If you own a rental with a low fixed rate, pulling cash out of it at today’s rates can look like a bad trade. Many investors do it anyway. The reasoning is simple: equity sitting in a property earns nothing until it is put to work.
Low rates were the exception
The very low mortgage rates of 2020 and 2021 were unusual. For most of the last fifty years, 30-year rates were well above them. Higher rates mean each property needs more cash, and investors have more of their own money in every deal. They do not mean investing stops.
Why investors still buy
- Less competition. When borrowing costs rise, some buyers step back. Sellers become more willing to negotiate on price and terms.
- Inflation protection. Property values and rents have historically risen with inflation, while a fixed-rate payment stays the same.
- Diversification. Real estate often behaves differently from stocks and bonds.
- Predictable long-term debt. A fixed-rate loan locks in the payment. If rates fall later, you can refinance. If they rise, you are protected.
Putting trapped equity to work
A cash-out refinance turns equity into capital for the next purchase. One paid-down rental can become the down payment on one, three or more properties, each producing its own cash flow. We lend up to 80% loan-to-value on a rental cash-out refinance.
The risks to weigh
- A higher rate raises the payment on the property you refinance. Make sure it still covers itself. A DSCR loan is built around exactly that test.
- Appreciation is never guaranteed. Buy on today’s numbers, not on a forecast.
- Keep reserves. More properties mean more vacancies and repairs to absorb.
In Washington
The Seattle area has little land left to build on and steady demand from technology, aerospace and health care employers. Markets such as Tacoma, Everett, Spokane and Vancouver offer lower entry prices. In every one of them, the investors who do well are the ones who run conservative numbers before they buy.
Want to know what your equity could support? Ask us for a free property analysis.