September 22, 2025 | 2.5 Minute Read
The Federal Reserve dropped rates by 0.25% last week. For real estate investors coming out of a short-term rental portfolio financed with 5/1 ARMs at pandemic-era rates (around 4.5%), this matters. Many of those loans can’t be extended, meaning refinancing is now the only option.
The challenge? You’ll likely move from a 4.5% interest rate to something closer to 6.75% at 75% loan-to-value (LTV). That 2.25% spread can crush cash flow.
The good news is that after five years of ownership, most investors have built significant equity. This creates flexibility: you don’t have to refinance at the maximum 75% LTV—you can opt for a lower LTV to preserve cash flow.
Rental Portfolio Refinance
I am currently working with an investor to refinance his 17 property portfolio worth $2.33M. His current loan balance is $927,717.
Current Position (4.5% rate, $927,717 loan):
PITI: $2,966.67
Gross rents: $18,230
Net income: $15,263.33
That’s incredible cash flow income—but let’s look at two scenarios after refinancing.
First Scenario: 75% LTV at 6.75%
New loan balance: $1,747,500
PITI: $14,300.92
Gross rents: $18,230
Net income: $3,929.08
That’s quite a bit of reduced cash flow. However, he has $819,783 in tax free equity available. That equity could be used to:
Pay off personal or business debt. If he has monthly payments with high interest loans, his monthly debt decreases by paying them off
Reinvest into capital improvements in the existing property portfolio
Acquire more properties
Second Scenario: 60% LTV at 6.25%
With so much equity, he may consider a lower 60% LTV cash out. What’s that look like? I am glad you asked.
New Loan balance: $1,398,000
PITI: $11,574
Gross rents: $18,230
Net income: $6,655.61
Here, he gets a bump in his cash flow and still is able to unlock $470,283 in equity.
Cash Flow or Equity?
It comes down to strategy:
Prioritize cash flow? Choose the lower LTV option. You’ll preserve stronger monthly income while still accessing less equity.
Need liquidity or growth? Opt for the higher LTV. Even with less cash flow, the equity windfall can fund debt paydown or portfolio expansion—boosting your net worth.
No matter which path you choose, the key is to know your numbers and have a clear plan before refinancing.
If you are looking to refinance and need assistance, reach out to me at guru@rei.school. I would be happy to help.