A cash out refinance on an investment property replaces the rental’s current mortgage (or puts a first mortgage on a free-and-clear rental) with a larger loan, and you keep the difference as cash. Under Fannie Mae’s current Eligibility Matrix, the new loan can be at most 75% of appraised value on a one-unit rental and 70% on a two- to four-unit rental, and you generally need to have been on title for six months and have an existing first mortgage that is at least 12 months old.
Investors use the cash to buy the next property or pay back the short-term money that bought the first one. That is the “refinance” step of the BRRRR method, and it is where beginners find that the rules, pricing, and cash flow math are tighter than expected.
How a cash out refinance on an investment property works
The lender orders an appraisal, multiplies the value by the maximum loan-to-value ratio for your property type and credit, and lends up to that figure. The new loan pays off existing liens and closing costs, and the remainder is wired to you.
The basic formula is:
- Maximum new loan = appraised value × maximum LTV
- Cash to you = maximum new loan − existing payoff − closing costs and prepaid items
Leverage limits are lower than on your own home, and the lender looks hard at the rent because the rental now carries a bigger payment. Our loan-to-value ratio guide explains LTV and CLTV.
Maximum LTV for rental cash-out loans
Most conventional investor loans are sold to Fannie Mae or Freddie Mac, so the Fannie Mae Eligibility Matrix is the practical ceiling for a conforming loan. Here is how the investment property rows compare for loans underwritten through Desktop Underwriter (DU), checked against the matrix this month:
| Investment property transaction | Units | Max LTV/CLTV/HCLTV |
|---|---|---|
| Purchase | 1 unit | 85% |
| Purchase | 2–4 units | 75% |
| Limited cash-out (rate-and-term) refinance | 1–4 units | 75% |
| Cash-out refinance | 1 unit | 75% |
| Cash-out refinance | 2–4 units | 70% |
The cap covers combined liens, so a second mortgage or HELOC you keep counts against it. Lenders can also be stricter than Fannie Mae through their own overlays. A portfolio loan from a bank that keeps the loan follows the bank’s own rules.
Seasoning: the two clocks that decide when you can refinance
Fannie Mae’s Selling Guide section B2-1.3-03, Cash-Out Refinance Transactions sets two separate waiting periods. Investors often hear about one and get caught by the other.
Clock 1: six months on title
At least one borrower must have been on title for at least six months before the new loan disburses. The exceptions in the guide are:
- No waiting period if you inherited the property or were legally awarded it in a divorce, separation, or dissolution of a domestic partnership.
- Time the property was held by an LLC that you majority-own or control counts toward the six months. The property has to be deeded out of the LLC and into your individual name to close the conventional loan.
- Time held by an inter vivos revocable trust counts if you are the primary beneficiary.
- The delayed financing exception, covered below.
Deeding a property out of an LLC can trigger transfer taxes or recording fees that vary by state and county, so ask your title company what it will cost.
Clock 2: a 12-month-old first mortgage
If the refinance pays off an existing first mortgage, that mortgage must be at least 12 months old, measured note date to note date. This does not apply to subordinate liens being paid off, or to buying out a co-owner under a legal agreement. Fannie Mae says the ownership rule applies in addition to this one.
This is the rule that matters most for BRRRR investors. If you bought with a hard money loan recorded as a first mortgage, a conforming cash-out refinance cannot pay it off until that note is a year old. Most hard money loans run shorter than that, which is why many investors exit hard money with a DSCR loan instead.
One more condition from the same section: if the property was listed for sale, it must be taken off the market on or before the date the new loan disburses.
The delayed financing exception, briefly
If you bought the property with cash and no mortgage financing within the past six months, delayed financing lets you do a cash-out refinance without waiting. The original purchase must have been arm’s length, the settlement statement must show no mortgage financing, title must show no liens, and the new loan is limited to your documented initial investment plus financed closing costs, prepaids, and points, still subject to the LTV caps. If the cash came from a HELOC on another property or an unsecured loan, the proceeds must pay that loan down. Our full guide to delayed financing covers the documentation and the common mistakes.
Reserves and the financed-property limit
Conventional lenders want to see that you can survive a vacancy. Under Fannie Mae’s minimum reserve requirements (B3-4.1-01), DU requires six months of reserves for an investment property transaction, based on the monthly housing expense for the subject property. If you own other financed properties, you also need additional reserves equal to a percentage of the unpaid balances on those other loans:
| Financed properties you own | Additional reserves required |
|---|---|
| 1 to 4 | 2% of the aggregate unpaid balance |
| 5 to 6 | 4% of the aggregate unpaid balance |
| 7 to 10 | 6% of the aggregate unpaid balance (DU only) |
The calculation leaves out the mortgages on the subject property, your principal residence, properties sold or pending sale, and loans being paid off at closing. Fannie Mae’s B2-2-03 caps the total at 10 financed properties when the subject is an investment property. Once you hit that ceiling, the next refinance has to come from a DSCR lender or a portfolio lender.
What it costs: rates and loan-level price adjustments
Freddie Mac’s Primary Mortgage Market Survey put the average 30-year fixed rate at 7.24% for the week of October 29, 2026. That survey tracks owner-occupied purchase loans for borrowers with good or excellent credit and 20% down, so it is a floor, not a quote. A rental cash-out will price higher, and the main reason is Fannie Mae’s loan-level price adjustments (LLPAs).
LLPAs are cumulative fees, a percentage of the loan amount, that Fannie Mae charges the lender, who passes them on as points or a higher rate. Selected figures from the LLPA Matrix updated September 30, 2026, for cash-out refinances:
| LLPA component | 60.01–70% LTV | 70.01–75% LTV |
|---|---|---|
| Cash-out, credit score 740–759 | 1.000% | 1.625% |
| Cash-out, credit score 720–739 | 1.375% | 2.000% |
| Investment property (added on top) | 1.625% | 2.125% |
| Two- to four-unit property (added on top) | 0.375% | 0.375% |
Add the rows that apply to you. A borrower with a 750 score taking a one-unit rental to 75% LTV stacks 1.625% plus 2.125%, for 3.75% of the loan. On a $157,500 loan, that is about $5,906 in pricing before lender fees, title, and appraisal. The same borrower at 70% LTV pays 1.000% plus 1.625%, or 2.625%. Run both before assuming maximum leverage is right.
DSCR loans: the cash-out alternative most BRRRR investors use
A DSCR loan is a non-agency investor loan that qualifies the property on its rent compared with the full payment (principal, interest, taxes, insurance, and any HOA dues) instead of your personal debt-to-income ratio. Because these loans are not sold to Fannie Mae, the 12-month and six-month rules above do not apply. Each lender sets its own terms, and they vary widely. Based on published program terms from several DSCR lenders, including LendingOne, Newfi, and Easy Street Capital, typical cash-out terms look like this:
| Term | Typical range on DSCR cash-out programs |
|---|---|
| Maximum LTV | Usually 75%; some lenders allow 80% for strong credit and coverage |
| Minimum DSCR | Often 1.00 for cash-out; some programs go lower with reduced leverage |
| Minimum credit score | Roughly 640 to 700 depending on the program |
| Seasoning | Anywhere from none to 12 months; three to six months is common, sometimes with a lower LTV for short seasoning |
| Borrower | Often allowed to close in an LLC with a personal guarantee |
The trade-off is cost: DSCR loans typically carry higher rates and fees than conforming loans, and many include prepayment penalties. Compare each lender’s full cost in dollars.
Hypothetical example: a BRRRR refinance, start to finish
Hypothetical example: all figures below are invented for illustration. An investor buys a dated single-family house for $110,000 and spends $35,000 on the rehab, plus $7,000 in purchase closing costs and holding costs. All-in cost is $152,000. A hard money lender funded $120,000, so the investor put in $32,000 of their own cash.
Five months later the house is rented for $2,000 a month and appraises at $210,000. Because the hard money note is under 12 months old, a conforming cash-out is off the table, so the investor goes to a DSCR lender. The assumptions: 8.0% rate on a 30-year fixed loan, refinance closing costs of 3% of the loan, taxes of $250 a month, insurance of $110 a month, and 23% of rent set aside for vacancy (5%), repairs and capital expenses (10%), and management (8%).
| Line item | 75% LTV | 70% LTV |
|---|---|---|
| New loan on $210,000 appraisal | $157,500 | $147,000 |
| Hard money payoff | −$120,000 | −$120,000 |
| Refinance closing costs (3%) | −$4,725 | −$4,410 |
| Cash to investor | $32,775 | $22,590 |
| Investor cash left in the deal | $0 (recovered $775 more than put in) | $9,410 |
| Principal and interest | $1,156 | $1,079 |
| Total payment with taxes and insurance | $1,516 | $1,439 |
| DSCR (rent ÷ total payment) | 1.32 | 1.39 |
| Reserves for vacancy, repairs, management | −$460 | −$460 |
| Monthly cash flow | $24 | $101 |
| Annual cash flow | $292 | $1,216 |
| Cash-on-cash return | Not meaningful (no cash left in) | 12.9% |
A DSCR of 1.32 sounds comfortable, but the lender’s ratio ignores vacancy, repairs, and management. After those, the 75% version clears $24 a month, which one water heater wipes out. The 70% version leaves $9,410 in the deal but earns about four times the cash flow. Our guide to cash-on-cash return explains why that ratio matters more than “all my money back.” At 9.0% instead of 8.0%, the 75% version runs about $87 a month negative.
Now suppose the appraisal comes in at $185,000 instead. At 75% LTV the loan is $138,750, cash back after payoff and $4,162 of closing costs is $14,588, and $17,412 of the investor’s money stays in the property. Cash flow improves to about $162 a month, but the capital you planned to recycle into the next deal is stuck. Build your offer around a conservative after-repair value using solid comps, not the number you hope the appraiser picks. You can test your own figures in the BRRRR calculator and check returns in the cash-on-cash return calculator.
Tax treatment of refinance proceeds and interest
The cash from a refinance is borrowed money you have to repay, so it is generally not treated as taxable income when you receive it, as The Real Estate CPA and other tax sources explain. The questions that matter are about the interest and the fees.
Interest follows the money, not the house
Under the federal interest tracing rules in 26 CFR 1.163-8T, debt is allocated by tracing how the proceeds are spent, and the allocation is not affected by which property secures the loan. IRS Publication 527 applies this to rentals directly: when you refinance a rental for more than the previous balance, the interest allocable to proceeds not related to rental use generally cannot be deducted as a rental expense.
In practice, interest on the portion that paid off the old rental mortgage stays a rental expense, and interest on cash used to buy or improve another rental generally follows that property. Interest on cash spent on a car or vacation is personal interest. Keep proceeds in a separate account and document where every dollar goes.
Points and loan costs are spread over the loan
Publication 527 treats points paid solely for the use of money as prepaid interest, so on a rental you generally cannot deduct them all in the year paid. You deduct them over the term of the loan under the original issue discount rules, with a de minimis exception for small amounts. The share of points tied to non-rental proceeds is not a rental expense either. State tax treatment can differ, so give your tax preparer the closing statement.
When a cash-out refinance is the wrong move
Sometimes a cash-out is just a bigger loan on the same house. Pass, or take less cash, when:
- The new payment makes cash flow negative or razor thin. If the property only works with no vacancy and no repairs, the refinance has turned an asset into a monthly bill. Calculate cash flow from realistic net operating income, not the lender’s DSCR.
- You are giving up a low rate. If your current rate is well below today’s market, refinancing the whole balance reprices the money you already borrowed as well as the new cash.
- You have no specific use for the cash. Borrowing at 7% or 8% to hold cash in a savings account loses money every month. Line up the next deal first.
- You are stacking leverage across the portfolio. Refinancing every property to 75% leaves little room if values fall or several units go vacant at once.
- Prepayment penalties and timing. Many DSCR loans charge a penalty if you sell or refinance in the first few years. If you plan to sell soon or do a 1031 exchange, the penalty can erase the benefit.
A useful test: would you buy this property today at the new loan amount, the new payment, and the current rent? If the answer is no, the refinance is borrowing against the future rather than recycling capital.
Cash out refinance investment property FAQ
How much equity can I pull out of a rental property?
On a conforming loan, the new loan can reach 75% of appraised value for a one-unit rental and 70% for two to four units, under Fannie Mae’s Eligibility Matrix. Your cash is that figure minus the existing payoff and closing costs. Many DSCR lenders also cap cash-out at 75%.
How soon after buying can I do a cash-out refinance on a rental?
For a conforming loan, generally after six months on title, and any first mortgage being paid off must be at least 12 months old. If you paid cash, delayed financing can allow it right away. DSCR lenders set their own seasoning, which ranges from none to about 12 months.
Can I do a cash-out refinance if the property is in an LLC?
Conforming lenders require the property to be deeded into your individual name to close, though time held in an LLC you majority-own or control counts toward the six-month ownership rule. Many DSCR lenders lend directly to an LLC with a personal guarantee.
Is cash-out refinance money taxable?
The loan proceeds are generally not taxable income because you have to repay them. Whether the interest is deductible as a rental expense depends on how you spend the money, under the IRS interest tracing rules.
More guides on financing rentals
Run the refinance numbers before you buy
The free starter kit includes a deal analyzer that models the refinance and cash flow, starter contracts, a seller script for finding discounted rentals, and a buyer’s list checklist for deals that do not fit your own portfolio.