Can I do a cash-out refinance on a rental with a DSCR loan?

How much cash can I take out?

Many programs allow a new loan of up to about 70% to 75% of the appraised value, minus what you owe now and closing costs. A higher credit score and a strong ratio help you reach the top of that range.

How long do I have to own the property first?

Many programs want you to have owned it for several months (often 3 to 6) before a cash-out refinance, and some use the purchase price instead of the new appraised value if you bought recently. If you paid cash for the property, ask me about options for getting it back sooner.

What can I use the cash for?

Anything legal for a business purpose: the down payment on your next rental, renovations, paying off higher-rate debt on other properties, or reserves.

Example (illustrative)

An investor in San Antonio owns a rental worth $320,000 and owes $120,000. A DSCR cash-out refinance at 75% of the value creates a $240,000 loan. After paying off the old loan and closing costs, he walks away with about $110,000, enough for the down payment on two more rentals. The rent still covers the new payment at a 1.08 ratio.

What should I watch out for?

• The new payment has to still be covered by the rent
• Prepayment penalties on the new loan if you might sell soon
• Your current rate: if your rental has a very low rate, a HELOC or second loan might beat replacing the whole first mortgage

Our take

Cash-out refinancing is how most investors grow from one or two rentals to five or ten. I'll compare a full cash-out refinance with keeping your low-rate loan and adding a second loan, so you don't give up a great rate without a reason.