What Is Cash-Out Refinance?
A cash-out refinance lets you tap equity without selling. You replace your current mortgage with a larger loan and receive the difference in cash. In BRRRR, you buy a property, rehab it, rent it, then refinance at the new value—pulling out most or all of your initial capital. Unlike a rate-and-term refinance, which only changes the rate or term, a cash-out refi increases the loan amount. Lenders typically allow 75–80% loan-to-value (LTV) on investment properties.
A cash-out refinance replaces your existing mortgage with a new, larger loan and gives you the difference in cash—often used in BRRRR to recover capital after adding value.
At a Glance
- What it is: A refinance that increases the loan amount beyond the payoff balance; you receive the excess as cash.
- Why it matters: Lets you access equity without selling—critical for BRRRR capital recovery.
- Key detail: Investment property LTV typically caps at 75–80%; primary residence may allow higher.
- Related: Refinance, rate-and-term refinance, equity, BRRRR method.
- Watch for: Closing costs, higher payments, and DSCR requirements on investment properties.
How It Works
Mechanics: You apply for a new mortgage larger than your current balance. The lender pays off the existing loan, and you receive the difference—minus closing costs—in cash. The new loan is secured by the property at its current appraised value.
LTV limits: Lenders cap how much you can borrow. For investment properties, 75–80% LTV is typical. If your property is worth $300,000 and the lender allows 75% LTV, the max loan is $225,000. If your current balance is $150,000, you could receive up to $75,000 minus closing costs.
DSCR and seasoning: For investment properties, lenders often require DSCR (debt service coverage ratio) of 1.0–1.25 or higher. They may also require 6–12 months of rent history and ownership before refinancing.
Use cases: BRRRR capital recovery, funding the next deal, paying for renovations, consolidating debt, or building reserves.
Real-World Example
Nina buys a duplex in Phoenix for $280,000. She pays all cash with $290,000 total. She spends $55,000 on rehab. The after-repair appraisal comes in at $395,000. She applies for a cash-out refinance. The lender allows 75% LTV, so the max loan is $296,250. Her closing costs are $7,200. She receives $289,050 in cash—recovering 99.7% of her initial $290,000. Her new monthly payment is $2,100. Both units rent for $1,400 each ($2,800 total). After expenses and reserves, she nets $450/month. She uses the recovered capital to fund her next BRRRR deal.
Pros & Cons
- Access equity without selling the property.
- Recover capital for BRRRR repeat step—fund the next deal.
- Often lower rates than HELOCs or other debt.
- Lock in a fixed rate on the new, larger loan.
- Closing costs (3–5% of loan amount) reduce net proceeds.
- Higher loan amount means higher monthly payments.
- DSCR and seasoning requirements can delay or block.
- In a rising-rate environment, refinance rates may be higher than original.
Watch Out
- Appraisal risk: If the appraisal comes in low, you may not recover as much capital. Appraisal gap can kill the refinance math.
- DSCR risk: If rents don't support the new payment, the lender may deny the refinance.
- Breakeven risk: At breakeven refinance rates, the monthly savings may not justify the cost—run the numbers.
Ask an Investor
The Takeaway
A cash-out refinance is the key tool for BRRRR capital recovery. It lets you pull out equity after adding value, then redeploy that capital into the next deal. Success depends on the appraised value supporting the loan amount you need and the property's income supporting the new payment.