Real Estate Investing with Coach Carson · Chad Coach Carson

#439: Cash-Out Refi Explained: How to Tap Your Equity Without Killing Cash Flow

·44 min·4 clips

Brian Maddox reveals why home equity is like 'unemployed Benjamins' sitting on welfare in your house.

This episode of Real Estate Investing with Coach Carson features host Chad Carson and mortgage broker Brian Maddox explaining cash-out refinances for real estate investors and homeowners. Maddox specializes in investor-friendly financing and outlines how to access property equity without harming cash flow. The conversation provides a detailed guide on using cash-out refinances strategically while managing risk. A cash-out refinance replaces an existing mortgage with a new, larger loan, putting the difference in cash into the borrower's pocket. Maddox contrasts this with a rate-and-term refinance, which only adjusts the loan's terms without providing cash. He describes home equity as "unemployed Benjamins" that should be put to work through reinvestment or debt consolidation. For investors, the withdrawn cash must serve a business purpose, such as purchasing another property. Homeowners might use a cash-out refinance to consolidate high-interest credit card debt, which averages over 20% interest, into a lower-rate mortgage around 7-9%. Maddox notes that every $10,000 in mortgage debt costs roughly $60-65 monthly, while the same credit card balance could cost $250-350. He emphasizes calculating a "blended rate" to decide whether to keep a low-rate existing mortgage or pay it off entirely with a new refinance. Loan-to-value limits are typically 80% for primary residences and 75% for single-family investment properties. Maddox details alternatives like Home Equity Lines of Credit (HELOCs), which function like credit cards secured by the property and offer interest-only payments during a draw period. He reveals that 17 lenders in his network offer HELOCs on investment properties, including options based on debt-service coverage ratios (DSCR) that use rental income for qualification. Second mortgages on investment properties currently carry rates between 9% and 11%, influencing whether to preserve an existing low-rate first mortgage. Lenders evaluate credit scores, debt-to-income ratios (often up to 50%), and property loan-to-value when approving a cash-out refinance. Maddox advises that a 780 credit score opens all options, while a 600 score severely limits them. He illustrates a scenario where keeping a 4% first mortgage and adding an 8% second mortgage results in a blended rate of 5.32%, potentially better than a new single loan at 6.75%. However, if the existing mortgage is very small relative to the new debt, its low rate may not justify keeping it. The most interesting insight is that accessing equity involves weighing the cost of higher debt against the "opportunity cost" of not deploying that capital. Maddox warns that high leverage can limit exit strategies, as a property at 80% loan-to-value leaves little room for price discounts in a downturn. He suggests using withdrawn equity for opportunities with clear, high returns, like a profitable flip or a purchase in a low-competition market, rather than for marginal cash-flow investments. Carson shares his personal preference for capping loan-to-value at 70-75% to maintain a safety margin, recalling lessons from the 2008-2009 crash. Maddox analogizes risk management to retaining a "parachute" of accessible cash or backup financing options. They agree that stacking multiple highly leveraged, low-cash-flow properties increases vulnerability if market conditions shift. The tone is educational and conversational, with Carson and Maddox using clear analogies and real-world examples to demystify mortgage products. Maddox adopts a pragmatic, numbers-focused perspective as a broker who tailors solutions to individual financial situations. Real estate investors seeking to expand their portfolios or optimize their financing strategies will find this episode highly valuable. Homeowners considering debt consolidation or exploring investment opportunities may also benefit. Listeners uncomfortable with debt or those with very low-risk tolerance might prefer to skip this deep dive into leverage.

As heard by us

A practical guide to using equity without losing sight of risk.

The episode centers on cash-out refinances, but its stronger thread is the decision tree around pulling equity from a property without putting the portfolio at risk.

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Why you'd press play

If your equity is ready to fund the next rental, this clarifies the borrowing choice.

Read the full recommendation in PlayNext →

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