Foreign investors who bought US property with cash, or who paid down an earlier loan, often sit on equity they want to use for the next purchase. A cash-out refinance replaces the existing loan, or places a first loan on a free-and-clear property, and pays the difference to the owner. For an investment property held in a US LLC, this is a business-purpose loan, and nationality does not change the terms.
How much you can take out
Leverage is measured against the appraised value today, not what you paid. Exact terms depend on the deal: the rent, the condition of the property and the market all count.
| Loan | Cash-out leverage | Best suited to |
|---|---|---|
| Bridge | Up to 75% LTV (purchase leverage less 5 points) | Fast liquidity for a new purchase, or a property you will reposition or sell within 12 months |
| DSCR (rental) | Typically 70% to 75% LTV | A let property you will keep, refinanced on its rent for 30 years |
Example
A rental in a US LLC appraises at $2,400,000 and has no loan on it. At 75% LTV a cash-out loan is $1,800,000. At 70% it is $1,680,000. From that you pay the lender fee of 1% to 2% and closing costs; the rest goes to the LLC's account. If there is an existing loan, it is repaid first out of the new one.
What has to be true first
- The property is an investment property: not lived in by you or your family at any time
- It is owned by a US LLC, or you are willing to move it into one before the new loan closes
- The LLC has an EIN and a US bank account to receive the proceeds
- For a DSCR cash-out, the rent covers the new debt service; a lease or a rent appraisal shows it
- Title is clean, taxes are current, and the insurance meets the lender's requirements
If the property is in your own name
Many foreign owners bought in their personal name. A business-purpose loan is made to an entity, so the property normally has to be deeded into a US LLC before closing. That transfer can carry state transfer taxes, reassessment questions and tax consequences at home, and the title company has to insure it. Do it with a US real estate attorney and your tax adviser, not on your own. The US LLC guide explains the entity setup.
What the cash can be used for
Proceeds of a business-purpose loan are for business purposes: buying the next investment property, funding a renovation, paying down other investment debt. Using them to buy a holiday home for your family would undermine the basis of the loan. Most foreign investors use a cash-out to fund the equity on a second US deal, which is how a portfolio grows without sending new money from abroad.
The process is short. Submit the property, the current rent and any existing loan balance; a term sheet comes back in 24 to 48 hours, and a clean file closes in about two weeks. See bridge loans and DSCR loans for the two structures.
Cash-out or sale?
A cash-out keeps the property and its income, and turns part of the equity into cash at the cost of a new loan. A sale releases all of the equity but ends the income and, for a foreign owner, triggers FIRPTA withholding at closing. Investors who want to keep growing a US portfolio usually refinance the properties they like and sell the ones they do not. Run both numbers before you choose.