Cash-Out Refinance

A cash-out refinance replaces an existing mortgage with a larger one and pays the difference to the owner in cash. The new loan is sized on a new appraisal. For a rental, that appraisal can lean on market rent and the gross rent multiplier from comparable sales, so rent increases can turn directly into borrowing power.

If an owner raises rent from $42,000 to $48,000 a year and the market GRM is 10, the income-based value moves from $420,000 to $480,000. At a 75% loan limit, that is $45,000 more borrowing capacity from the rent increase alone, before any appraisal adjustments.

The larger loan also raises the payment, so the property's cash flow falls after the refinance. Before taking cash out, check the new payment against net operating income, not just the value. A value supported by a strong GRM does not guarantee the rent covers the new debt.

Further reading: Cash-Out Refinance on Wikipedia.