Man using cash out refinance to buy his next investment property.

The equity in your home is a powerful wealth building tool. By using a cash out refinance to buy an investment property, you can take advantage of one of the best tax-savvy ways to expand your rental portfolio. In this blog, we’ll explore the cash-out refinance and how it can be utilized to acquire investment properties. We’ll also delve into the step-by-step process, advantages, potential risks, and essential steps for maximizing your returns. 

So, let’s jump in.

Understanding Cash-Out Refinance

Cash-out refinance involves replacing your existing mortgage with a new one that has a higher loan amount than your current balance. The difference between the two amounts is received as a lump sum of cash. This approach enables property owners to tap into the equity they have built in their homes and use it for other purposes, such as investing in real estate.

For many first-time property investors, one of the significant challenges is accumulating enough capital for a down payment on an investment property. Cash-out refinance offers a solution by allowing homeowners to tap into the equity they have accumulated in their primary residence. As they make mortgage payments and the property appreciates in value, their equity grows over time. By refinancing their mortgage, they can access a portion of this accumulated equity in the form of a lump sum of cash.

  • Lower Interest Rates and Attractive Terms – Cash-out refinance typically comes with lower interest rates compared to other forms of borrowing, such as personal loans or credit cards. This is because the loan is secured by the property, making it less risky for lenders. As a first-time investor, securing a cash-out refinance with lower interest rates can lead to considerable savings over the life
    of the loan.
  • No Restrictions on Use of Funds – Unlike traditional home equity loans or HELOCs, cash-out refinance offers first-time investors the freedom to use the funds as they see fit. Whether they want to purchase an investment property, renovate an existing one, consolidate debts, or invest in other opportunities, the cash received from the refinance can be used for a wide range of purposes. This flexibility allows investors to make strategic decisions that align with their individual financial goals.
  • Access to Substantial Capital – Cash-out refinance provides first-time investors with access to substantial capital that can kick-start their real estate investment journey. This influx of funds can open up a world of opportunities, allowing them to venture into markets they might not have otherwise considered or invest in multiple properties to diversify their portfolio.
  • Building a Real-Estate Portfolio – First-time investors often face the challenge of building a diversified and robust real estate portfolio. Cash-out refinance can act as a catalyst for portfolio expansion, enabling them to acquire multiple properties that align with their investment strategy. As they build their portfolio, the potential for increased cash flow and capital appreciation grows, setting the stage for long-term financial success.
  • Capitalizing on Real Estate Opportunities – Real estate markets are dynamic, and opportunities arise at various times. With cash-out refinance, first-time investors can be prepared to capitalize on these opportunities quickly. Whether it’s a distressed property, a seller’s market, or a promising new development, having readily available funds from a cash-out refinance can give them a competitive edge.

Tax Benefits

There are several tax benefits for using the cash from your refinance to help pay for your investment property. 

First of all, the money you take out is tax-free. If you sell a home, you’d have to likely report the sale as income. When you refinance, you don’t because technically it’s debt.

Additionally, depending on how you use the cash from the refinance, you might be able to deduct certain investment expenses related to your rental property. For example, if you use the cash to make improvements to your rental property, these expenses may be

Finally, once you acquire your new investment property, you can write off the depreciation to reduce your tax liabilities. 

Techniques for Using Cash-Out Refinance

BRRRR (Buy Rehab Rent Refinance Repeat)

The BRRR method is popular for both amateur and seasoned real estate investors.

  • Buy. You purchase a property, hopefully at under market value that you see a potential to put some sweat equity into.
  • Rehab. You renovate, restore, and improve the property to improve the value of the home.
  • Rent. You find a renter and rent the property out. Ideally, the monthly rent will be high enough to pay for the mortgage + provide a little extra cash flow. 
  • Refinance. Since you’ve added some sweat equity into the home, you’re ready to pull some of it out with a cash-out refinance (tax-free of course)
  • Repeat. Find another property with the money you got from refinancing and put another down payment.

Acquiring a Cash-Out Refinance

Before embarking on the investment journey, it’s vital to conduct thorough research on local real estate markets. Identify promising investment areas by considering factors such as rental demand, property appreciation rates, economic indicators, and potential
growth opportunities.

Step-by-Step Guide

Evaluating Your Current Mortgage Situation

To determine if cash-out refinance is the right option for you, review your current mortgage interest rate and terms. Additionally, take a close look at your credit score and overall financial standing to assess your eligibility for favorable refinance terms.

Researching Potential Investment Properties

Once you’ve decided to pursue investment opportunities, it’s time to research potential properties that align with your investment goals. Analyze the property’s cash flow potential, projected returns, and overall feasibility as an investment asset.

Calculating Cash-Out Refinance Amount

Working with a mortgage professional is crucial at this stage. They can help you calculate the maximum refinance amount based on your property’s current value, outstanding mortgage balance, and the lender’s loan-to-value (LTV) ratio guidelines. Additionally, don’t forget to factor in closing costs and fees associated with the refinance.

Working with Lenders and Mortgage Brokers

Shop around for the best rates and terms by reaching out to various lenders and mortgage brokers. Compare the offers and choose the one that best aligns with your financial objectives. Be prepared to provide the necessary documentation promptly to expedite the refinancing process. At HouseMax Funding, we know how important it is to close deals quickly. That’s why thousands of real-estate investors choose to work with us. We will be able to help you pre‑qualify over the phone in a matter of minutes so you can get your funds faster. Learn more about our loan process today.

Potential Risks and Mitigation Strategies

While cash-out refinance offers substantial benefits, it’s essential to acknowledge and mitigate potential risks associated with this strategy:

Market Fluctuations and Property Valuation – Real estate markets are dynamic and can experience fluctuations. To mitigate this risk, conduct thorough market research and choose investment properties with solid potential for long-term appreciation.

Managing Debt and Financial Stability – Accessing additional funds through cash-out refinance introduces new debt obligations. It’s crucial to have a comprehensive financial plan that considers your cash flow, emergency funds, and ability to manage multiple mortgages.


Using cash-out refinance to buy investment property is a powerful tool in the real estate investor’s toolkit. By leveraging the equity in your current home, you can access funds to acquire lucrative investment properties and build a successful portfolio. Remember to conduct thorough research, carefully assess opportunities, and have a solid plan in place to ensure a successful venture into real estate investing.