How to Pull Equity Out of Commercial Real Estate
Commercial real estate appreciates over time and pays down through amortization, building equity that owners may want to access. Cash-out refinancing is the standard mechanism, but commercial cash-out works differently than residential and is bounded by LTV, DSCR, and lender appetite.
LTV Limits
Most commercial cash-out refis are capped at 65-75% LTV depending on property type. Multifamily can sometimes go higher with agency programs. Hard money offers higher LTV at much higher rates. Knowing the realistic ceiling is the starting point.
DSCR Constraint
Even if LTV permits a larger loan, DSCR may not. Pulling cash increases debt service, which lowers the property's DSCR. Lenders typically require minimum 1.20x DSCR at the new loan amount.
Use of Proceeds
Lenders generally do not restrict cash-out use the way SBA does. Common uses: reinvestment in other property, business expansion, debt consolidation, partner buyouts, lifestyle. Some lenders may ask for use of proceeds but rarely block based on it.
Tax Implications
Cash-out refinance proceeds are not taxable income — the proceeds are loan proceeds, not gain. But the cash-out reduces basis indirectly and may affect future depreciation and gain calculation. Run this with a tax advisor.
Educational content only — not advice. KQT Advisors, LLC is a commercial loan broker; we are not a lender, attorney, accountant, financial advisor, or fiduciary. We do not originate loans or make lending decisions. The information in this article is provided strictly for general informational and educational purposes and reflects our understanding at the time of writing. It is not — and must not be construed as — financial, tax, legal, accounting, investment, or any other professional advice, and creates no advisor-client relationship. Loan programs, rates, terms, eligibility requirements, fees, and approval criteria are set by individual lenders, the SBA, and other parties and are subject to change at any time without notice. Examples are illustrative only and not guarantees of outcome. Nothing here is a commitment to lend, an offer of credit, or a representation that any specific structure will be available to or appropriate for any borrower. Always consult your own qualified financial, tax, and legal advisors before acting on any information in this article. To the maximum extent permitted by law, KQT Advisors, LLC and its principals, employees, agents, and affiliates disclaim all liability for any direct, indirect, consequential, or incidental loss or damage arising out of any use of, reliance on, or inability to use the information in this article.