FinancingIntermediate

What Is Cash-Out Refinance?

A cash-out refinance replaces an existing mortgage with a larger loan, letting the homeowner receive the difference in cash — increasing the loan balance in exchange for accessing home equity.

Most useful for: Repeat Buyer · Homeowner
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At a Glance
Cash-Out Refinance
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Definition
Plain-English meaning
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Related Terms
2 connected concepts

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The BRRRR cycle: buy, rehab, rent, refinance, repeat

BRRRR recycles your cash: a renovation raises the value, a cash-out refinance at that value returns money, and that money funds the next deal.

All-in cost
$210,000
Cash returned at refinance
$205,000
New loan $210,000
Cash left in the deal
$5,000
Not fully recycled
Cash flow after refinance
−$139/mo
Negative
  1. 1 of 5 →
    Buy
    $150,000
    Purchase below market, often with cash or a short-term loan.
  2. 2 of 5 →
    Rehab
    $60,000
    Renovate to raise the value, plus closing and holding costs.
  3. 3 of 5 →
    Rent
    $2,200/mo
    Stabilize with a tenant at market rent.
  4. 4 of 5 →
    Refinance
    $210,000
    Cash-out loan at 75% of the appraised value.
  5. 5 of 5 ↺ back to 1
    Repeat
    $205,000
    Recycle the cash returned into the next property.
The cycle only repeats if the refinance returns most of your cash and the property still cash-flows with the larger loan.
Risks in this deal
  • After the refinance the property loses about $139 a month.
  • $5,000 of your cash stays in the property after the refinance.
  • The appraisal may come in below your ARV, returning less cash.
  • Many lenders require 6 to 12 months of ownership before a cash-out refinance uses the new value.

Formula

All-in = Purchase + Rehab + Closing and holdingCash returned = ARV × Refinance LTV − Refinance costsCash left in = All-in − Cash returned

Assumptions

  • 30-year fixed refinance; operating costs entered as one monthly figure.
  • Short-term financing costs during the rehab are part of holding costs.
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This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.

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