Refinancing Multifamily Question

2 Replies

So I just a have a quick question about refinancing in multifamily. This is a hypothetical example, but lets say you buy an apartment complex for 1 million dollars at 25% down payment. In 7 years the property appreciates to 5 million so you decide to refinance. The bank give you a loan 75% of the new value so 3.75 million, and you pack back you old loan. That leaves you with  2.75 million dollars tax free. So in the end I have no money in that deal, Im still getting the cash flow from it, and i have a new debt of 3.75 million which after i pay back my old debt i can do what i want with it (like purchasing new multifamily deals.) Can someone confirm to me if this is right, or if I am missing something. Thanks!

Sounds good in theory, but in practice, property values and rent values moves up at different rates. I got a property in NYC that I picked up at auction in the 1990's for $200K, and currently appreciated to $1.3 million, quite impressive. Rents for a 2BR unit in it rose for $800 to $1,700 today, only roughly double. In theory, I can borrow out 5 times or more what I originally borrowed, but cash flow permits a lot less than that if I want to do it safely.

I did borrow out $200K more than the original mortgage to make other investments about 10 years ago, but it's all paid back, so I'm mortgage free for this property.

@Danil Sidorov you are on the right track.  The only thing I may suggest is typically I don't see banks giving around 75% on the refi your leverage would be close to 65% on the new loan.

A lot of investors choose this method called refi and roll where they buy the property, increase its value, refi and put that capital into the next deal.