How to get equity out of investment property

Question

Investment property is in Wisconsin with equity around 300K. Self employed with more than 2 yrs of LLC history. Taxable income is low due to lot of tax deductions.  I don't think I would qualify for conventional HELOC due to high DTI. any suggestions on how to take out the equity to buy another investment property? Thanks

Nyron Isaac · Answer

Your high DTI is only an issue for conventional retail banks. Because you have more than two years of self-employed LLC history, you can bypass tax-return verification entirely. Traditional banks calculate income after your deductions; alternative real estate lenders calculate it differently.

To pull that $300k in equity out, look into a Commercial Cash-Out DSCR Refinance. A true DSCR lender will completely ignore your personal tax returns, your DTI, and your job status. They will qualify the loan based entirely on whether the property's rental income covers the new mortgage payment.

Alternatively, you can use a 12-Month Bank Statement Loan, where the underwriter reviews your gross LLC deposits rather than your net taxable income to establish your borrowing power. Target a specialized nationwide non-QM or digital commercial platform to execute this in Wisconsin, and expect them to cap your cash-out leverage at a standard 70% to 75% LTV!

Nate Herndon · Answer

@Ramya Manchu for the investment property space, the strong majority of investors are utilizing cash-out refinances via DSCR programs. A Debt Service Coverage Ratio (DSCR) loan does not underwrite to your personal income, taxes, DTI, etc. It only considers the subject property and whether its actual income (or potential income via market rents) can support the loan that you desire.

The rates that I am seeing as of late for 75% LTV cash-out refinances (75% LTV is the maximum offered for cash-out on investments in Wisconsin) are in the 6.00-6.50% range for strong borrowers, good cash-flowing properties, and loan amounts above $150,000.

I'd be happy to review the scenario with you as needed to show what 65/70/75% LTV would look like. A lot of my investor clients in the greater-Milwaukee area are getting high 5% to low 6% rates on their DSCR purchases right now, also.

As for HELOCs, your local bank or credit union would be the best route to go for that. However, I'm hearing that many local institutions are not lending on investment property HELOCs at this time.

Bryon Andrews · Answer

@Ramya Manchu You may need to look into a DSCR style loan. This way the lender will be looking at the financials of the building vs your personal income. My experience with small town, local banks in Western Wisconsin has been that they still want a personal guarantee and look into your personal financial situation. However, they are more interested in the buildings performance itself. There are also some national lenders that you can connect with who may have more favorable terms.

Patrick Roberts · Answer

DSCR or Bank Statement loan. Whether this equity is usable also depends on whether the property is currently free and clear or if there is currently a loan on it and the terms. May not be worthwhile or pragmatic.

Rebecca Knox · Answer

Try speaking with Zach Starnes or Eric Wennerstrand/John Haydin--both are local mortgage brokers that help many investors here.

Corina Eufinger · Answer

@Ramya Manchu I sent you a DM of someone who might be able to help you or lead you in the right direction. He's a very resourceful local lender in WI.

Pierre Guirguis · Answer

This is a pretty common situation for investors who are self-employed and take advantage of deductions. A lot of conventional lenders focus heavily on personal income and DTI, which can make it difficult to access equity even when the property itself has strong cash flow.

In cases like this many investors look at financing that’s based more on the property’s income rather than personal income. DSCR loans are one example where the lender is primarily looking at whether the property’s rental income supports the loan rather than your personal DTI.

Another route some investors use is a cash-out refinance instead of a HELOC, especially when there’s a significant amount of equity and stable rental income.

If you want to take a closer look at what the numbers might support, feel free to reach out. Happy to help run through a few scenarios.

Sid S Kum · Answer

In your case I think a refinance would make sense if you’re currently in the 6% or above interest rate. Based on 80% LTV, I believe the bank would be able to lend you upto 240K minus your current loan balance.

If you’re in the 2-3% interest rate then the refinance would force you to go into a higher interest rate mortgage in which you would pay more P&I. In this case I think a HELOC would make sense where your original mortgage terms stay untouched but you would be holding an extra loan on your first investment property along with the existing one and seems like the national avg for an HELOC currently is around 7%

Corina Eufinger · Answer

If you are still in need of this...reach out to Zache Starnes;s local to WI and has been a great resource for my clients.  I know he's worked with people pulling out equity of diverse situations. He's easily "google-able".

Simcha B Shedrowitzky · Answer

I would suggest the following:

Step 1: Evaluate the Property's Cash Flow

• Standard DSCR Cash-Out Refinance: If the rental income covers the new mortgage payment (a ratio of 1.0x or higher), a traditional DSCR loan is your best path. Lenders ignore personal DTI and tax deductions, looking only at the property’s performance.
• Leverage Limits: Expect lenders to cap cash-out refinances in Wisconsin at 75% to 80% LTV.

• No-Ratio DSCR Loan: This program eliminates the cash-flow test entirely. You can still pull equity out based strictly on the property's appraised value, bypassing both personal income and property income restrictions. 
• Bank Statement Loan: Since you have over 2 years of LLC history, you can qualify using 12 to 24 months of gross business bank deposits. This completely bypasses your tax returns and net tax deductions.

Much success!

How to get equity out of investment property

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