Pulling Equity From a Rental With a DSCR Cash-Out Refinance

Yes. With a DSCR cash-out refinance, a new, larger loan pays off your current loan on a rental, and you keep the difference at closing. It qualifies mainly on the property's rent compared with the new payment, not on your tax returns. The trade-off is a bigger loan, so the rent still has to cover it.

Quick refresher on DSCR

DSCR stands for debt service coverage ratio. Lenders divide the property's monthly rent by its monthly housing payment, which covers principal and interest along with taxes, insurance and any HOA dues. A ratio of 1.20x means rent is 20% higher than the payment.

On a cash-out, the lender runs that math on the new, larger payment. If the bigger loan pushes the ratio below the lender's minimum, the loan amount may be reduced. RSC Private Lending's DSCR Rental program has a minimum DSCR of 0.75x.

How the math works

Your cash-out is capped by a maximum loan-to-value (LTV), the loan as a share of the appraised value. Cash-out loans usually carry a lower LTV cap than purchases or rate-and-term refinances. On RSC's DSCR Rental program, a cash-out refinance goes up to 75% LTV, compared with 80% on a purchase or rate-and-term refinance.

Example (round numbers only, using a 75% cash-out LTV):

• Appraised value: $500,000
• Current loan balance: $220,000
• Maximum new loan at 75% LTV: $375,000
• Gross cash-out: $375,000 minus $220,000 = $155,000
• Less closing costs and any prepayment penalty on the old loan

Now check the rent. If the new payment, including taxes and insurance, is $3,050 and rent is $3,400, the DSCR is about 1.11x. Whether that works depends on the lender's minimum, and a stronger ratio can earn better terms.

How long you must own the property

Many lenders want you to own the property for a set period, called seasoning, before they will use a new appraised value for cash-out. Before then, they may cap the loan based on what you paid plus documented improvements. Policies vary widely, so ask about seasoning before you plan around a number.

What investors do with the cash

• Fund the down payment on the next rental
• Finish the BRRRR cycle (buy, rehab, rent, refinance, repeat) by pulling rehab capital back out
• Pay off a short-term hard money or bridge loan
• Build reserves across a portfolio
• Fund improvements on other properties

Check before you pull the trigger

• Cash flow after. A larger payment means thinner monthly cash flow.
• Rate. If your current rate is low, refinancing the whole balance at a higher rate can cost more than the cash is worth.
• Prepayment penalty. Your existing loan may charge one.
• Closing costs. These come out of your proceeds.
• Appraisal risk. A low value shrinks the loan.

What this means for you

This kind of refinance can turn trapped equity into working capital without selling. Run the new payment, the new ratio and the real cost of the higher balance before you decide.

Curious how much equity you could access? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.