The Quick Read: A cash-out refinance fits an investor who already owns a leased, seasoned rental with real equity. Private money fits an investor who needs down-payment cash before that equity is available and has a clear plan to repay or refinance the debt. The two are different tools that attach at different points in a deal, and many investors use them in sequence.
- A cash-out refinance turns equity in a rental you own into long-term, fully amortizing debt with no maturity date.
- Private money is short-term, asset-based capital secured by a lien, so the exit plan matters as much as the property.
- Across most of the wholesale network, a standard rental cash-out tops out around 75% LTV, with about 6 months of seasoning as the common expectation.
- Whether borrowed down-payment funds count on a purchase depends on the permanent lender, not the private lender.
- The strongest files clear two tests: enough equity and enough rental coverage. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
The Honest Answer First
A cash-out refinance is for the investor with a stable, leased property and equity to spare. It converts that equity into down-payment cash without selling. The cost is a larger balance on the property you refinance, and that property must still carry the bigger debt on its rent.
Private money is for the investor who lacks seasoned equity, or whose deal sits on a calendar that a refinance cannot meet. The cost is that the debt matures. Someone has to be repaid by a sale or a refinance, and if that exit slips, the investor pays for it.
Neither one is better in the abstract. The choice turns on what you own today, what the next deal needs, and how clean the exit looks. Lendmire’s wholesale network places both kinds of financing, so this comparison is not an argument for one side. The full picture of how rental coverage loans work is in Lendmire’s complete DSCR loans guide.
Side-by-Side
The right column shows published industry norms for private money. It is an informal term, not one standardized program, so individual lenders differ. The left column reflects how files are typically reviewed across the wholesale network.
| Factor | DSCR Cash-Out Refinance | Private Money (industry norms) |
|---|---|---|
| Review basis | Rent versus the full monthly obligation | The asset, the plan, and the exit |
| Documentation | Lease, appraisal, credit, payoff and title | Note, recorded lien, deal summary |
| Property types | Non-owner-occupied rentals, program-dependent | Varies widely by lender |
| Entity vesting | LLC possible, subject to lender program eligibility | Often flexible, confirm lien terms |
| Debt structure | Long-term, no maturity cliff | Short term, repaid at sale or refinance |
| Reserves | Commonly around 6 months of PITIA | Set lender by lender |
| Main risk | Bigger balance on the source rental | Refinance and maturity risk |
| Seasoning | About 6 months common on cash-out | Usually none on the property |
Two cells need a note. Reserves on cash-out files vary by lender, leverage, loan size, and transaction type. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived, and loans above that size typically step up to about 9 months. The “Main risk” row matters most, because it is where the two products actually diverge.
How the Cash-Out Path Works
You refinance a rental you own. The new loan pays off the old lien and returns the surplus as cash. That cash then goes into the next purchase as the down payment.
Qualification runs primarily on property-level rental income covering the payment, subject to lender guidelines. The coverage ratio is monthly rent divided by PITIA: principal, interest, taxes, insurance, and any HOA dues. Many select programs start at 1.00. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Stronger ratios open better pricing and leverage.
Here is the part investors skip. Clearing 1.00 is not the same as positive cash flow. Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation. A property can cover its PITIA and still lose money in a bad year.
Most files in the network land on these guideposts:
- Cash-out on a standard rental tops out around 75% LTV.
- About 6 months of seasoning is the common expectation.
- A 620 credit floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest leverage tiers.
- Standard loan sizes run up to $3,000,000 on standard programs (smaller balances available through select lenders), and above $2,500,000 the network generally holds to 30-year fixed structures.
Run the math in percentages. Say the existing balance sits at 50% of value. A 75% cash-out then leaves about 25% of value as gross proceeds, before closing costs and before any reserves you must hold. That 25% is not all spendable. Costs and reserves come out first, and the remainder is your down-payment fund. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Seasoning is where files get kicked back. Lenders typically size the loan on cost basis during a seasoning window and on appraised value after it. A recent purchase with a big renovation can sit well below the value you expect. Investors who assume the seasoning away are the ones who find out during review.
How the Private Money Path Works
Private money comes from individuals, funds, and family offices. It is secured by a recorded lien, either a mortgage or a deed of trust, and backed by a promissory note. Underwriting centers on the collateral, the business plan, and the exit. Private lenders may emphasize the property, but that does not mean they ignore the borrower’s credit, liquidity, and experience.
The term is short and the payments are typically interest-only. Industry norms put terms at roughly 6 to 24 months. For comparison, the hard-money programs in Lendmire’s network run 6 to 18 months, interest-only, with no prepayment penalty. Those programs go up to $5,000,000 and require a 620 minimum score, with added conditions below 660. Leverage varies by lender, property, and experience.
The usual structure stacks two pieces of capital. Hard money funds the first-position loan, and private money fills a gap behind it for the down payment, rehab, or carry. That stack is common, but it is not one product.
Private money has a built-in clock. The debt matures, so you need a refinance or a sale to repay it. Miss that exit and you may face extension costs, a second set of closing costs, or a forced sale.
Where Private Money Meets a DSCR Purchase
This is the friction point most comparisons skip. The private lender does not decide whether its money counts as your down payment. The permanent lender does.
Many programs across the network accept borrowed down-payment funds when the source is documented. Some cap the borrowed share. Borrowed money often cannot satisfy the reserve requirement. A file can clear on down payment and still fail on reserves because the reserves were also borrowed.
Lien position is the second issue. A private second lien on the new property adds debt. Confirm lien-position and subordination rules with the permanent lender before you close the private loan. Learning this after the fact is expensive.
Purchase leverage on investment properties across the network typically runs 75% to 80% LTV, which means 20% to 25% down. Select high-leverage programs reach 85% LTV on a purchase with roughly a 700+ score. A bigger down payment lowers the monthly obligation and can lift the coverage ratio. It does not erase leverage caps, credit floors, reserve rules, or property eligibility.
When a Cash-Out Refinance Is the Better Fit
Choose the refinance when the equity is already there and the source property can carry more debt. These are the situations where it tends to win:
- The rental is leased and seasoned. Rent evidence is documented, and the title has aged past the seasoning window.
- You want no maturity date. Long-term debt means no balloon and no forced exit on someone else’s calendar.
- The source property has coverage to spare. The new, larger balance still needs rent that covers PITIA at the ratio the program requires.
- You plan to repeat the move. Pulling equity from one rental to fund the next can compound across a portfolio, one file at a time.
- You want a clean down-payment source. Cash-out proceeds are generally an accepted funds source when documented, and they are your own money once the loan funds.
Short-term rentals follow different numbers. Purchase goes to 75% LTV, refinance runs around 70%, and cash-out is 70% on short-term-rental collateral. Expect a 640+ score and about 12 months of hosting history. The coverage floor is 1.00 on purchases and refinances. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
The refinance has real limits. Each additional loan raises your total debt. If the source rental’s rent only barely covers the new payment, that file has little cushion for a vacancy.
When Private Money Is the Better Fit
Choose private money when the calendar or the seasoning is the problem and the exit is solid. It tends to win in these cases:
- No seasoned equity yet. The rental you own was bought recently, and the seasoning window has not run.
- The deal has a hard deadline. The purchase needs cash on a schedule a refinance cannot meet.
- The property needs work. Short-term capital funds a plan, and the property is not yet a stabilized rental.
- You have a documented exit. A planned refinance or sale gives the lender confidence and gives you a way out.
- Your leverage need is project-based. Hard-money programs in the network size fix-and-flip loans on cost, up to 93% of project cost at 5+ completed projects, 90% at 2+, and 85% with fewer, all capped at 75% of after-repair value. Those are loan-to-cost figures for rehab projects, not rental leverage.
For a purchase without rehab, the network’s bridge program goes up to 80% of purchase price. A cash-out or rate-and-term refinance on the hard-money side goes up to 65% of value. Every figure varies by lender, property, and experience, and none is a commitment to lend.
On terminology. Private money is not automatically hard money, and neither is a DSCR loan. Hard money is a short-term program with defined tiers. Private money is a broader, informal category. The distinction matters when you ask a permanent lender how it treats the funds.
Using Both in Sequence
The most common pairing is private or hard money first, then a permanent refinance as the take-out. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. The short-term loan carries the project, and the long-term loan carries the stabilized rental.
Classification matters on the way out. If any cash returns to the borrower at the hard-money payoff, lenders generally treat the refinance as a cash-out, not a rate-and-term. That changes the leverage cap and can bring seasoning rules into play.
Delayed financing is a related idea worth knowing as a contrast. It is an agency concept for cash buyers who want to recover purchase money. A securitization due-diligence file shows how it plays out in non-QM lending: one exhibit shows a purchase that fell outside a 12-month window, so delayed financing was unavailable and an exception was needed. That is a single file, not a program rule. The practical takeaway is that a private or hard-money purchase loan generally takes delayed financing off the table, and the later refinance gets treated as a cash-out with its normal seasoning.
Documents and Entity Vesting
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. Regulation Z exempts credit extended primarily for a business or commercial purpose, and the creditor decides the primary purpose in each case. Private money on a rental is also generally business-purpose credit.
The entity question is practical. Loans to LLCs are possible, subject to lender program eligibility. The title, the deed, and the borrowing entity must line up with the lender’s vesting rules. A deed into the LLC can be a condition of the file, so confirm the vesting plan before you apply.
These documents cause most of the preventable gaps:
- Lease evidence. Missing leases can force the review onto market rent instead of actual rent.
- Payoff and title records. The lender needs the existing lien payoff and the deed history.
- Appraisal access. The rent schedule sits alongside the value, and the appraiser needs entry.
- Reserves documentation. Seasoned, unborrowed funds are what most files want to see.
- Use-of-proceeds statement. Cash-out files commonly ask for one.
- Entity documents. Operating agreement, formation papers, and a clear ownership chain.
Clean paperwork does not guarantee approval. It does give the lender fewer preventable questions.
Common Mistakes on Both Sides
On the refinance side, the usual error is ignoring the source property. Investors count the cash and forget that the refinanced rental now carries more debt. If that property falls under the coverage the program wants, the file is in trouble even though the proceeds look fine.
On the private money side, the usual error is a soft exit. The plan assumes a refinance will be available at a certain value, and the appraisal comes in light. The investor then holds a maturing loan with no take-out. Build the plan so a light appraisal does not break it.
Both sides share two mistakes. First, investors treat each file in isolation, but reserves count on both the source loan and the purchase loan. Second, they stack debt without checking lien rules. Each file is judged separately, and the permanent lender will want to see where every dollar of the down payment came from.
Questions About Cost Basis and Timing
Neither product has a universal cost advantage. Cash-out carries closing costs on a loan that stays in place for years. Private money carries its own costs, and if you later refinance out, you pay for a second transaction. Compare total cost over the period you will actually hold the debt, not the price tag on day one. Pricing for either product lives with the lender, so ask for a quote on each path before deciding.
Timing works qualitatively. A cash-out waits on seasoning and a leased property. Private money does not wait on the property’s history but does wait on a clean exit. If your equity is locked in an unseasoned rental, private money bridges the gap. If it is not locked, the refinance is usually the simpler structure.
For readers weighing a home-equity line instead, Lendmire covers that separately in its piece Rental HELOC vs Cash-Out Refinance for an Investor’s Down Payment.
The Verdict
Use the cash-out refinance when you own a leased, seasoned rental with equity and the property can carry a larger balance. Use private money when seasoning or the calendar blocks the refinance and you have a documented, realistic exit. Use both in sequence when a project needs short-term capital and a stabilized rental will take it out.
The question to ask before choosing is not which is cheaper. It is which one leaves you with a file the permanent lender will accept. That means documented down-payment funds, reserves that are not borrowed, clear lien position, and rent that covers the payment on every property in the chain.
Frequently Asked Questions
Can I use cash-out refinance proceeds as the down payment on another rental?
Generally yes, when the source is documented. Cash-out proceeds are your own funds once the loan funds, and most DSCR programs accept them. The purchase file still needs reserves, a qualifying score, and rental coverage on the new property. Eligibility depends on lender guidelines and the property.
Will a private money loan count toward my down payment on a DSCR purchase?
It depends on the permanent lender. Many programs across the network accept borrowed down-payment funds with a documented source. Some cap the borrowed share, and borrowed money often cannot satisfy reserves. Confirm lien-position rules before the private loan closes.
Is a cash-out refinance on a hard-money payoff treated as a rate-and-term?
Only if no cash comes back. If any cash returns to the borrower, lenders generally treat the refinance as a cash-out. That means the cash-out leverage cap applies. On standard rentals that is typically around 75% LTV across the network, plus the usual seasoning rules.
Does a larger down payment shorten the seasoning requirement?
No. A bigger down payment lowers the monthly obligation and can lift the coverage ratio, but it does not erase leverage caps, credit floors, reserve rules, or seasoning. The strongest files clear both tests: enough equity and enough rental coverage.
Does clearing 1.00 coverage mean the property cash flows?
No. The coverage ratio compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside it. A property can clear 1.00 and still run at a loss in a heavy-repair year, so budget for those costs separately.
Next Step
If you are buying, rehabbing, or refinancing an investment property and want to see how the numbers work, Lendmire can help you compare cash-out and short-term options based on the property, the exit plan, leverage, and your goals. Reach the team at 828-256-2183 or request a quote.
About Lendmire
A DSCR-focused mortgage broker, Lendmire (NMLS# 2371349) places investor financing across 41 markets — 40 states plus Washington, D.C. — with DSCR eligibility generally reviewed by the lender on property cash flow instead of traditional personal-income documentation, subject to lender guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in 2025 and 2026.
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References
1. SEC ABS-15G exhibit, COLT Depositor III
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can an Out-of-State Investor Get a No-Cash-Out DSCR Refinance? · Is Flood Insurance Required on an Out-of-State DSCR Rental? · Hard Money Refinance Documentation Before Moving Into a DSCR Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.