A cash-out refinance replaces an existing mortgage with a new, larger loan, allowing the borrower to receive the difference between the new loan amount and the payoff balance of the original loan in cash. Lenders typically size the new loan based on the property's current appraised value and their maximum allowable loan-to-value ratio, which means the amount available to withdraw depends heavily on how much the property has appreciated or how much value has been added since the original financing.
In commercial real estate, sponsors often pursue a cash-out refinance after successfully executing a value-add business plan, using the proceeds to return capital to investors while retaining ownership of the property rather than selling it outright. This can accelerate an investor's overall return by recovering some or all of their initial investment early in the hold period, while the property continues generating cash flow and remains available for further appreciation.
Further reading: Our Investment Strategy
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