Sitting on untapped equity? A non-owner occupied cash-out refinance could be your key to unlocking it. These loans let you extract equity as cash without having to sell.
At ABL, we offer quick cash-out refinances tailored to investors. Whether you need cash to put toward another property or to finance a renovation, our cash-out refinance loans can do the job.
What Is a Non-Owner Occupied Cash-Out Refinance?
A cash-out refinance is a loan that lets you replace an existing mortgage with a larger one and then pull out the difference as cash. A non-owner occupied cash-out refinance is the same thing, but specifically for investment properties, not primary residences.
When Does a Cash-Out Refinance Make Sense?
There are many scenarios where a cash-out refinance could be a good idea:
To Take Advantage of Property Appreciation
If your property has appreciated significantly, a cash-out refinance can be a great way to take advantage of your new equity. It’s like pulling out cash you didn’t know you had.
To Maximize Return on Equity
Many investors get cash-out refinances to increase their return on equity. For example, let’s say you own a $300,000 rental property that generates $10,000 in annual cash flow. Assuming you have $200,000 equity in the property, that’s a return on equity of 5% ($10,000 / $200,000).
Now, let’s say you get a cash-out refinance to pull out $100,000 of your equity as cash. Then you use the cash to buy another $300,000 rental property that generates $10,000 in annual cash flow. In other words, you’ve spread your $200,000 equity across two properties. This doubles your annual cash flow from $10,000 to $20,000 and your return on equity from 5% to 10% ($20,000 / $200,000).
To Finance Renovations and Upgrades
If you’re cash-strapped or don’t want to deplete your savings, a cash-out refinance can be a great way to fund property renovations and upgrades. And if the improvements increase the property’s value and rent, you can quickly gain back the equity you pulled out (and then some).
To Finance New Acquisitions
Expanding your real estate portfolio can be a slow process if you’re relying on savings for down payments. Instead, get a cash-out refinance to buy additional properties with the equity you already have. That way, you won’t have to dip into savings for each acquisition.
To Lock In a Favorable Interest Rate or Loan Terms
A cash-out refinance can help you take advantage of a lower interest rate or better loan terms. For example, if a recession hits and causes rates to drop dramatically, refinancing could let you lock in a lower rate to save on interest. Meanwhile, you can pull out cash to invest elsewhere.
How to Get a Cash-Out Refinance as an Investor
To get a cash-out refinance, you must follow these steps:
1. Determine Your Property’s Market Value and Equity Position
You can estimate a property’s current market value by running a comp analysis. This involves finding similar properties nearby that have recently sold and then calculating an average sales price. Be sure to make adjustments for differences in size, age, condition, etc.
From there, you can subtract your outstanding mortgage balance from the market value to arrive at your current equity position. This is the amount lenders will lend against (upon verifying the property’s market value with a professional appraisal that uses a similar comp analysis).
2. Compare Lenders
To get the best cash-out refinance loan, you must shop around. Look for lenders that specialize in non-owner occupied cash-out refinances and then pre-qualify with them and compare loan terms. At ABL, you can get pre-qualified within 24 hours.
3. Gather Required Documents
Once you’ve chosen a lender, start gathering the required loan documents. These typically include the property title, current mortgage information, financial statements from your business, a credit report, and more. By collecting this information upfront, you can avoid delays later.
4. Apply for a Loan
Submit a cash-out refinance loan application. Your lender will approve the cash-out refinance based on the documents you submit and an appraiser’s evaluation of your property’s value.
5. Close and Collect Funds
Once approved, you can close on the loan and collect your cash as a lump sum. Unless specified otherwise in the loan terms, you can use the cash on whatever you want. This includes buying another property or making renovations to an existing one.
Common Mistakes to Avoid
That said, before you do a cash-out refinance, here are some common pitfalls to avoid:
Overleveraging the Property
If you take too much cash out of a property, you risk overleveraging it. This means the debt payments could exceed the cash flow, or the market value could dip below the remaining loan balance, putting the property “underwater.”
Not Having a Clear Plan for the Refinance Proceeds
Pulling out cash without a plan is a recipe for poor financial decisions. Before you accept a large sum of cash, make sure you have a responsible plan for reinvesting it.
Ignoring Long-Term Market Trends
If you misjudge the market, a cash-out refinance could hurt your investment. For example, if you expect rental rates to remain steady and they drop, a cash-out refinance could leave you with a higher debt payment and insufficient cash flow to cover it.
Refinance and Extract Equity with an ABL Loan
Fortunately, you’re not on your own when it comes to finding the best cash-out refinance plan for your investment property. At ABL, we’ve closed on countless non-owner occupied cash-out refinances for investors like you nationwide. We’re happy to walk you through the process.
Start by pre-qualifying for a cash-out refinance today!