The Quick Read: A DSCR cash-out refinance lets a rental owner borrow against equity, up to about 75% of appraised value on a cash-out of a standard rental, and then put the cash into REIT shares, though rent must still cover the new loan, and the shares can fall while the payment stays fixed. A refinance is not a 1031 exchange, so it is a borrowing decision and an investing decision at once. The loan and the REIT purchase follow separate rules.
- Cash-out on a standard investment rental typically tops out at 75% of appraised value, and about 6 months of ownership is the common expectation.
- The loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. Credit, reserves, and value are still reviewed.
- A bigger loan means a bigger payment, so coverage on the rental drops after the cash comes out.
- Listed, non-traded, and private REITs behave very differently when you need your money back.
- Clearing the coverage test is not the same as positive cash flow.
Key Terms Defined
Cash-out refinance: a new, larger loan that pays off the old mortgage and hands you the difference in cash.
LTV (loan-to-value): the loan balance divided by the property’s appraised value.
DSCR (debt service coverage ratio): the property’s monthly rent divided by its monthly PITIA.
PITIA: principal, interest, taxes, insurance, and any association dues, the full monthly cost of holding the loan.
Seasoning: the waiting period between buying a property and refinancing it for cash.
REIT: a company that owns and typically operates income-producing real estate or related assets, per Investor.gov.
DST and UPREIT: a Delaware statutory trust holds real estate for passive investors. An UPREIT lets owners contribute property to a REIT’s operating partnership in exchange for units.
DSCR Cash-Out Calculator
Run the cash-out numbers in your market
Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 8, 2026
Prefilled with starting assumptions — enter your property’s value, balance, taxes, and insurance for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Oct 8, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Property value, balance, taxes, and insurance are editable estimates. Maximum loan-to-value varies by lender, program, property type, and seasoning. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
Why Owners Move Rental Equity Into REITs
The goal is usually to trade landlord work for passive income. Tenants, repairs, and turnover go away. A diversified REIT position replaces them, and it often pays distributions on a steady schedule.
Equity sitting in a paid-down rental earns nothing on its own. It raises your net worth, but it does not pay you. Some owners want to redeploy part of it without selling a property they like.
Others want diversification. One building in one market is a concentrated bet, and an REIT spreads that exposure across many properties.
Both goals are reasonable. The catch is that you take on debt to pursue them. The rest of this piece explains how that debt works and where it can hurt.
Four Routes Compared
Four routes exist for turning rental equity into an REIT position. Each one trades something away.
| Route | Keeps the rental? | Equity reached | Main constraint |
|---|---|---|---|
| Sell the rental | No | Most, after selling costs | Ends the rent stream |
| Exchange into a DST, then UPREIT | No, swapped for a sponsor-run interest | Stays invested, no cash | Illiquid; needs a specialist |
| DSCR cash-out refinance | Yes | Up to the 75% LTV cap, less payoff | Bigger payment; coverage must hold |
| HELOC on the rental | Yes | Line size varies | Terms vary by lender |
The cash-out refinance is one of two routes that keep the rental, deliver real cash, and leave the REIT purchase up to you. It also adds debt against two assets at once.
Why You Can’t 1031 Directly Into REIT Shares
A 1031 exchange swaps one piece of real property for another. REIT shares are securities, not real property. The two do not match.
The workaround is the DST route in the table above. You exchange into a DST, and the DST may later convert into operating-partnership units. That path involves sponsors, holding periods, and no guaranteed exit. It is specialist territory, and a qualified intermediary should guide it.
Notice what that path never mentions: borrowing. If you want to keep the rental and still own REITs, a cash-out refinance is the more direct route.
How a Rental Cash-Out Refinance Works, Step by Step
The mechanics run in a fixed order. Here is how underwriting treats each step.
Step one: the property. 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. Cash from your own home goes through a different loan type.
Step two: seasoning. Across our wholesale network, about 6 months of ownership, measured from the day the deed records, is the common expectation. The clock does not start when rehab ends or when a tenant moves in. A stronger coverage ratio does not shorten the wait either. Before the cutoff, many lenders cap the loan near purchase price plus documented rehab. After it, they use current appraised value.
Step three: appraisal and rent evidence. The lender’s appraisal sets the value the LTV applies to. Rent comes from a lease or a market-rent schedule.
Step four: three gates. Three tests decide how much cash comes out:
1. The leverage cap. On a cash-out of a standard rental, the ceiling is typically 75% LTV. A cash-out on short-term-rental collateral generally tops out at 70%.
2. Coverage. The rent must cover the new, larger PITIA. Many select programs start at 1.00. Stronger ratios open better pricing and leverage. A separate select-lender path goes below 1.00, with leverage and terms adjusted.
3. Reserves. Commonly about 6 months of PITIA, stepping up to about 9 months above $1,500,000. This varies by lender, leverage, and loan size.
Credit matters too. A 620 floor exists in parts of the network, most programs want around 660, and 700 or higher unlocks the strongest leverage tiers. Standard programs go up to $3,000,000.
Step five: closing. The old lien is paid, closing costs come out, and the remainder is wired to you. In plain terms: new loan equals the cap times appraised value, and cash back equals the new loan minus payoff minus closing costs.
Lendmire’s complete DSCR loans guide covers the wider program picture. Every file is underwritten individually. This is not a commitment to lend.
A Worked Example, in Percentages
Here is a modeled scenario, not market data. Run it as percentages of value, because dollar conversions depend on your property.
- Appraised value: 100%.
- Existing mortgage balance: 40% of value.
- New loan at the 75% cash-out cap: 75% of value.
- Cash before closing costs: 35% of value.
- Coverage before the refinance, assumed: 1.60x. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Now look at the payment. The loan balance nearly doubles, so principal and interest nearly double too. Taxes and insurance stay put. The rental’s coverage lands somewhere near 1.0x, and it could land just under.
That drop is the cost of the equity. The old loan sat comfortably behind the rent. The new loan uses much of the cushion.
If a file lands under 1.00, options exist. Interest-only periods and extended terms are available through select lenders in the network. A sub-1.00 path is also available through select lenders in the network, with leverage and terms adjusted. A smaller draw is the simplest fix of all. Lendmire’s piece How to Turn Rental Equity Into a Down Payment With a DSCR Cash-Out Loan shows how the same draw logic works when the cash buys another property.
Does the Rental Still Cover Itself?
Not always, and the coverage test only measures part of the picture. DSCR compares rent to PITIA and nothing else. Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation.
Clearing 1.00 therefore does not mean you have positive cash flow. A rental at 1.05x may be losing money after a roof repair and two months of vacancy.
That matters more when the cash is leaving the property. You now need the rent to cover the bigger loan and the REIT position to hold up. If the rental stumbles, you carry both.
The strongest files clear both tests: enough equity and enough rental coverage.
Which Kind of REIT Are You Buying?
The REIT label covers very different products, and liquidity is the main difference. FINRA splits them into public, non-traded, and NAV categories, and private REITs form a fourth group.
| REIT type | Where it trades | Liquidity |
|---|---|---|
| Publicly traded | National exchanges | Daily; price swings |
| Public non-traded | Not listed | Limited redemptions |
| NAV REIT | Not listed | Periodic redemption at NAV |
| Private | Not SEC-registered | Often very limited |
FINRA notes that publicly traded REITs tend to be more liquid but more prone to price swings than non-public ones. A SEC investor bulletin warns that non-traded REITs cannot be sold readily in the market. It adds that liquidity events might not come until more than 10 years after you invest.
That clashes with a refinance. Your loan payment starts immediately and never pauses. If you buy an REIT that you cannot sell, you cannot raise cash to cover the payment when you need it.
Private REITs carry another difference. They neither file with the SEC nor trade on a national exchange, so you have less public information to judge them.
The Carry Test
Carry is the gap between what the REIT pays you and what the loan costs you. You need the first to exceed the second, with room to spare.
REITs are built to distribute income. Nareit says an REIT must distribute at least 90% of its taxable income to qualify. That structure tends to produce regular payouts, but it does not guarantee the amount. Distributions can be cut, and share prices can fall at the same time.
Do the comparison before you borrow. Take the borrowing cost on the cash portion only, set it against the distribution you expect, and then assume the distribution comes in lower. If the spread disappears under that assumption, the plan depends on the market cooperating.
Remember that the debt is secured by your rental. A losing REIT position does not shrink the loan. It just leaves you with the payment and less to show for it.
Stress Test Before You Commit
Run each scenario against both sides of the trade.
| Scenario | Rental side | REIT side |
|---|---|---|
| Distribution cut | No effect on payment | Carry shrinks or turns negative |
| Share price drop | No effect on payment | Selling locks in a loss |
| Extended vacancy | Coverage falls; reserves tested | May force a REIT sale |
| Adjustable structure resets | Payment may rise | Carry narrows |
The third row is the dangerous one. Vacancy on the rental can force a sale of REIT shares in a weak market, and that is how a small problem compounds. Reserves are your buffer, so hold more than the minimum.
Use of Proceeds and Tax Treatment
Lenders generally treat cash-out proceeds on a business-purpose loan as yours to use. The destination is typically not an underwriting variable, though your file is still reviewed on credit, value, reserves, and rent.
Tax treatment can depend on how the funds are used and how the property is held, particularly when the money is borrowed. Investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Practically, keep the REIT money separate and documented. That is simply good housekeeping.
Who This Works For, and Who Should Skip It
This tends to work when:
- the rental has strong coverage even after the larger loan,
- you hold reserves well beyond the minimum,
- you plan to hold the REIT position for years, not months,
- you can absorb a drawdown without selling.
Skip it when:
- coverage lands thin after the draw,
- you may sell the rental or need the cash back soon,
- the REIT you want is non-traded and illiquid,
- the plan only works if distributions never move.
Lendmire’s piece Is Paying More on a Rental Cash-Out Refinance Worth the Equity? covers the opposite instinct, which is to take less out. Some owners are better served by a smaller draw.
What the Lender Wants to See
Expect a short checklist. The appraisal, a lease or market-rent schedule, current insurance, evidence of reserves, and a credit review are typical. Ownership must have seasoned for about 6 months on most files.
Property type matters. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered through the network’s DSCR programs. Standard single-family, small multifamily, and similar rentals are the usual fit, subject to lender guidelines.
Frequently Asked Questions
Can I 1031 into an REIT?
Not directly. REIT shares are securities, not like-kind real property. The usual workaround runs through a DST and a later conversion into operating-partnership units, and a specialist should guide it. If you want to keep the rental, borrowing against it is the simpler path.
Can I use cash-out refinance money to buy REITs?
Generally yes. On a business-purpose DSCR loan, the lender typically does not restrict how you use the proceeds. The loan still qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. The REIT purchase does not change that test.
Is it better to sell or refinance?
It depends on what you want to keep. Selling ends the rent stream and frees nearly all the equity. A refinance keeps the rental and returns up to about 75% of value on a standard rental, less payoff, but it adds a larger payment. If coverage would land thin, selling or a smaller draw may fit better.
Does the REIT type matter to the lender?
Typically not for the loan itself. It matters a great deal to you. A listed REIT can be sold when cash is tight, while a non-traded or private one may be locked up while your payment keeps running.
How much cash can I take out?
It depends on appraised value, the existing balance, coverage on the new payment, and reserves. The ceiling is typically 75% LTV on a cash-out of a standard rental, and 70% on short-term-rental collateral. Coverage often becomes the binding limit before the LTV does.
Next Step
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. As a DSCR-focused mortgage broker with programs across 41 markets, including Washington, D.C., Lendmire arranges financing through select lenders in its wholesale network. Reach the team at 828-256-2183.
The best version of this plan is the one that still works when the REIT disappoints and the rental has a bad quarter.
For how equity extraction works on an investment property, see Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage focused on investor financing, arranging DSCR loans in 40 states plus Washington, D.C. — 41 markets total. Qualification is based on the property’s income rather than personal income documentation, subject to lender guidelines, making it a fit for LLC-held rentals and scaling portfolios. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. SEC Investor.gov: Real Estate Investment Trusts
2. FINRA: REITs, Alternatives to Ownership
3. SEC Investor Bulletin: Non-traded REITs
This article is part of Lendmire’s investment property cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Investment Property Cash-Out Refinance for Landlords Sizing Equity Limits · Should an Investor Pull Equity Out of a Rental With a DSCR Loan? · Cash Out Refinance Rental Property Rules
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.