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Rental property equity
How to Pull Equity Out of a Rental Property (5 Ways Compared)
Compare every practical way to turn rental property equity into cash: cash-out refinance, HELOC, home equity loan, home equity investment, and selling equity to investors.
Jerry Chu
Co-founder & CEO, Lofty
Why tapping rental equity is harder than tapping home equity
Lenders treat investment properties as riskier than primary homes, so every borrowing option gets tighter. Loan-to-value caps drop to roughly 70-75%, credit score minimums rise, reserve requirements grow to six months or more, and many banks simply do not offer their equity products on rentals at all. That leaves owners sitting on paper wealth they cannot easily use.
Option 1: Cash-out refinance
A cash-out refinance replaces your existing mortgage with a new, larger loan and pays you the difference at closing. It is the most widely available option and works well when your current rate is at or above market. The catch: if you locked a low rate years ago, refinancing gives it up on the entire balance, not just the cash you take out, and closing costs typically run 2-5% of the new loan.
Option 2: HELOC or home equity loan
A HELOC is a revolving credit line in second position behind your mortgage; a home equity loan is a fixed lump-sum second mortgage. Both preserve your existing first mortgage rate. The problem on rentals is availability: most retail banks decline investment properties, and the lenders that do offer them want strong credit, low combined loan-to-value, and price at higher, usually variable rates.
Option 3: Home equity investment (HEI)
Companies like Hometap, Point, and Unlock pay you cash today in exchange for a share of the property’s future value, settled in a lump sum when you sell, refinance, or hit the end of the term (typically 10-30 years). There are no monthly payments, but the eventual settlement can be expensive if the property appreciates strongly, and most HEI providers focus on primary residences with different underwriting for rentals.
Option 4: Sell a share of your equity to investors
On a marketplace like Lofty, you list the property and sell the percentage of equity you choose to investors at a price you set. There is no loan, no monthly payment, no bank qualifying, and your existing mortgage stays untouched. Investors earn their share of the rent and appreciation. You keep the rest, keep operating the property, and can buy the equity back later. The tradeoff is straightforward: you are giving up part of the future upside rather than borrowing against it.
Option 5: Sell the whole property
Selling outright frees all the equity at once, but ends the income stream, triggers capital gains and depreciation recapture taxes, and gives up any future appreciation. For owners who mainly need a portion of their equity, a full sale is usually the most expensive way to get it.
How to choose the right way to pull equity out
Estimate your equity
Take the property’s current market value and subtract your mortgage balance. Lenders and buyers will verify with an appraisal, but this tells you what you are working with.
Decide how much cash you need
Needing 10% of your value is a different problem than needing 50%. Small amounts favor flexible credit lines; larger amounts favor a refinance or an equity sale.
Check what your current mortgage rate is worth
If your rate is below market, options that preserve it (HELOC, home equity loan, equity sale) usually beat a cash-out refinance that resets the whole balance.
Compare total cost across options
Add up interest, fees, and any share of future value you give up over your expected holding period. The cheapest headline product is not always the cheapest in total.
Get real quotes or a real listing review
Rates and terms on rental products vary widely by lender. For an equity sale, a free listing review on Lofty shows what your equity could sell for before you commit to anything.
Five ways to turn rental equity into cash
Cash-out refinance
- Best for
- Owners with at-market or high existing rates who want one simple loan.
- Tradeoff
- Gives up a low existing rate and adds closing costs and a bigger payment.
HELOC / home equity loan
- Best for
- Owners who want to keep their first mortgage and borrow flexibly.
- Tradeoff
- Hard to find on rentals; strict qualifying and variable rates.
Home equity investment (HEI)
- Best for
- Owners who cannot or do not want to qualify for new debt.
- Tradeoff
- Future settlement can be costly; most providers prefer primary homes.
Sell equity on Lofty
- Best for
- Owners who want cash with no new debt and no monthly payment.
- Tradeoff
- Investors share future rent and appreciation on the portion sold.
Sell the property
- Best for
- Owners ready to exit the investment completely.
- Tradeoff
- Ends rental income and triggers the full tax bill at once.
Risks of tapping rental property equity
- Any borrowed option adds a payment that vacancies or repairs can strain. Model the new payment against realistic rent, not best-case rent.
- Variable-rate HELOCs can reprice sharply. A line that starts affordable can become expensive if rates rise.
- HEI settlements are driven by future property value, so strong appreciation can make them cost far more than the cash received.
- Selling equity means sharing future rent and appreciation. If the property outperforms, the equity you sold is worth more than what you were paid.
- Every option has transaction costs: appraisal, closing fees, origination, or marketplace fees. Compare total cost, not just the headline rate.
Real estate calculators
Frequently asked questions
- What is the cheapest way to pull equity out of a rental property?
- It depends on your current mortgage rate and how long you keep the money out. If your existing rate is high, a cash-out refinance is often cheapest. If your rate is low, a second-position product or selling equity usually beats giving up that rate. Compare total cost over your expected holding period, not just fees at closing.
- How much equity can I pull out of a rental property?
- With debt, lenders typically cap total borrowing at 70-75% of the property value, so your available cash is that cap minus your current mortgage balance. Selling equity has no bank cap: on Lofty, owners choose what percentage to sell, commonly anywhere from 10% to 90%.
- Can I pull equity out of a rental property without refinancing?
- Yes. A HELOC or home equity loan leaves your first mortgage untouched, an HEI pays cash for a share of future value, and selling equity to investors converts part of your ownership to cash with no loan at all. All three preserve your existing mortgage rate.
- Does pulling equity out of a rental property trigger taxes?
- Borrowed money (refinance, HELOC, home equity loan) is not taxable income. Selling equity is a sale, so gains on the portion sold may be taxable, similar to selling any partial interest. HEI tax treatment varies by structure. Talk to a CPA about your specific situation before choosing.
- What credit score do I need to tap rental property equity?
- Cash-out refinances on investment properties generally want 680 or better, and rental HELOCs often want 700-720. HEIs go as low as roughly 500-600. Selling equity on Lofty has no credit requirement at all because it is not a loan; the review focuses on the property itself.
About Jerry Chu
Jerry leads Lofty, a fractional real estate investing platform used by tens of thousands of investors. He writes about how everyday investors can access rental property income without the friction of becoming a landlord.
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