Cash-Flowing Paid-Off Rental ($1,300/mo Net) What’s the Best Way to Refi and Grow?

Question

Hi everyone,

I inherited a property that’s now fully paid off. I put about $15,000 into rehabbing it, and it’s currently rented for $1,650/month, which nets me around $1,300/month after taxes, insurance, and expenses.

The annual costs are:

• Taxes: $2,200
• Insurance: $1,600

Taxes: $2,200

Insurance: $1,600

I’m looking to refinance this property to pull some equity and use the funds to buy my next rental, but I’m not sure what the best approach is. Should I go with a cash-out refinance, HELOC, or portfolio loan? How much equity should I keep in the property, and what loan-to-value (LTV) makes sense for scaling responsibly?

My goal is to build a small rental portfolio, starting from this first property.

What would you recommend as the next move for someone in my position?

Thanks in advance for your insights — I really appreciate the guidance from those who’ve been here before!

Parris Taylor · Answer

@Avery Landrum Congrats. You’re sitting on real leverage: a debt-free asset that prints cash and optionality.

I think the goal isn’t to pull cash fast. It’s to turn dead equity into productive equity without breaking the system that feeds you. A clean cash-out refi is usually the move since it gives you fixed terms, no call risk, and predictable debt. Stay around 65 -70%t LTV so you can survive a 20% price swing without panic.

Think of this property as your personal bank. Pull equity, deploy it into the next asset, let both cash flow, then recycle again. You’re not chasing doors. You’re building a self-funding machine.

Nathan Guan · Answer

Hi Avery, First off, congratulations! You are in an enviable position—a cash-flowing, paid-off property is the perfect springboard for building a portfolio. You're asking all the right questions about scaling responsibly.

Let's break down your options. The best choice depends heavily on your end goal: how quickly you want to buy the next property and what you're looking to buy.

Option 1: Cash-Out Refinance 

This is the most common and straightforward path for your situation.

Option 2: HELOC (Home Equity Line of Credit) This acts like a credit card secured by your property's equity.

Option 3: Portfolio Loan. This is a loan a lender makes and keeps in their own portfolio (doesn't sell on the secondary market).

My Recommendation & The "How Much" Question

For someone in your position, looking to systematically build a portfolio, I typically recommend a two-pronged approach:

• Start with a HELOC. Get it set up now while you don't urgently need it. This gives you a powerful, flexible tool in your arsenal for making quick offers or covering unexpected costs. You don't pay interest until you use it.
• Follow with a Cash-Out Refinance when you've found your next property and need a significant lump sum for the down payment and closing costs. This provides stable, long-term debt for your new acquisition.

How much equity should you pull? This is the golden question.

• The "Sweet Spot": For scaling responsibly, I advise clients to target a 75% LTV ratio after the cash-out refinance. This maintains a healthy 25% equity cushion in the property, which protects you against market fluctuations and keeps your loan options and rates the most favorable.

Let’s do some quick math based on your numbers:

• Your net income is fantastic. Let's assume the property is worth $300,000 (a rough estimate based on the rent).
• A 75% LTV cash-out refinance would give you a loan of $225,000.
• Since you own it free and clear, all of that $225,000 (minus closing costs) is cash in your pocket to reinvest.

Crucial Final Step: Before you pull the trigger, run the numbers on your current property after the new mortgage. A $225,000 loan at 7.5% would have a principal and interest payment of $1,575/month. You must ensure the property still cash flows positively with this new debt service. This is the core of scaling responsibly—never crippling your existing assets to acquire new ones.

You're in a fantastic position to execute the "snowball" method of real estate investing. Feel free to DM me if you'd like to talk through specific lender quotes or run more detailed cash flow projections. This is exactly the kind of strategic move that builds long-term wealth.

Best,

Nathan

Mike D. · Answer

My guess, without knowing exactly where you're located or what your local market is like, is you could refi this, use the funds to invest in two more properties, and keep around the same cashflow, but you'll then have three streams of cashflow that are growing and three properties that are appreciating. Personally I am pretty conservative and like to finance up to no more than 55-60% LTV. 65-70% is not crazy, either, but I'd definitely start keeping reserves as you grow your portfolio. The reason for this is that in an economic downturn where rents are dropping you don't want to go overly cashflow negative. Between a cash-out refi and a HELOC I would look to a HELOC first since you have the flexibility to pay it down whenever you want and then pull the funds out again, which is powerful, but not many banks will do them on investments, and fewer for reasonable rates, so you'll have to compare whatever options you can find in your market.

Kate Nixon Taylor · Answer

Hi Avery,

It would make sense to price out a cash-out refi and Heloc to compare. You won't need a portfolio loan until you have more properties. I would base how much equity I cashed out on the monthly payment amount and how those numbers look based on cash-on-cash return goals.

Let's connect!

Cheers, Kate

Elealeh Fulmaran · Answer

Nice base to build from. Start with the tool that matches your next 12–24 months. If you want flexibility and only pay when you deploy, shop a first‑position HELOC on the rental; draw as needed and recycle quickly. If you want max proceeds and a fixed payment, a cash‑out refi works but factor closing costs and the payment hit; aim to leave conservative equity in so the deal still cash flows. If you plan to add more doors soon, a DSCR or small portfolio loan can streamline future refis, but rates run higher. Run a quick test: today’s net cash flow vs new payment under each option, total cash unlocked, and what that cash earns in your next buy; pick the path where the new deal’s yield clearly beats the hit to this property and still leaves reserves.

Scott Chilton · Answer

Nice work getting that property paid off and rented, Avery. That’s a solid foundation to grow from. Since your goal is to build a small rental portfolio, a cash-out refinance might make the most sense to start. It gives you a lump sum you can use right away for your next purchase while locking in long-term financing on this property. Just be sure to leave enough equity, ideally keep your LTV around 70 to 75 percent, so the numbers still cash flow comfortably. The key is to stay liquid enough to jump on the next deal but not so leveraged that one vacancy puts you in a tight spot.

Simmy Ahluwalia · Answer

@Avery Landrum - currently working with someone in a similar situation, where she too inherited some rental properties through Probate.  She is going to rehab her properties and then cash-out refinance and put 30 year long-term debt on these units.  So, yes, to cash-out refi.

Jaycee Greene · Answer

Hey @Avery Landrum. Have you talked to a local bank or credit union about a cash out refi?

Avery Landrum · Answer

@Jaycee Greene, hi , the property is located in a rural area. The total square foot is 3600 ft.² has a first floor in the basement that is finished. I rent out the top floor 1800sq feet and not the bottom one. The top floor is about 1800 sq ft that is being rented out. And the that includes 2 living rooms, 3 bedrooms and  2 bathrooms and a kitchen upstairs also laundry hook up. Additionally, I plan to make this two units ( upstairs and downstairs) at some point but for now I’m looking to take equity out of the property. And, the property is worth at least 225,000 ( what I pay taxes on) but more modern updated comps the same size are going for 400000-450000 in the area.

Caleb Brown · Answer

I would lean on a HELOC. Now a HELOC is meant to be a sub 1 year thing so you should target flips or BRRRs to repeat. If you are wanting to use the equity as DP using conventional loans than I would lean toward a cash out refi. What is the property worth?