What is a cash-out loan on investment property?
A cash-out loan on investment property is a new short-term loan, larger than what's owed on a property the investor already owns. It pays off the existing debt, and the difference is paid out to you. If the property is owned free and clear, the whole loan is equity coming out.
That makes it different from the cash-out refinance most search results describe, which is usually long-term debt from a bank or a rental lender. This is short-term money against a property you hold as an investment, used to move the next step forward. It's one of Illinois Lender's bridge loans, alongside the bridge purchase and the bridge refinance.
When does a short-term cash-out make sense?
A short-term cash-out fits when an investor has equity in an investment property, a near-term use for it, and no reason to take on long-term debt yet. Situations investors describe:
- Funding the purchase of the next property while the current one is still held.
- Freeing up cash from a property that was bought outright, so there is equity and no loan on it.
- A finished rehab that isn't ready for a long-term loan yet, while the property is rented up or marketed for sale.
- Paying off a maturing private loan and taking out equity in the same closing.
If the money is meant to renovate the property you're borrowing against, say so in the notes, because a renovation changes how the deal is looked at.
Investment property only, never your home
Cash-out loans from Illinois Lender are business-purpose loans on non-owner-occupied investment property only. They are not home-equity loans.
- No cash-out on a home you or your family live in, or will live in
- No cash-out on a building where you live in one of the units
- No personal, family, or household use of the money
The deal form asks you to confirm the loan is for business purposes on investment property. On a cash-out that confirmation matters most, because the property is already yours.
What does Illinois Lender look at on a cash-out?
With no purchase price to anchor the deal, Illinois Lender looks hardest at the property's current value and at what's already owed on it.
- Current value. Your best estimate, and what it rests on: comparable sales, rents, recent work.
- What is owed now. Every loan or lien on the property, and to whom.
- Title. Who owns the property and what is recorded against it, confirmed in underwriting.
- Condition and occupancy. Whether it's rented, vacant, or between tenants.
- What the cash is for. The business purpose, in a sentence.
- The exit. How the cash-out loan will be paid off.
Your credit, experience, and liquidity are reviewed as well; what underwriting looks at explains how.
How is a cash-out loan paid off?
A cash-out loan is repaid by a sale or a refinance, and on a rental the refinance is usually the plan: a longer-term lender pays off the cash-out loan, often once the property is rented and has a rent history. Be candid about what has to happen first. “Refinance after the second unit is leased” tells the reviewer more than “refinance.”
Cash-out vs. bridge refinance
A cash-out and a bridge refinance are both bridge loans on property you already own. A bridge refinance is about the debt: the existing loan needs replacing. A cash-out is about the equity: the new loan is larger than what's owed, and the difference comes to you as cash.
On the deal form, choose Bridge refinance if you only need the existing loan replaced, and Cash-out if you also want equity out. Not sure which? Choose “Not sure yet” and explain in the notes.
Cash-out questions
What can the cash be used for?
Business or investment use, most often the next deal, such as the purchase of another investment property. Illinois Lender asks what the cash is for in the notes on the deal form, because the purpose is part of the review. Personal, family, or household use is outside what it lends for.
How much cash can I take out?
Illinois Lender does not publish loan amounts or loan-to-value limits. What a property supports depends on its current value, what is owed on it, and the exit, and the figure appears on the term sheet for the deal, subject to underwriting.
Is this a long-term refinance?
No. It is a short-term private loan, meant to be paid off by a sale or by a refinance into longer-term financing. If the goal is long-term debt to hold now, a bank or rental lender is built for that, and hard money vs. a bank loan explains when a bank is the better choice.