Rentals build equity slowly. Flips need cash quickly. A DSCR cash-out on a stabilized rental can turn that equity into flip capital without selling the property.
In short: Yes, you can pull equity from a rental with a DSCR cash-out refinance and use it to fund fix and flip projects. The refinance goes up to 75% of the rental's value and qualifies on its rent, not your income. On the flip side, a fix and flip loan can cover up to 90% of the purchase price and up to 100% of the rehab budget, so the cash usually goes to the down payment, closing costs, carrying costs and early rehab work before draws reimburse it. The rental has to carry its new payment no matter how the flip goes.
Flip loans finance most of a project but not all of it. You still need cash for the down payment, closing costs, interest while you work, and rehab work done before the first draw.
A rental with equity is a natural source. A cash-out refinance turns some of that equity into cash while you keep the property and its rent.
Rehab money on a fix and flip loan is paid in draws after work is completed and inspected. That means you front each phase of work, then get reimbursed. Plan your cash for the gaps, not just the down payment.
This example is illustrative and not a quote. An investor owns a rental worth $450,000 with a $190,000 balance. Rent is $3,300 and taxes and insurance are $500 a month.
A cash-out to 75% gives a $337,500 loan. At a sample rate of 7.125% on a 30-year fixed loan, principal and interest is about $2,274 and the full payment is about $2,774, for a DSCR of about 1.19x. After the $190,000 payoff and sample closing costs of $10,000, net cash is $137,500.
The flip is a $260,000 purchase with a $70,000 rehab. A flip loan at 90% of purchase price is $234,000, plus up to $70,000 for rehab paid in draws. The investor brings a $26,000 down payment, sample flip closing costs of $9,000 and $25,000 of working capital for the first rehab phase. That uses $60,000 and leaves $77,500 for reserves or a second project.
| Step | Amount |
|---|---|
| Rental cash-out loan (75% of $450,000) | $337,500 |
| Pay off current rental loan | -$190,000 |
| Sample closing costs on the refinance | -$10,000 |
| Net cash from the rental | $137,500 |
| Flip down payment (10% of $260,000) | -$26,000 |
| Sample closing costs on the flip | -$9,000 |
| Working capital for first rehab phase | -$25,000 |
| Remaining for reserves | $77,500 |
The cash-out raises the rental's payment for as long as you hold it. If the flip runs long or sells for less, the rental's mortgage is still due every month. Size the cash-out so the rental keeps a margin after the new payment.
In the example, rent of $3,300 against a payment of about $2,774 leaves room. If the ratio would be close to 1.0x, consider pulling less.
When the flip sells, the flip loan is paid off and the profit returns to you. Some investors use it to pay down the rental. Others keep it as capital for the next project. Because the rental loan is long-term, there is no pressure to repay it when the flip closes.
If you decide to keep a flip as a rental instead of selling, it can be refinanced into its own DSCR loan once it is rented.
Start the cash-out refinance before you are under contract on the flip, or give yourself a long enough closing period. Seasoning rules vary by program if the rental was bought recently. Fix and flip loans can close in as little as 10 days, but the refinance usually needs more time, so the rental side sets the pace.
Ask whether cash-out proceeds can count toward liquidity on the flip loan. Many programs look at your available cash when sizing a flip.
Yes. Funding other investment projects is a business-purpose use of proceeds. The rental still has to qualify on its own rent at the new payment.
Up to 90% of the purchase price and up to 100% of the rehab budget, with rehab paid in draws after work is completed and inspected. Leverage depends on experience and the deal.
Draws reimburse completed work, so you fund each phase first. You also need cash for the down payment, closing costs and interest during the project.
First-time flippers can qualify on some fix and flip programs, often at lower leverage. Having cash from a rental refinance can help the file.
If you own five or more, a blanket or portfolio cash-out may be simpler than separate loans. Each property's rent and value still count.
No. DSCR loans qualify on the property's rent, with no W-2s or tax returns. Credit of 620 or higher is required.
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