prepayment penalties in commercial loans

[Mike Dymski]

For those of you flipping or refinancing apartment complexes with commercial loans, what have you done regarding loan prepayment penalties?  This may be a simple answer and you just refi with the existing lender and have them waive the penalty or you just pay it and include that cost in your modeling assumptions.

[Joel Owens]

Generally you see if the construction or permanent loan is assumable. The fee is typically 1 percent.

If you are doing rehab type properties you usually want interest only loans to get the payment as small as possible until you unlock the full value and stabilize. You do not care as much about principal pay down as you are substantially increasing the value of the property. On these types of properties you do not want any loan with a pre-pay penalty.

It's a common mistake I see to get pre-pay loan financing on a turn around asset.