Cash-Out Refinance for Retail Properties: Strategies to Build Wealth

Cash-Out Refinancing Is About Growth, Not Just Lower Rates

If you're like most of my clients, you think about refinancing your retail center when one thing happens: interest rates drop. It makes total sense—lock in a lower payment, save some money each month, and breathe a little easier. I get it. That's the conversation most people are having with their lenders.

But here's what I've learned working with owners who've really built wealth in retail real estate: they're thinking about refinancing completely differently. They're not just waiting around for rates to improve. They're using refinancing as an actual tool to grow—and honestly, some of them are doing it regardless of what rates are doing.

I want to share five things I've seen work for strategic owners. Not because I think everyone should rush out and refinance tomorrow, but because I think you deserve to understand all your options. That's what this is about—making sure you have the full picture so you can make the best decision for your situation.

Truth #1: This Isn't Really About the Interest Rate

I know that sounds strange coming from someone who helps people with their properties for a living, but hear me out.

The smartest owners I work with aren't asking "Can I lower my rate?" They're asking "How can I use the equity I've created to acquire my next property?" It's a completely different question.

Here's how they think about it, and it's actually pretty straightforward once you see the pattern:

They buy well. They look for retail centers with upside—maybe rents are below market, maybe the center needs some physical improvements, maybe it just needs better management.

They add value. They execute on their plan. They stabilize occupancy, they renovate, they push rents to market. All of this increases the property's Net Operating Income, which increases its value.

They let it season. They operate the property at that new, higher income level long enough to prove to lenders that the cash flow is real and stable.

Then they refinance. They get a new loan based on the property's new, higher value. That loan pays off the original mortgage, and they take the difference—the equity they created—out as cash.

And they do it again. They use that cash (which, importantly, isn't taxed—more on that in a second) as a down payment on the next retail center.

Look, I'm not saying rates don't matter. Of course they do. But waiting for the perfect rate environment means you're potentially sitting on equity that could be working for you. While you wait, you're missing out on new cash flow, additional tax benefits, and honestly, the chance to build something bigger.

I've seen owners execute this cycle multiple times—even when rates stayed around 7%—and turn one property into a portfolio of three, generating over $10,000 a month in cash flow. The key was that they didn't wait. They had a plan and they executed it.

Truth #2: You Can Pull Out Cash Without Paying Taxes on It

This is one of those things that sounds too good to be true, but it's actually just how it works.

When you do a cash-out refinance, the money you pull out isn't considered income. It's loan proceeds. Which means it's not taxable. Let me say that again because it's important: you can access significant capital from your property without creating a taxable event.

For an owner following that growth cycle I mentioned, you might pull out several hundred thousand dollars from your first retail center, use it to buy a second one, and eventually pull out even more from that property. Do it a third time on an even larger center, and you could be looking at substantial tax-free cash—all from that initial down payment you made years ago.

Plus, the interest you pay on that new, larger loan? Generally tax-deductible. So you're accessing capital tax-free AND potentially reducing your tax burden. That's a pretty powerful combination.

Now, this doesn't mean you should do it without thinking it through carefully—which brings me to my next point.

Truth #3: There's Actually a Pretty Simple Way to Evaluate If This Makes Sense

I won't pretend that managing multiple properties and optimizing your capital structure is simple. It's not. But the initial question—"Should I use equity from my current property to buy another one?"—can actually be tested pretty quickly.

The core question is this: Will the combined cash flow from both properties be better than what I have now?

Here's a back-of-the-napkin way to think about it:

Take your current property's cash flow after the new (higher) mortgage payment, add the cash flow from the property you'd buy with the refinance proceeds, and compare that total to what you're making now plus what you'd earn if you left that cash invested somewhere safe.

If the two-property scenario generates more cash flow than your current situation, it's worth a deeper look. If it doesn't, well, maybe this isn't the right move right now.

This isn't the complete analysis—and I'd never suggest making a decision this big on a napkin sketch—but it's a good gut check before you spend time and money on a full evaluation.

Truth #4: The Cash You Pull Out Isn't "Free"—You Need to Do the Math

Let's be real about costs for a minute.

Refinancing a commercial property isn't cheap. You're typically looking at closing costs between 3% and 5% of your loan amount. So if you're refinancing into a $1 million loan, you might be paying $30,000 to $50,000 in fees. That's real money.

Here's the rule of thumb I use with clients: you should be able to recover those closing costs through improved cash flow or savings within about 12 to 18 months. If the numbers don't work out that way, we need to have a serious conversation about whether this makes sense for you.

I'm not trying to talk anyone out of refinancing—I'm trying to make sure we're all looking at this with clear eyes. The last thing I want is for you to spend $40,000 on a refinance that doesn't actually improve your financial position.

Truth #5: This Is a Sophisticated Strategy That Takes Real Discipline

I'm going to be straight with you: strategic refinancing is not beginner-level stuff.

You're dealing with debt service coverage ratios, loan-to-value calculations, prepayment penalties, and a dozen other variables. The smartest investors I know don't just look at today's numbers—they stress-test everything. What happens if occupancy drops? What if rates spike even higher? What if a major tenant leaves?

This kind of analysis requires three things that I think are absolutely essential:

Strategy. You need a clear plan for the capital and a specific purpose. "Maybe I'll find something" isn't good enough.

Discipline. This is what keeps you from overleveraging when the market's hot or chasing a mediocre deal just because you have cash burning a hole in your pocket.

Patience. You need the ability to wait for the right opportunity and see your value-add plan all the way through, even when the market gets choppy.

The good news? These principles can be learned. And you don't have to figure them out alone. That's honestly why I do what I do—I want to help you think through these decisions in a way that makes sense for your specific situation.

So What Should You Actually Do?

A cash-out refinance isn't just about getting a lower payment. Used strategically, it's a way to turn the equity you've created into fuel for growth.

Let me give you a real example of how this worked for one of my clients.

She'd owned a strip center here in San Antonio for almost 30 years. She'd been smart about it—occupied part of it with her own business, paid down a significant chunk of the debt over the years, and managed the property really well. The property had appreciated substantially over those three decades, but all that equity was just sitting there.

When we sat down to evaluate her situation, we realized she could pull out a substantial amount in a cash-out refinance. We used that as the down payment on a second property—a multi-tenant, Target-anchored center on one of San Antonio's busiest corridors.

The numbers were compelling. The new Target-anchored center had a slightly lower cap rate than her original property, but it came with significantly better credit tenancy and less management intensity. By deploying that equity instead of letting it sit idle, she dramatically increased her return on equity and substantially grew her net worth.

But here's what mattered most to her: she went from owning one center to owning two cash-flowing properties, which gave her more diversification, more monthly income, better tenant quality, and frankly, more options for her future.

She'd built something great over 30 years. The refinance let her leverage that success to build something even bigger.

Now, her situation was unique to her—your situation is unique to you. Maybe your property hasn't appreciated enough yet. Maybe the cash flow math doesn't work. Maybe you're planning to sell soon anyway. Maybe you just don't want the complexity of managing multiple properties. All of those are perfectly valid reasons not to do this.

What I don't want is for you to miss an opportunity simply because you didn't know it existed.

So instead of just asking "When will rates drop?" maybe the better question is: "How much equity have I created in my property, and could that equity be working harder for me?"

If you want to explore that question together—no pressure, no sales pitch, just an honest conversation about what makes sense for you—drop me a message.