Property Snapshot

• Property type: Single-family rental
• Market value: $600,000
• Current loan balance: $240,000
• Current LTV: 40%
• Available equity: $360,000

Rental Performance

• Gross monthly rent: $4,200
• Operating expenses: $1,000
• Net operating income (NOI): $3,200

Scenario A: Rate-Only Refinance (No Cash-Out)

New Loan Terms

• Loan amount: $240,000
• Interest rate: 5.99%
• Monthly P&I: $1,438

Cash Flow

• $3,200 – $1,438 = $1,762 / month

Outcome:

• ✔ Maximized monthly cash flow
• ✔ No increase in leverage
• ✔ Lowest long-term risk

Scenario B: Conservative Cash-Out Refinance

The owner chooses to access only a portion of equity — not the maximum.

Cash-Out Structure

• New loan amount: $360,000
• Cash-out proceeds: $120,000
• New LTV: 60%

New Loan Terms

• Interest rate: 6.25%
• Monthly P&I: $2,219

Cash Flow

• $3,200 – $2,219 = $981 / month

Side-by-Side Comparison

Metric	No Cash-Out	With Cash-Out
Loan Balance	$240,000	$360,000
LTV	40%	60%
Monthly Cash Flow	$1,762	$981
Annual Cash Flow	$21,144	$11,772
Cash Received	$0	$120,000

Why the Cash-Out Still Worked

• Property remained well below aggressive leverage
• Rent coverage stayed above 1.40x
• Cash flow remained positive and stable
• Owner retained substantial equity

What the Owner Did with the Cash-Out

The $120,000 was not spent — it was deployed:

• Used as down payment on another rental
• Maintained reserves after closing
• Avoided high-interest private capital

This turned idle equity into productive capital.

When Cash-Out Makes Sense

• ✔ LTV stays ≤ 65%
• ✔ Rent coverage remains ≥ 1.40x
• ✔ Cash is used for income-producing assets
• ✔ Owner already has strong fundamentals

When Cash-Out Does Not Make Sense

• ✘ Pulling equity just because it’s available
• ✘ Reducing coverage below safe levels
• ✘ Using funds for non-income expenses
• ✘ Increasing leverage late in a market cycle

Key Takeaway

Cash-out refinancing is not required.
It is a tool, not a strategy.

For strong rental owners:

• Rate reduction improves income
• Selective cash-out increases scale
• Over-leverage destroys both

The right move depends on your numbers, not trends.