A commercial cash-out refinance replaces your current loan with a larger one and pays the difference to you at closing. Lenders size it two ways at once: the new loan usually cannot exceed 65 to 75 percent of current value, and the property's income has to cover the new payment with room to spare. The proceeds are loan money, not income, and owners use them for the next acquisition, improvements, partner buyouts, or retiring expensive debt.
Two of our tools do the sizing math for you: the maximum loan calculator shows what your value supports, and the DSCR calculator shows what your income supports. The lower of the two wins.
Every refinance replaces one loan with another. A rate-and-term refinance replaces the balance and stops there. A cash-out refinance borrows more than you owe and wires you the difference. If you owe $1.4 million on a building now worth $3 million, a new loan at 70 percent of value is $2.1 million: enough to retire the old loan, cover costs, and put roughly $650,000 to work somewhere else.
Two ceilings apply, and the lower one controls. The first is loan-to-value: most commercial lenders will go to 65 to 75 percent of the current appraised value on a cash-out, sometimes a notch below their purchase-money limit. The second is coverage: the property's net operating income has to support the new, larger payment, typically at a debt service coverage ratio of 1.20 to 1.25 or better. A building can have plenty of equity and still fail the income test, which is why the appraisal and the rent roll both matter.
The common uses are down payment funds for the next acquisition, capital improvements that raise the property's income, buying out a partner, and consolidating expensive shorter-term debt into one property-secured loan. Because the proceeds are borrowed money rather than income, receiving them is generally not a taxable event, though the interest treatment depends on how you use the funds, so run the specifics past your tax advisor.
Most conventional lenders want to see ownership history before a cash-out, commonly six to twelve months, and they will base value on the appraisal rather than your purchase price once that seasoning has run. If you bought well below market or forced the value up quickly through improvements or lease-up, seasoning is often the frustrating part: the equity is real, but the calendar has not caught up.
A bridge cash-out fits when the bank path fails on timing or profile: the seasoning clock has not run, the property is mid-stabilization, the money is needed in weeks rather than months, or the bank's box does not fit the asset. The trade is cost for speed and flexibility, and it works when the proceeds are going somewhere that earns more than the loan costs. That is a math question, and we are happy to run it with you on real numbers.
Dillan is Managing Partner at BluRidge Funding, where he leads investor relationships and capital operations. He founded Summit Home Loans in 2018 and has spent his career on the capital side of real estate finance, matching deals to the right funding sources. More about the team.
Typically the difference between your current loan balance and 65 to 75 percent of the property's appraised value, provided the property's income covers the new payment at roughly a 1.20 to 1.25 debt service coverage ratio or better. The lower of the value ceiling and the income ceiling controls.
Receiving loan proceeds is generally not a taxable event because it is borrowed money, not income. How the interest is treated depends on what the funds are used for, so confirm your situation with a tax advisor.
Many conventional lenders want six to twelve months of ownership before lending against appraised value rather than purchase price. Bridge lenders are often more flexible on seasoning when the value is demonstrable.
A rate-and-term refinance replaces your balance to change the rate, term, or structure. A cash-out refinance borrows above your balance and pays you the difference at closing.
When a refinance is about the maturity date, the payment, or the equity, and how to run it.
Read on →Your options when a commercial balloon matures, mapped out with timelines.
Read on →Down payments, closing costs, and reserves for commercial deals.
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