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BiggerPockets - How to Maximize Cashflow with a Cash-Out Refinance

Thumbnail of the video “BiggerPockets - How to Maximize Cashflow with a Cash-Out Refinance”
Community upload. AI output has not been independently verified.
Author: BiggerPockets
Categories: Real Estate
Tags: real-estate
Views: 2 · Last viewed: 2026-10-15 07:49 UTC

Short Summary

Main recommendation: Before deciding whether to refinance a rental, calculate your current equity and return on equity (ROE), then compare it to your potential ROE after a cash-out refinance, since a cash-out refi can reset ROE and free up cash for new investments. The video walks through this using a $300,000 property with 20% down and $15,000 in annual cash flow. The core question is whether refinancing helps you generate cash flow more efficiently given the equity you have tied up in the deal.

Key Points

  • Equity is the value of the property minus your liabilities, meaning what you would keep after selling and paying off the loan and other obligations; at purchase, equity equals your down payment.
  • ROE is cash flow divided by equity. In the example, ROE drops from 25% in year zero ($15,000 / $60,000) to about 11% in year five ($20,000 / $180,000) even though cash flow rose, because equity tripled.
  • Selling a property to restore ROE is an alternative, but the speaker suggests considering a cash-out refi first, since it can keep the property while boosting ROE.
  • A cash-out refi resets the mortgage, requiring a new 25% investor down payment (75% loan), and the difference between old equity and new equity is cash you can take out.
  • In the example, the refi lifts ROE from about 11% to 18% ($18,000 / $100,000) and releases $80,000 in cash, with cash flow assumed to dip slightly from $20,000 to $18,000 after the refinance.

Details Worth Noting

  • Concrete instructions:
    • Calculate equity: take current property value and subtract all liabilities (in the example, mortgage balance only). Example: $400,000 value minus $220,000 loan = $180,000 equity.
    • Calculate ROE: divide annual cash flow by equity. Example: $20,000 / $180,000 ≈ 11%.
    • Estimate refi outcome: assume a new 25% down payment (75% loan) on the current value, so the new equity equals the new down payment. Example: $400,000 × 25% = $100,000 equity, with a $300,000 loan.
    • Compute cash out: subtract new equity from old equity. Example: $180,000 − $100,000 = $80,000 cash.
    • Recalculate ROE post-refi using expected (reduced) cash flow. Example: $18,000 / $100,000 = 18%.
    • Compare the resulting ROE with your original ROE and with what you could earn reinvesting the cash at a comparable return (the video cites 18%, 20%, or 25%).
  • The example assumes the mortgage is the only liability and that cash flow declines after refinancing because the new loan is on a more expensive property; actual figures will vary.
  • The example assumes a 25% investor down payment requirement; the speaker presents this as the assumed requirement rather than a universal rule.
  • The speaker frames this as general educational analysis, not personal financial advice, and notes refinancing is not always right for everyone.

Bottom Line

A cash-out refi is worth modeling when your ROE has fallen as equity grew, because it can restore efficiency and release capital, but the decision depends on your actual numbers for value, loan terms, and post-refi cash flow.