Apartment Cash-Out Refinance Calculator

Short answer

Net cash out equals the new loan minus your current payoff, prepayment cost, closing costs and upfront reserves. The new loan is the lower of two limits: the maximum loan-to-value times appraised value, and the loan whose payment your NOI covers at the lender's minimum DSCR. Whichever limit is lower binds, and it sets your cash.

What the calculator answers

This calculator answers how much cash a refinance of your apartment building actually puts in your account. Not the loan amount, and not the equity on paper: the money left after the old loan, the prepayment cost, the closing costs and the lender's reserves are paid. It is built for owners of 5+ unit buildings who are deciding whether a cash-out refinance is worth doing.

Cash-out refinance calculator

Appraised value ($)Net operating income ($/yr)Current loan payoff ($)Prepayment cost ($)Yield maintenance, defeasance or step-down fee. 0 if you are in the open window.New loan rate (%)Amortization (years)Max LTV for cash-out (%)Cash-out caps are often below rate-and-term caps. Use your lender's number.Min DSCR (x)Closing costs (% of new loan)Reserves and escrows at closing ($)

Max loan by LTV–

Max loan by DSCR–

New loan–

Limit that binds–

Closing costs–

Cash to you at closing–

DSCR at that loan–

Estimates only, not a loan quote.

How to use it

Ten inputs. The first four describe your building and your current loan, the next four describe the new loan, and the last two are costs.

Appraised value

Your best estimate of what a lender's appraiser will conclude. The appraisal sets value, not your purchase price or a broker's opinion. A quick cross-check: divide your NOI by a cap rate that recent sales of similar buildings in your submarket support. Be conservative. A value that comes in low cuts the loan on any deal where loan-to-value binds.

NOI

Net operating income as a lender will underwrite it, which is usually lower than the NOI on your own trailing-12. Lenders apply a vacancy floor, a management fee floor and replacement reserves even if you do not pay them. Run your statement through the T-12 underwriting calculator and use its underwritten NOI here.

Current payoff

Ask your servicer for a payoff statement. It includes the principal balance plus accrued interest and fees through a payoff date. The principal on your monthly statement is close, but the payoff statement is the number that clears the lien.

Prepayment cost

Yield maintenance, defeasance or a step-down percentage, depending on your note. Enter zero if you are in an open prepayment window. For yield maintenance or defeasance, get a current quote from your servicer, because both move with Treasury yields. The yield maintenance calculator and defeasance calculator give an estimate.

Rate and amortization

The rate on the new loan and the schedule it amortizes over. Do not guess the rate from a headline. Use a quote, or build an estimate from the index and spread as explained on apartment refinance rates. Amortization is the schedule, not the term: a 10-year loan can amortize over 30 years, which is the maximum on Freddie Mac's Conventional Small loans.

Max LTV and min DSCR

The program's leverage limits. Fannie Mae's Small Mortgage Loan program publishes up to 80% LTV and a 1.25x minimum DSCR. Freddie Mac's Conventional Small loan publishes a 1.25x minimum with maximum LTV of 75% to 80% depending on term. Many lenders hold cash-out deals to less than the maximum, so test a lower LTV too. Banks set their own limits.

Closing costs and reserves

Closing costs as a percentage of the loan: lender fees, appraisal, third-party reports, legal and title. Build a line-item number with the closing cost estimator. Reserves are the cash the lender holds back at closing: tax and insurance escrows, replacement reserves and any repair escrow from the property condition report.

Worked example

Say your building appraises at $8,000,000 and the lender underwrites NOI of $560,000. Your payoff is $4,000,000 and the loan is in its open window, so prepayment cost is $0. The new loan is quoted at 6.25% on a 30-year amortization, with a maximum LTV of 75% and a minimum DSCR of 1.25x. Closing costs are 1.5% and the lender wants $40,000 of reserves.

Cash-out example	Amount
Max loan at 75% LTV	$6,000,000
Max loan at 1.25x DSCR	$6,063,390
New loan (LTV binds)	$6,000,000
Less payoff	-$4,000,000
Less closing costs (1.5%)	-$90,000
Less reserves and escrows	-$40,000
Cash to you at closing	$1,870,000

Look at which limit binds first. When DSCR binds, as it often does when rates are high relative to cap rates, the appraisal can come in higher and the loan will not grow: only more NOI or a lower rate moves it. When LTV binds, the appraisal is the number to fight for. The net cash line is what you would receive at closing, before any taxes, and the breakdown shows how much of the gross loan went to the old lender and to costs.

What this tool assumes

Two tests, not three. It sizes on LTV and DSCR. Many lenders also apply a minimum debt yield, which can cut the loan further. Check with the debt yield calculator.
A fully amortizing payment for DSCR. Interest-only periods lower your actual payment but most agency lenders still size on an amortizing payment. Freddie Mac's term sheet says so explicitly for its interest-only structures.
No cash-out rules. Programs can restrict or add tests for cash-out refinances. Freddie Mac, for example, requires a Refinance Test unless amortizing DCR is at least 1.40x and LTV is 60% or less. Your lender will tell you which tests apply.
No taxes. Refinance proceeds are generally not treated like sale proceeds, but your situation may differ. Confirm the tax treatment with your tax advisor.

What to do with your result

If the net cash meets your goal with room to spare, test it against a rate a little higher and a value a little lower, then request quotes using "get quotes on these numbers". If DSCR binds and the cash is short, the lever is NOI: see when a refinance will not size. If LTV binds, focus on the appraisal package: current rent roll, recent renewals at higher rents and a list of capital improvements. If prepayment cost eats the gain, compare refinancing now with waiting in the break-even calculator. For the background on how lenders treat cash-out deals, read the cash-out refinance guide.

Take it offline

Prefer a spreadsheet you can save, send or change? The same math, with formulas you can see.

Excel

Cash-out sources and uses

New loan sized by LTV and DSCR, then payoff, prepayment, closing costs and reserves down to the cash you take home.

Download Excel

Frequently asked questions

How much cash can I take out of my apartment building?

The new loan is the lower of value times the maximum LTV and the loan your NOI supports at the minimum DSCR. Subtract your payoff, any prepayment cost, closing costs and upfront reserves, and the remainder is your net cash. Agency small loan programs publish maximums of 75% to 80% LTV and a 1.25x minimum DSCR, though lenders may hold cash-out deals lower. Enter your numbers in the calculator to see which limit binds.

Why does my loan not get bigger when I raise the appraised value?

Because DSCR is binding. When the loan your NOI can cover at the minimum DSCR is smaller than the LTV limit, a higher value does nothing. Only higher underwritten NOI, a lower interest rate or a longer amortization raises the DSCR limit. The calculator shows which limit binds so you know whether to focus on the appraisal or on income.

What NOI should I enter?

Enter NOI as a lender would underwrite it, not the figure on your own operating statement. Lenders apply minimum vacancy and management fee assumptions, add replacement reserves and often trend taxes and insurance upward, which usually lowers NOI. The T-12 underwriting calculator converts your statement into an underwritten NOI you can paste into this calculator.

Are reserves part of the closing costs?

They are entered separately because they are not fees. Tax and insurance escrows, replacement reserves and any repair escrow are your money held by the lender or servicer, and they are used to pay those costs or returned under the loan documents. They still reduce the cash you receive at closing, which is why the calculator subtracts them from net proceeds.

Is cash-out refinance money taxable?

Loan proceeds are generally treated differently from sale proceeds, but the answer depends on your entity, your basis and how the money is used. This calculator does not model taxes. Confirm the treatment of your specific refinance with a tax advisor before you commit to a use for the cash.