Prepayment & Exit
Cash-Out Refinance
A cash-out refinance replaces an existing loan with a new, larger loan against the same property, with the borrower pocketing the difference in cash after paying off the original balance and closing costs. It's commonly used to extract accumulated equity from appreciation or value-add improvements without selling the asset, and is underwritten against current appraised value using standard LTV and DSCR tests.
Example
An owner refinances a property with a $2,000,000 existing loan balance into a new $3,200,000 loan based on increased appraised value, using the $1,200,000 difference (minus closing costs) to fund a down payment on another acquisition.
Cash-out refinancing is the primary tool investors use to recycle equity without triggering a taxable sale, letting a sponsor pull appreciated or forced-appreciation (via renovation) value out of a stabilized property and redeploy it into new acquisitions while retaining ownership and any further upside in the original asset.
The new, larger loan is underwritten fresh against current appraised value and current NOI, subject to the same LTV, DSCR, and debt yield tests as any other permanent or bridge loan — meaning the amount a borrower can pull out depends entirely on how much the property has appreciated or how much NOI has grown since the original loan was placed, not on the original purchase price.
Cash-out refinances are also the standard exit for bridge and hard money borrowers who have successfully stabilized a value-add property: rather than selling, they refinance into cheaper, longer-term permanent debt at the new stabilized value, repaying the higher-cost bridge loan and often extracting some cash-out proceeds in the process if the value creation exceeded the original loan basis.
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