Important note
This article is general information current as of September 2026, not tax, legal, or financial advice. Refinance terms, tax treatment, and interest rates change and depend on individual circumstances. Confirm current requirements with a licensed lender, CPA, or tax attorney before making a financing decision. Max Berger is a licensed real estate professional, not a lender, tax advisor, or attorney, and this article does not constitute tax, legal, or financial advice.
A cash-out refinance replaces your existing loan with a larger one and sends you the difference in cash, typically capped around 65% to 75% loan-to-value for multifamily property. Unlike selling, it isn't a taxable event; the IRS treats loan proceeds as debt, not income, so you avoid triggering capital gains and depreciation recapture. Whether it makes sense right now depends heavily on your existing rate versus current rates, which moved against refinancers when the Federal Reserve raised its benchmark rate on September 16, 2026, and on what you actually plan to do with the cash.
Pulling equity out of a building you already own sounds simple until you actually run the numbers against your alternatives, selling outright, doing nothing, or waiting for rates to move.
The mechanics of a cash-out refinance, and the specific reasons it beats or loses to selling, come down to a handful of concrete numbers rather than general market sentiment, numbers that look different depending on how your building’s financing options stack up in the first place.
Across both categories, qualification runs primarily on the property’s own income covering the new, larger payment, not on your personal income the way a residential refinance would. A lower debt coverage ratio on the new loan amount is the most common reason a requested cash-out amount gets trimmed back during underwriting.
What a Cash-Out Refinance Actually Is
You replace your current mortgage with a new, larger one, secured by the same property, and the difference between the new loan balance and what you owed gets wired to you at closing. You keep the building, keep collecting rent, and now carry a bigger monthly payment against a bigger loan. That’s the entire mechanism. What varies is how much you can pull out, what it costs you in rate, and what you’re allowed to do with the proceeds.The Tax Difference Most Owners Don’t Realize
This is the single biggest reason cash-out refinancing exists as a strategy at all, and it’s worth understanding precisely rather than approximately. When you sell an apartment building, you trigger capital gains on your appreciation and depreciation recapture on everything you’ve written off over the years, taxed federally at up to 25% on the recapture piece, plus California’s ordinary income treatment on top of that. A cash-out refinance triggers none of it. The IRS treats loan proceeds as borrowed money you’re contractually obligated to repay, not income, so there’s no 1099, nothing hits your Form 1040, and your depreciation schedule continues exactly as it would have anyway. One distinction matters if you’ve read general cash-out refinance advice online: most of it is written for homeowners and describes IRS Publication 936’s rules on deducting mortgage interest, including the $750,000 cap on qualified acquisition debt. That cap applies to your personal residence. It does not apply to an apartment building. Mortgage interest on rental and commercial property is an ordinary business expense, deducted in full against your rental income on Schedule E or your business return, with no dollar cap tied to the loan size. If a lender or advisor cites the $750,000 homeowner limit in the context of your apartment building’s refinance, that’s the wrong rule for the wrong asset.What Lenders Actually Require
Terms vary by lender and by how many units you own, but the general shape holds across the market:| Typical Cash-Out LTV Ceiling | Typical Seasoning Period | |
| 1-10 unit properties (DSCR-style non-QM loans) | 65% – 75% | 3 – 6 months of ownership |
| Larger multifamily (agency and bank commercial loans) | 65% – 75% | Often 12 months, sometimes waived with strong justification |
Why Timing Matters More Than Usual Right Now
The Federal Reserve raised its benchmark rate on September 16, 2026, to a range of 3.75% to 4.00%, the first increase since 2023, and major bank forecasts don’t have the next cut arriving until mid-to-late 2027. If your existing loan carries a rate from the low-rate years before 2022, a cash-out refinance today almost certainly means trading up into a materially higher rate on your entire loan balance, not just the new money you’re pulling out. That doesn’t automatically rule it out, but it changes the math: the cost of accessing that equity now needs to be weighed against what you’d earn deploying it, and against the alternative of simply waiting, if your loan isn’t maturing on its own timeline.When It Actually Makes Sense
A cash-out refinance tends to make sense in a few specific situations, not as a general equity-extraction habit:- You’re recycling capital into another acquisition. Pulling equity from a stabilized building to fund the down payment on your next one is a core way LA owners scale a portfolio without selling anything.
- Your loan is maturing anyway. If you’re facing a refinance regardless of the rate environment, pulling additional equity at the same time avoids a second round of closing costs and underwriting later.
- You need capital for capital improvements. Funding a renovation or a mandatory retrofit through refinance proceeds, rather than out of pocket, keeps your cash reserves intact.
- You want liquidity without giving up a low property tax basis or a favorable existing rent roll. Selling resets everything. Refinancing changes only your debt.
When Selling Actually Beats Refinancing
Refinancing isn’t automatically the better move. If you’re planning to exit this asset class entirely, a sale converts your full equity to cash rather than the 65% to 75% a refinance leaves accessible. If the building has real, unaddressed problems, deferred maintenance, a rent roll well below market, unresolved compliance issues, selling shifts that risk to a buyer instead of financing around it. And if you’re already planning a 1031 exchange to trade into a different asset entirely, that path defers the same tax consequences a sale would otherwise trigger, worth comparing directly against how a 1031 exchange works in Los Angeles before assuming refinancing is your only tax-efficient option.Running the Numbers Before You Commit to Either Path
A refinance-versus-sell decision is really a comparison of two different tax and cash-flow outcomes, and getting it wrong in either direction is expensive. Working through the actual numbers on your specific building, current value, existing loan terms, and what you’d do with the proceeds matters more here than any general rule of thumb, which is the kind of building-specific analysis Max Berger walks LA owners through regularly. If you want a clear read on what your building could support, request a free valuation as a starting point.Get Matched With the Right Lender
Getting the right rate depends as much on the lender as the numbers. Max works with a network of lenders active in LA multifamily refinancing and can connect you with the right one for your building.