Investor Profile

• Property type: Single-family rental
• Ownership: 1 property
• Experience: 5+ years managing rentals
• Strategy: Long-term hold, cash-flow focused

Property Snapshot (Before Refinance)

• Estimated property value: $500,000
• Current loan balance: $250,000
• Loan-to-Value (LTV): 50%
• Equity: $250,000 (50%)

Current Loan Terms

• Interest rate: 9.25%
• Loan type: Adjustable / short-term investor loan
• Monthly principal & interest: $2,055

Rental Performance

• Gross monthly rent: $3,600
• Operating expenses (taxes, insurance, maintenance): $850
• Net operating income (NOI): $2,750

Cash Flow (Before Refinance)

• Monthly cash flow:
  $2,750 – $2,055 = $695
• Rent coverage ratio:
  $2,750 ÷ $2,055 = 1.34x

This property is already profitable — but the high interest rate is suppressing cash flow.

Refinance Scenario

The owner refinances using an equity-based rental loan designed for strong, stabilized properties.

New Loan Terms

• New loan amount: $250,000
• New interest rate (720+ FICO): 5.99%
• Loan type: Long-term rental loan
• Monthly principal & interest: $1,498

Cash Flow After Refinance

• Monthly cash flow:
  $2,750 – $1,498 = $1,252

Monthly Improvement

• Cash flow increase:
  +$557 per month
• Annual improvement:
  +$6,684 per year x 10 yr = $66,840

Why This Refinance Made Sense

✔ Very low leverage (50% LTV)
✔ Strong rental performance
✔ Healthy coverage ratio
✔ High interest rate on old loan
✔ Long-term hold strategy

This refinance did not increase risk.
It simply reduced the cost of capital.

What the Owner Did Not Do

• Did not over-leverage the property
• Did not stretch rent assumptions
• Did not rely on future appreciation
• Did not refinance just to “pull cash”

The decision was purely math driven.

Optional Variant: Strategic Cash-Out

Because the property had strong equity, the owner also had the option (not obligation) to:

• Pull a modest cash-out
• Still maintain conservative leverage
• Use proceeds for another rental purchase

This option existed because the property was strong, not because leverage was pushed.

Key Takeaway

Refinancing works best when:

• Equity is high
• Cash flow is already solid
• The goal is optimization — not rescue

This is not about fixing bad deals.
It’s about making good deals better.

Is Your Property Similar?

If your rental looks like this:

• ≤ 30–65% LTV
• Strong rent coverage (1.25% or greater)
• High interest rate (6.5%–10%+)

A refinance may significantly improve your cash flow without increasing risk.

Cash-Out Comparison Case: Strategic Equity Access Without Over-Leverage

This example shows when a cash-out makes sense — and just as importantly, how much is too much.