you are offered.
The Trade-Offs
The upside is powerful: you unlock tax-deferred capital without selling, keep the asset, and can recycle the cash into new deals. In the BRRRR strategy, this is the step that lets an investor repeat the process with the same starting funds.
The cost is a larger loan and a higher monthly payment, which shrinks cash flow and can tip a thin deal into negative territory. You are also resetting the amortization clock and paying closing costs, so the cash you pull needs a productive use to justify the drag.
When It Makes Sense
A cash-out refinance tends to make sense when the property still cash flows comfortably after the new payment, and the freed capital earns more elsewhere than it costs to borrow. Pulling equity to buy another cash-flowing rental is the classic case.
It makes less sense when the higher payment erases your margin of safety or the cash has no clear, higher-return home. Model the post-refinance cash flow and DSCR before committing, so you know the property still stands on its own after the new loan.
Frequently Asked Questions
How much equity can I pull from a rental property?
It depends on the appraised value, the lender maximum loan-to-value, and your remaining balance. Many lenders cap cash-out refinances on rentals near 70% to 75% of value, so you typically keep at least a quarter of the equity in the property, minus closing costs.
Is cash-out refinance money taxable?
Loan proceeds are generally not taxed as income because they are borrowed money you must repay, not a gain. That is a key appeal of a cash-out refinance versus a sale, though you should confirm your specific situation with a tax professional.
Does a cash-out refinance hurt cash flow?
It usually does, at least on the refinanced property, because the larger loan raises the monthly payment. Whether that is worth it depends on how productively you deploy the freed capital, so model the new payment and coverage ratio before refinancing.
Jennifer Walsh · Mortgage & Lending Writer, Charlotte, NC
Jennifer covers investment property financing, DSCR loans, and how lenders evaluate rental income. She focuses on turning loan jargon into plain-language guidance investors can actually use.
Educational Disclaimer
All calculations are estimates for educational and planning purposes only. PropertyFlowTools.com does not provide financial, tax, legal, lending, or investment advice. Verify calculations and consult qualified professionals before making property or financing decisions.