How commercial cash-out is calculated
A lender works out the largest loan the property supports and lends up to that amount. Cash out is what is left after the existing loan is paid off and closing costs are taken out:
Cash out = max loan − current payoff − closing costs
Two different limits are at work. A property can have plenty of equity on paper and still produce little cash because its income only supports a smaller payment.
Worked example
A property worth $3,000,000 with $230,000 of net operating income and a $1,100,000 loan balance. At 7.25% on a 25-year amortization, with a 75% LTV cap and a 1.25x DSCR minimum:
- 75% LTV limit: $2,250,000
- 1.25x DSCR limit: $2,121,360
- New loan (the lower of the two): $2,121,360
- Less payoff $1,100,000 and 2% closing costs $42,427
- Estimated cash out: $978,932, with a new payment of $15,333.33
Why income often limits cash-out
At today’s rates, the DSCR test binds more often than the LTV test, especially on properties bought at low cap rates. If income is the constraint, the cash-out can usually be increased by:
- a longer amortization (30 years instead of 25) or an interest-only period;
- a lender whose DSCR minimum is 1.15–1.20x instead of 1.25–1.35x;
- documenting recent rent increases or new leases, so underwritten NOI is higher.
The loan amount calculator shows each limit side by side so you can test these changes.
Common uses and tax notes
Owners typically use commercial cash-out to buy another property, fund renovations or tenant improvements, buy out a partner, or pay off higher-cost debt. Loan proceeds are generally not taxable income because they have to be repaid, but how interest is deducted depends on how the money is used. Check with your CPA before you close.