You have equity sitting in a rental and a second deal in your sights. A DSCR cash-out refinance can turn that equity into your next down payment without touching your W-2 income.
In short: You can pull up to 75% of a rental’s appraised value with a DSCR cash-out refinance and use the net proceeds as the down payment on another investment property. Both properties have to stand on their own: the refinanced rental must still cover its new, larger payment, and the new purchase must meet its own DSCR. Many programs want the first property owned for a period before cash-out, commonly 3–6 months, sometimes longer.
Step one is the cash-out refinance on the rental you already own. The new loan pays off the old one, and the difference, minus closing costs, comes to you.
Step two is the purchase. Those proceeds cover the down payment, closing costs and reserves on the next rental, which gets its own DSCR loan. Two separate loans, each underwritten on its own rent.
This example is illustrative. You own a rental appraised at $400,000 with a $180,000 balance. Rent is $2,900 a month.
| Step | Amount |
|---|---|
| New cash-out loan (75% of $400,000) | $300,000 |
| Pay off existing loan | −$180,000 |
| Estimated closing costs | −$8,000 |
| Net cash to you | $112,000 |
| Down payment on $400,000 next rental (20%) | −$80,000 |
| Closing costs on the purchase | −$12,000 |
| Left for reserves | $20,000 |
This is where many plans fall apart. A bigger loan means a bigger payment, and the first rental has to carry it.
In the example, a $300,000 loan at an assumed illustrative rate runs about $2,100 in principal and interest. Add $500 for taxes and insurance and the payment is $2,600. Rent of $2,900 gives a DSCR of about 1.12, which works. If rent were $2,400, you would need to pull less cash or look at a specialty program.
Most cash-out programs require you to own the property for some time first. The range commonly runs from 3 to 12 months, depending on the program and whether you bought with cash or financing.
Plan the timeline backward from your next closing. A cash-out refinance often takes a few weeks, so start it before you go under contract on the next deal, or build a long enough closing period into your offer.
Selling frees up all of your equity, but you lose the rent, pay selling costs and may face taxes. Refinancing keeps the property and its appreciation working for you while it pays down the new loan.
The trade-off is a larger loan and a thinner monthly margin on the first rental. If the first property barely cash flows after a refinance, selling or a smaller cash-out may be the better call. Run both scenarios before you decide.
If the refinanced rental would drop below a 1.0x DSCR, you are borrowing against future stress. The same goes for buying a second property that only breaks even on paper.
Leave cushion for vacancies and repairs. Our financing team can run both loans side by side and bring you 2–3 options, so you see total cash flow before you commit.
Yes. Cash-out proceeds from a DSCR refinance are a documented source of funds and are commonly used as a down payment on the next investment property.
You need enough value that 75% of it exceeds your current balance plus costs. A property worth $300,000 with a $150,000 balance could net roughly $70,000 before closing costs.
It varies by program. Seasoning commonly runs 3–6 months, and some programs require 6–12 months or base value on purchase price during the early period.
Often, yes. The refinance usually needs to close first so the funds are in hand, but both can move in parallel with the same loan officer.
Loan proceeds are generally not treated as income because you have to repay them. Confirm your situation with a tax professional.
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