How Does a Cash Out Refinance On Rental Properties Work?

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  • Why do you have to wait a year before doing a cash out refinance?

    • Hi Bob, those are the guidelines with my lender and most lenders. There are some out there who will do it sooner, but they are very difficult to find.

  • Excellent article. Thank you! What are your thoughts on HELOC vs HEL vs Cash-Out? I read your HELOC article and it mentions that even without drawing it will still be considered debt on a credit report. From a DTI standpoint, do lenders see these three forms of cashing out differently?

    • Hi Skye, I think they would all be considered the same, since you could at some point pull the full amount of the lines out.

  • Great article, If I have 4 investment property and want to get cash out on every one of them and put it in my bank to use for more investment property or whatever else I may want to use it for or even just leave it in the account as capital cash. Will the IRS have anything to say about that? Wasn’t sure if there’s any legal issues about doing that? Thank You

    • Hi Juan,
      Always check with a lawyer or accountant, but a cash out refi is not taxable. You are not taxed on refinancing only sales. As long as the banks doing the refinances know about all the other refinances and you aren’t trying to do them all the same day there should be no problem.

  • Hey Mark,

    I’m currently in the process of Cash-Out Refinancing my duplex. There’s a lot of equity on the duplex since I bought it cash 2 years ago. I plan to use the money to purchase 2 properties cash ranging $45K – $55K separately. My question is: how soon will I be able to used the cash-out refinance? Will I have to wait a year? I live in Pennsylvania.

    • Hi Ayo,
      As soon as you do the cash out refi you can use the cash, but you may have to wait a year after you bought the property to do a cash out refi

  • Hi Mark, so another question…I am “applying” for a refinance on an investment property. Depending on the terms should I accept or should I shop around? With that refi $ I plan to pay off the loan on the investment property and pay off my own home. At which time I will VERY shortly apply for a new investment property loan with 20% cash down on that as well. The first refi lowers my monthly payment by $500 per month. I plan to do this all within a months time period because the new home is not going to be available for long! Will the bank that I am applying for the next loan frown on this quick transaction? Do I have to wait before a bank will allow me to use my home as equity or will I be able to use that for a future refi to pay off the new loan? My debt to income ratio is very good and credit rating 🙂 IT’s TIME!

    • Hi kim, This sounds very complicated. Why not refi your investment property and not pay off your personal house now? Unless your interest rate is really high.

  • Hi Mark, My goal is to buy as many properties as possible. I have 2 right now, free and clear! Nothing owed, paid cash. I want to buy more and use these as collateral for new loans. They are both rented and generate about $2,500 per month. Together they are appraised at about $150,00′, ny suggestions?

    • Hi MIke, That is a pretty good ratio for rent to value. I would talk to a local lender and see if they will refiance them for you. If you can refinance them at 75% of value that would give you over $100k to buy more.

  • Mark, I own 3 properties earning 5k in rent each month. Only one house has a mortgage. I’m considering doing a cash out refi and buy another home. But will this affect me getting a va loan on another home in 6 months? I don’t want to jump the gun on buying a rental and be stuck without buying a home for myself once I move in 6 months. I am in the Army.

    • I would check with a lender first and see what they say. It would all depend on your debt to income.

  • I am wanting to refinance a rental property. But my local banks want refinance a rental property only primary residences. Do you have a list if companies that will refinance rental?

    • Many banks will refi a rental. You have to keep calling and keep trying.

  • question does a agent come out to look at the property?

  • Thanks for the repost Mark, I re-read again, as it’s now pertaining to me at the moment, I m working with the bank to do a rental refi at the moment, looking to get some money out to potentially make a down payment, but just to add; there’s going to be a refi bank fee (for 35k they looking to charge me ~1.5k) and they also take long fixed terms as well. But like you mention, numbers and the rates are low enough, where you can take out cash and allocate to get better returns on your next investment. Cheers!

    • Yes, there will be fees whenever you refi just like a mew loan. Thank you for the comment!

  • Hello Mr Ferguson, i have a question. I purchased a 3 family building 3years ago for 620K, i have 550k balance on a 30 year mortgage. Today the value went up dramatically and its worth 1.2 mil. does it make sense to refinance and if yes how much will i get. Thank you

    • Mark Ferguson says:

      That all depends on the numbers and what you use the money for. Most banks will only refi up to 70 or 75% of the value.

      • Mark do you have any insight on foriegn investors? I have a rental property that I tried to refinance but as a Canadian was unable as they would only lend if it was a 2nd home.
        This was via RBC using their US division. My understanding is this is their own rules and not mandated.

        • Mark Ferguson says:

          That is true. There is no law about that, but many banks have issues with lending to foreigners. I would try local banks in the area your properties are located.

  • Very helpful information for real estate investors, Mark. Thanks for writing about cash out refinance..

  • own a lot of fourplexes outright but want to finance them to cash out. where can i go for mortgages

  • I owner occupy a duplex in Austin Texas. I owe 1/5 the value with a primary and a small equity. My credit is excellent. My income qualifies me for a substantial amount. Two lenders refused to give me a cash out loan due to Texas law re. ‘Owner occupied’ duplex with equity loan. Both loans are more than 15 years old. Do you know of any other options for me to get cash out of this property?

    • Mark Ferguson says:

      I have never heard of that, but I am not in texas. Try talking to a local lender if you can find one.

  • The numbers don’t make sense. You bought at 92k put in 18k, appraisal at 140k 75% of that is 105. How did you get 26k out? even if you put every penny into the home for principle that’s still about 13k @ 1100/M making it 26k but at rental at 1,100 including tax, insurance. not to mention covering the closing costs of the initial purchase. Mainly getting 26k after all Fee’s can’t be correct math.

    • Mark Ferguson says:

      Hi Ryan, 92k x .8 = $73,600 loan amount. $105k – $73,600 = $31,400 minus fees for closing costs, escrow for insurance and taxes and interest. Some of those fees I got back because of escrow and I skipped a months payment. I think you are missing that I put 20 percent down, it has nothing to do with rent collected.

  • I have 6 rental properties and can’t seem to find a lender to get them refinanced. The loans on the properties are all under $30k each. Any suggestions??

    • Mark Ferguson says:

      It is really hard to finance properties with loan amounts that low. I would try local lenders

  • Brenda Baker says:

    I am purchasing a rental that is owner financed. However I will need to do extensive repairs. Is it possible to get a loan while rehabing the house?My thought was that since I am purchasing for way below market value I could get a loan for the total property and not even do the owner finance. But I would need some cash to do the rehab. Is this possible ?

    Thank you,

    This obviously is my first rental purchase. Also is there a problem if the renters are family?

    • Mark Ferguson says:

      You may be able to do that with hard money

  • Janis Bordeaux says:

    Hi Mark,
    Thanks for the article! I am looking to do a cash-out refi on our income property to pay for some repairs/upgrades before we put that property on the market. Can you shed any light on how this refi might effect capital gains tax we will owe after the sale? the property has tripled in value since we bought it 15 years ago. Thanks

    • Mark Ferguson says:

      refi will not affect cap gains, except the expenses of the loan may affect some of the profit.

  • Mike Rozanski says:

    Hi Mark,
    When refinancing, is your mortgage loan amount for the full appraised value ($140K) or is it for 75% of the appraised value ($105K)? In other words, are you refinancing into a $140K mortgage or a $105K mortgage and are your payments amortized by $140K or $105K?
    Thanks!

    • Mark Ferguson says:

      75 percent of the appraised value

      • how long does the process take. They told me 3 to 6 months on my fully paid off 3 unit rental property in good condition

        • Mark Ferguson says:

          should take 30 to 45 days

  • Austin D’souza says:

    Hi Mark,

    I have an investment property which has equity of $100 k . Can I refinance and take cash out of $80 k. Can I use this cash of $80 k to pay heloc on my primary home. Will there be capital gain tax I have to pay if I use the cash to pay off Loan on my primary home .

    • Mark Ferguson says:

      No tax if you refi. Why do you want to borrow against your rental to pay off your primary?

  • I am interested in refinancing a high-priced, high equity rental in order to consolidate all my debt there. I am thinking of doing this because I do better do the Standard Deduction than with a Schedule A. That is, tax advantages if debt is higher on the rental, esp. in these turbulent times. I owe $410,000 on a $1.5 million property and $166,000 on our personal residence (between the two quite a bit of equity). I hate paying taxes but I don’t want to go to the extreme of cutting off my nose to spite my face. Any thoughts?

    • Mark Ferguson says:

      I think you have to look at the numbers and see what makes more sense. I do not care about how much I pay in taxes, I care about what I have left over after I pay taxes.

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