What About Refinancing to Reduce Cash Outflow?

Question

We have several commercial loans for our portfolios. We are considering refinancing them now while rates are lower to increase our equity positions, lower our monthly payments, and reposition ourselves during this Pandemic. Any thoughts on this?

Stephanie P. · Answer

@Brian Boyd

Better hurry.  We're seeing lenders repricing their pipelines because unemployment is expected to go from 3% to 20% affecting a lot of renters and subsequently landlords

Cameron Tope · Answer

I agree with the strategy in principle. We are doing the same thing for our SFRs.

However, commercial debt has a lot higher fees than conventional financing. Just make sure the points and fees you're paying up front are being considered in your calculation.

Evan Polaski · Answer

@Brian Boyd cash flow is always king.  Not only does it help today, but it helps you if you go vacant too.  As mentioned, fees/points add up quickly, but I also look at it in the long term.  If I refinance today, I may save some on interest in the near term, but typically you will be taking your current mortgage and extending it out for another 20-30 years.

For me, I am not looking at doing this because I thankfully have very small mortgages anyways, and I am 10 years through a 20 year term.  I want these things paid off sooner, which will over the course of my loan DECREASE my interest expense over the long term.  But particularly if you are already tight on cash flow, there is no harm in trying to free some up.

Luke G. · Answer

I refinanced a majority of my portfolio in the last 3 months, but kept them on the same amortization schedule so I didn't reset the payment dates on them.  Just simply lowered the interest amount, which freed up significant cash flow across all of my properties.  Locked some rates into 7 instead of 5 years for that extra couple years of stabilized payments.

What About Refinancing to Reduce Cash Outflow?

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