For the savvy real estate investor, cash-out loans can be a useful tool to leverage properties that have equity within your investment portfolio to purchase new properties. 

What Is a Cash-Out Loan?

A cash-out loan allows you to borrow against the equity you’ve built up in an investment property you already own. Rather than selling the property to access that value, you use it as collateral to secure a new loan and receive the difference between what the property is worth and what you owe on it as usable funds.

For real estate investors, this is a powerful tool because it lets you put idle equity to work without liquidating an income-producing asset. Hard money and private capital lenders, unlike traditional banks, are generally willing to approve cash-out loans, making them a flexible option for investors looking to move quickly on new opportunities.

Why Do Investors Take Out Secured Loans Against Their Rental Property?

Investors choose to take out a cash-out loan against a rental property for several reasons, including:

1. To Leverage Equity for Higher-Return Investments

Cash-out loan interest rates are often lower than what you can earn from the new rental property that will be purchased with the funds obtained from the equity of the existing property. Thus, the higher rate of return from the new property more than covers the cost of the funds to purchase it. 

Additionally, by using a rental property to secure the cash-out loan, that property itself may produce enough rental income to cover the costs of the loan. You should also keep in mind the potential for capital gain in the new property.

2. To Buy Out a Partner

Cash-out loans can also be useful if you find it necessary to end an investment partnership. Whether you need to buy out a partner who is choosing to leave or one who is more problematic and potentially costing your bottom line, a cash-out investment property loan can solve the problem by providing you with the necessary funds to buy yourself out of a costly partnership without risking the loss of your portfolio, either in part or in its entirety.

3. To Move Quickly on a Time-Sensitive Opportunity

Cash-out loans can also give investors the ability to act quickly when a time-sensitive opportunity arises. Because hard money lenders can close in as little as seven days, a cash-out loan against an existing rental property can function almost like a ready source of capital, allowing you to move on a new acquisition or other real estate investment opportunity without waiting on a traditional financing timeline. In a competitive market, that speed can make the difference between closing a deal and losing it to another buyer.

How Hard Money Cash-Out Loans Work

Several factors influence what you can borrow and at what rate. Typically, the interest rate for hard money loans against rental properties ranges between 9 and 12 percent, depending on the particular lender and various other factors that are involved (e.g., property value, income production, occupancy rates, type of tenants, turnover, etc.). 

While those factors apply whether you are borrowing against one property or several, some investors choose to use a portfolio of rental properties as collateral rather than a single asset. In such circumstances, lenders may require either a minimum number of properties or a minimum value for the portfolio. Combining the equity of multiple properties in a portfolio loan can give investors access to more funds to purchase additional properties and expand and diversify their portfolio without needing to request separate loans for each new property purchase. Keep in mind that hard money lenders typically only fund first mortgage secured loans.

Regardless of whether you are borrowing against one property or several, how much you can access comes down to equity. Hard money lenders typically lend up to 65–70% of a property’s current appraised value, so the more equity you have built up, the more you may be able to borrow. While this strategy works best with properties that were originally paid for with cash, it is possible to use cash-out loans to pay off existing bank loans and refinance a mortgaged property in certain circumstances. The more equity or additional value that you can demonstrate for such a property, the better chance you have of obtaining a cash-out loan against it.

How Do Hard Money Lenders Evaluate Loans Against Rental Properties?

Hard money lenders evaluate cash-out loan applications primarily on the property itself rather than the borrower‘s personal financials or credit score. Key factors include the current appraised value of the property, existing occupancy rates, rental income, tenant stability, and the overall condition of the asset. The stronger those numbers, the more equity a lender is likely to let you access and the better the repayment terms you can expect.

Other Types of Secured Loans for Rental Properties

Cash-out loans are just one way to leverage a rental property as collateral. Depending on your goals, you may also want to explore other types of loans, including:

• Bridge Loans — A short-term financing option for investors who need to move quickly between transactions while longer-term funding is arranged.
• Multifamily Loans — Designed for investors looking to add apartment buildings or other multi-unit properties to their portfolio.
• Hard Money Acquisition Loans — Ideal if you’re ready to purchase a new investment property and need fast, flexible financing to close the deal.

Is a Cash-Out Loan the Right Move?

A cash-out loan against a rental property can be a powerful tool, but it works best when the numbers are carefully evaluated before moving forward. Investors should confirm that the projected income from the new property will realistically cover the cost of borrowing, account for potential vacancy periods on both the existing and new property, and make sure the additional debt load fits comfortably within their broader portfolio. Taking on leverage against an income-producing asset carries real risk if market conditions shift or a property underperforms. 

Explore a Cash-Out Loan Against Your Rental Property

Montegra has been providing hard money and private capital loans to Colorado real estate investors for over 53 years. If you own a rental property with equity and are looking to expand your portfolio, buy out a partner, or simply put that equity to work, we can help you find a solution that fits your situation.

Contact us today at (303) 377-4181 to discuss your options, or apply online to get started.