Cash-Out Refinance for Commercial Real Estate: Unlock Equity Without Selling

One of the most powerful tools in a real estate investor's arsenal is the ability to access equity without selling the asset. A cash-out refinance lets you tap into the value you've built—whether through appreciation, debt paydown, or forced value creation—and redeploy that capital into new investments, property improvements, or other business needs.

Unlike selling, which triggers taxes and ends your ownership, a cash-out refinance keeps you in the deal while putting liquidity in your hands. For investors focused on long-term wealth building, this strategy can accelerate portfolio growth without sacrificing performing assets.

This guide covers how commercial cash-out refinances work, what lenders require, and when this strategy makes sense for your investment goals.

What Is a Cash-Out Refinance?

A cash-out refinance replaces your existing mortgage with a new, larger loan. The new loan pays off your current debt, and you receive the difference—the "cash out"—as liquid capital.

Simple example:

• Current property value: $2,000,000
• Existing loan balance: $1,000,000
• New loan at 70% LTV: $1,400,000
• Cash out to investor: $400,000 (minus closing costs)

You now have $400,000 in hand to invest elsewhere, while retaining ownership of a property that continues to generate income and appreciate.

The key distinction from a traditional "rate-and-term" refinance: you're not just improving your loan terms—you're extracting equity as cash.

Why Investors Use Cash-Out Refinancing

Cash-out refinances serve several strategic purposes for commercial real estate investors.

Recycle Capital for New Acquisitions

Rather than leaving equity trapped in a stabilized property, you can extract it and deploy into new investments. This is the foundation of the "BRRRR" strategy (Buy, Rehab, Rent, Refinance, Repeat) and similar portfolio-building approaches.

One property's equity becomes the down payment for the next acquisition, allowing you to scale faster than saving new capital from scratch.

Fund Property Improvements

Need capital for renovations, upgrades, or repositioning? A cash-out refinance can fund improvements that increase rents and property value—creating a virtuous cycle of value creation.

This approach works particularly well for value-add investors who've completed initial improvements and want to fund the next phase.

Consolidate or Pay Down Other Debt

Investors sometimes use cash-out proceeds to pay off higher-interest debt, consolidate multiple loans, or improve their overall capital structure.

Return Capital to Partners

If you syndicated a deal or brought in equity partners, a cash-out refinance can return investor capital while maintaining ownership and cash flow. This allows investors to receive liquidity earlier than a sale while continuing to participate in the property's upside.

General Business Purposes

Commercial property equity can fund business expansion, working capital needs, or other opportunities outside real estate. The capital is yours to deploy as you see fit.

Tax Advantages of Cash-Out Refinancing

One of the most compelling reasons to refinance rather than sell: loan proceeds aren't taxable income.

When you sell a property, you pay capital gains tax on the appreciation. When you refinance, you're simply borrowing against your equity—no sale, no taxable event.

This allows investors to access their gains without the tax hit, preserving more capital for reinvestment. Combined with strategies like cost segregation and depreciation, cash-out refinancing can be a powerful tool for tax-efficient wealth building.

Of course, you'll eventually pay taxes when you sell (unless you execute a 1031 exchange), but deferring that liability—potentially for decades—has real economic value.

How Lenders Evaluate Cash-Out Refinances

Lenders approach cash-out refinances with more scrutiny than rate-and-term refis because you're increasing leverage on the property. They want confidence that the property can support the higher debt load.

Loan-to-Value (LTV) Requirements

Most commercial lenders cap cash-out refinances at 65-75% of the property's current appraised value, depending on the lender type and asset class.

The more equity you leave in the property after the refinance, the better your terms—and the more buffer you have against market fluctuations.

Debt Service Coverage Ratio (DSCR)

Lenders require the property's income to adequately cover the new, higher debt payment. Minimum DSCR requirements typically range from 1.20 to 1.50, meaning the property must generate 20-50% more net operating income than required for debt service.

Example:

• New annual debt service: $120,000
• Required DSCR: 1.25
• Minimum NOI needed: $150,000 ($120,000 x 1.25)

If your property's NOI doesn't support the larger loan at required coverage levels, you'll need to either take less cash out or find a lender with more flexible requirements.

Seasoning Requirements

Most lenders require a minimum ownership period before allowing a cash-out refinance—typically 6-24 months, depending on the lender and loan program.

• Agency lenders (Fannie/Freddie): Generally 12 months
• Banks: Often 12 months, sometimes flexible
• CMBS: Usually 12 months
• Debt funds: Some allow cash-out with minimal seasoning based on as-stabilized value

Seasoning requirements exist to prevent borrowers from quickly flipping properties using inflated appraisals. If you need faster access to equity, debt funds or bridge lenders may offer more flexibility.

Property Performance

Lenders want to see that the property is stabilized and performing:

• Occupancy: Typically 85-90%+ depending on asset type
• Rent roll: Stable tenants, limited near-term rollover risk
• Financials: Consistent NOI, preferably with trailing 12-month history
• Physical condition: Well-maintained, no deferred maintenance concerns

Properties in transition—lease-up, renovation, or repositioning—generally need bridge financing rather than permanent cash-out debt.

Borrower Qualifications

While commercial loans focus primarily on the property, lenders also evaluate:

• Credit score: Most require 660+, with better terms at 700+
• Net worth: Often equal to or greater than the loan amount
• Liquidity: Cash reserves covering 6-12 months of debt service
• Experience: Track record with similar properties

Stronger borrower profiles can sometimes offset property weaknesses or secure better terms.

Cash-Out Refinance Options by Lender Type

Different capital sources serve different investor needs. Understanding your options helps you target the right financing.

Banks

Community and regional banks offer competitive rates for borrowers with strong relationships and credit profiles.

Pros:

• Competitive rates
• Flexible underwriting for established relationships
• Potential for portfolio loans with fewer restrictions

Cons:

• Typically lower LTV (65-70%)
• Recourse often required
• Can be slower to close
• Conservative on cash-out amounts

Best for: Investors with banking relationships, strong financials, and moderate leverage needs.

Agency Lenders (Fannie Mae / Freddie Mac)

For multifamily properties, agency loans offer some of the best rates and terms in the market.

Pros:

• Low fixed rates (often the best available)
• Non-recourse options
• Up to 75-80% LTV
• Long terms (5-30 years)

Cons:

• Multifamily only (5+ units)
• Strict property and borrower requirements
• 12-month seasoning for cash-out
• Prepayment penalties (yield maintenance or defeasance)

Best for: Stabilized multifamily investors seeking long-term, low-cost debt.

CMBS Lenders

Commercial mortgage-backed securities (CMBS) loans serve larger commercial properties across asset classes.

Pros:

• Non-recourse
• Available for various property types
• Up to 75% LTV

Cons:

• More rigid servicing (special servicer involvement for modifications)
• Prepayment penalties
• Less flexibility than bank or agency
• Higher transaction costs

Best for: Larger deals ($5M+) where non-recourse and leverage matter more than flexibility.

Debt Funds

Private debt funds offer more flexibility than traditional lenders, particularly for transitional situations.

Pros:

• Faster closing
• More flexible on seasoning requirements
• Will lend on properties banks won't touch
• Some offer cash-out on as-stabilized value

Cons:

• Higher rates (often 8-12%+)
• Shorter terms (typically 2-5 years)
• May require personal guarantees

Best for: Investors needing speed, flexibility, or financing on properties that don't fit conventional boxes.

Life Insurance Companies

Life companies provide premium terms for the highest-quality borrowers and properties.

Pros:

• Lowest rates available
• Long terms with full amortization
• Non-recourse

Cons:

• Very selective (Class A properties, top markets)
• Lower leverage (60-65% typical)
• Extensive underwriting requirements
• Slow closing

Best for: Institutional-quality assets in major markets with strong borrowers.

SBA 504 (Owner-Occupied)

For owner-occupied commercial properties, SBA 504 loans offer exceptional terms including cash-out options.

Pros:

• Up to 85% LTV with cash-out (20% of property value for working capital)
• Below-market fixed rates
• Long terms (10-25 years)

Cons:

• Must be at least 51% owner-occupied
• SBA eligibility requirements
• Slower processing
• Limited to $5M SBA portion

Best for: Business owners with owner-occupied commercial properties seeking working capital.

The Cash-Out Refinance Process

Understanding the process helps you prepare and set realistic timelines.

Step 1: Property Valuation

Before approaching lenders, understand your property's current market value. You can:

• Review recent comparable sales
• Get a broker's opinion of value (BOV)
• Order a preliminary appraisal

This helps you estimate how much equity you can access and whether the numbers work for your goals.

Step 2: Financial Preparation

Gather documentation lenders will require:

• Current rent roll and lease abstracts
• Trailing 12-month operating statements
• Year-to-date financials
• Property tax bills and insurance policies
• Personal financial statements and tax returns
• Entity documents (operating agreement, articles)
• Current loan documents (note, mortgage, prepayment terms)

Step 3: Loan Shopping

Approach multiple lenders to compare terms. Key variables to evaluate:

• Interest rate and whether fixed or floating
• Maximum LTV and resulting cash-out amount
• DSCR requirements
• Prepayment terms
• Closing costs and timeline
• Recourse requirements

A commercial mortgage broker can help you access multiple options efficiently.

Step 4: Application and Underwriting

Once you select a lender, you'll submit a formal application and enter underwriting. Expect:

• Full appraisal ordered by the lender
• Property inspection
• Environmental report (Phase I, if not recent)
• Title search and insurance
• Verification of income and borrower qualifications

Step 5: Closing

At closing, the new loan funds, your existing mortgage is paid off, and you receive the cash-out proceeds (minus closing costs).

Typical timeline: 30-60 days for bank and agency loans; 45-90 days for CMBS; 2-4 weeks for debt funds.

Costs to Consider

Cash-out refinancing isn't free. Budget for these costs when evaluating whether a refi makes sense:

Closing costs:

• Origination fees: 0.5-2% of loan amount
• Appraisal: $3,000-10,000+ depending on property size
• Legal fees: $5,000-15,000
• Title insurance: Varies by loan size and state
• Environmental reports: $2,000-5,000
• Recording fees and transfer taxes: Varies by jurisdiction

Prepayment penalty on existing loan:
If your current loan has a prepayment penalty (yield maintenance, defeasance, or step-down), this can significantly impact your economics. Calculate the penalty before committing to a refinance.

Ongoing costs:
Your new loan will likely have a higher balance, meaning higher monthly payments. Make sure the property's cash flow supports the increased debt service.

When Cash-Out Refinancing Makes Sense

Cash-out refinancing is particularly attractive when:

• You've created significant equity through appreciation, debt paydown, or value-add improvements
• You have productive uses for the capital (new acquisitions, improvements, debt consolidation)
• The property supports higher leverage with adequate DSCR
• You want to avoid selling to defer capital gains taxes
• Current rates are attractive relative to your existing financing
• Your existing loan is near maturity or has minimal prepayment penalty

When to Consider Alternatives

Cash-out refinancing may not be the best choice if:

• Prepayment penalties are prohibitive on your current loan
• The property doesn't support higher debt based on current NOI
• You need capital faster than the refinance process allows (consider a bridge loan)
• You're planning to sell soon (refinance costs may not be recovered)
• Rates are significantly higher than your existing loan

In some cases, a supplemental loan (adding a second mortgage behind your existing first) can provide cash without triggering prepayment penalties or disturbing favorable existing terms.

Cash-Out Refinance vs. Selling: A Comparison

For investors building long-term wealth, cash-out refinancing often makes more sense than selling—preserving ownership of appreciating assets while recycling capital into new opportunities.

Brookmont Capital Ventures is a capital advisory firm. We do not provide direct lending services. All financing is subject to lender approval and underwriting.