Madison rental values have climbed for years, and owners of east side two-flats and campus-area houses often have more equity than they realize. How much of it a DSCR cash-out can unlock usually comes down to one line on the budget: property taxes.
In short: LendingStreet offers DSCR cash-out refinances on 1-8 unit rentals in Madison and across Dane County up to 75% LTV, qualified on the property's rent with no W-2s or tax returns. Loans start at $150,000 with no stated maximum, the standard minimum DSCR is 1.0x at the new payment, and LLC borrowers are standard. Cash-out seasoning varies by program.
The typical borrower bought a two-flat in Marquette, Atwood or Tenney-Lapham, or a converted house near Regent Street, years ago and has watched its value rise with the city's housing shortage. Many own the property free and clear or nearly so and want to fund another purchase, a renovation or a reserve fund.
Others are newer investors who bought, renovated and leased a property with their own cash and now want that cash back to buy again. A smaller group uses a cash-out to buy out a partner or move a property into an LLC while pulling some equity at the same time.
Madison property tax bills are large relative to rents. Because taxes are part of the payment in the DSCR calculation, a high bill leaves less room for principal and interest, which caps how big a loan the rent can support. On many Madison rentals, the 1.0x minimum is reached before the 75% LTV limit.
The City of Madison updates assessments frequently, so recent value growth may already be reflected in your bill. Use the current bill, not last year's, when you estimate your cash-out.
This example is illustrative and not a quote. An investor owns a two-flat near Williamson Street with no mortgage. It appraises at $560,000, and the units lease for $1,900 and $1,800, for $3,700 a month. Taxes are $900 a month and insurance is $170.
At 75% LTV the loan would be $420,000, with a payment of about $4,007 and a DSCR of about 0.92x, below the 1.0x standard minimum. At 65% LTV the loan is $364,000, the payment is about $3,615 and DSCR is about 1.02x. The investor can still take out about $364,000 before closing costs, or more with a sub-1.0 DSCR program where it fits.
| Item | 75% LTV | 70% LTV | 65% LTV |
|---|---|---|---|
| New loan | $420,000 | $392,000 | $364,000 |
| Estimated principal and interest | $2,937 | $2,741 | $2,545 |
| Taxes and insurance | $1,070 | $1,070 | $1,070 |
| Total monthly payment | $4,007 | $3,811 | $3,615 |
| DSCR at $3,700 rent | About 0.92x | About 0.97x | About 1.02x |
Because rent drives the ratio, below-market leases limit your cash-out. In Madison, most leases renew on the August cycle, which gives owners a natural moment to reset rents to market for the coming year, within the lease terms and Wisconsin law.
If a refinance is on your calendar, consider timing it after new leases are signed. Many programs use the lower of actual lease rent and the appraiser's market rent, so signed leases at market rent carry the most weight.
How long you need to own the property before a cash-out varies by program; our cash-out seasoning guide explains the common rules. For long-held rentals, seasoning is rarely an issue. If you renovated recently, keep receipts and photos to support the value.
Appraisers value two- to four-unit properties in Madison using comparable sales and the income approach. East side two-flats trade often enough that comparables are usually available, but condition and lot size can move the value.
Get the property ready before the appraiser visits: fix obvious deferred maintenance, make sure every unit is accessible, and have a list of improvements with dates and costs. Tenants on the August cycle can be hard to schedule in late summer, so plan access with them early.
Wisconsin has no mortgage recording tax, so a cash-out refinance mostly costs title insurance, appraisal, recording and lender fees. The state transfer fee applies to sales, not refinances. That keeps more of the cash in your hands than in states that tax new mortgages.
Common uses include a down payment on another Madison rental, a renovation on a property you already own, or reserves. Because Madison purchases often need lower leverage to cash flow, cash from an older property can make the next deal work.
If you own five or more rentals, a blanket portfolio loan can refinance them together on combined cash flow. Combining a strong-cash-flow property with a tighter one can sometimes unlock more equity than refinancing each on its own.
A cash-out adds a payment to a property that may have been debt-free. Make sure the remaining cash flow still covers vacancies around the August turnover, winter heating repairs, and a roof or furnace replacement on an older building. Talk with your tax advisor about how the refinance fits your plans.
It also helps to keep the new payment in perspective against the alternative. If the cash will buy another rental with solid cash flow, the added debt on the first property can make sense. If it will sit idle, a smaller cash-out with a stronger ratio may be the better choice.
Send LendingStreet the address, estimated value, current balance, rents and the cash you want. We will run the ratio at several loan amounts and show you the trade-off between cash and cash flow. Statewide information is on our Wisconsin cash-out page. Include your current tax bill, since in Madison it is often the number that decides how much cash the rent can support.
Up to 75% of the appraised value, less any existing loan and closing costs. In Madison, high property taxes often limit the loan before the LTV does, so we check both.
Usually because taxes and the new payment together exceed the rent at the program minimum. A smaller loan, higher market rents or a sub-1.0 program are the usual answers.
Often, yes. Madison leases commonly renew around August, and signed leases at market rent can increase what you can borrow.
No. Expect title, appraisal, recording and lender fees. The transfer fee applies to sales, not refinances, so a cash-out costs less here than in states that tax new mortgages.
It varies by program. Our seasoning guide covers the common timelines and how recent renovations are treated. Keep receipts and photos of any work you have done.
No. DSCR cash-out refinances qualify on rent. We review credit, with a 620 minimum score, reserves and the property itself, including leases, condition and insurance.
No. Our investor loans are business-purpose loans on non-owner-occupied property.
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