Cash out refinance for a paid off Commercial property

10 Replies

Hello newbie here. I have a multi use property( 2 storefronts 1st floor 2 two-bedroom apartments 2nd floor) that I bought cash with a cash out refinance on my primary residence. I plan to hold this property. It was newly built in 2007 and needs no work. I want to do a cashout refinance on the multi use property. I know this would need to be a commercial real estate loan but wasn't sure how easy that would be. Has anyone had success with this strategy?

Absolutely, i just did a commercial loan with TD bank for my 3 unit property in Fort Myers.  What is your question please more specifically?

@Anthony Gjolaj I would like to use the cash out on the commercial property to repay the loan on my primary residence. I was under the impression that lenders weren't too keen on doing cash outs for commercial properties.

@AnthonyGjolaj I would like to use the cash out on the commercial property to repay the loan on my primary residence. I was under the impression that lenders weren't too keen on doing cash outs for commercial properties.

Lee that is not the case at all, who did you do your cash out with on your primary residence.  Reach out to that bank, go in person and explain.  Now, they don't typically give out 30 year fixed  loans  for commercial properties, this is something i am slowly learning, but then again thats something you can figure out along the way

Thanks Anthony for the advice...First loan is with Eastern Bank...thought I would need to go to another bank for the loan. I plan on using this strategy for future multi unit purchases.

@Lee Divers - you can absolutely do a cash-out refi using a commercial loan. How much cash you can take out will depend on a few things:

  • Income on the property - if the property is not a source of stable cash-flow, that would be the biggest issue.
  • Strength of the leases - who are the retail tenants? When is their lease expiration? A conservative lender like a bank will want to make sure they don't lend you money only to see the rental income dry up during the life of the loan.
  • Strength of your personal finances - again, the lender will want to be protected if the income on the property goes sideways.

What do you think the property's value will be appraised at? What the current NOI?

@Tim Milazzo according to city the property is assessed about 20k over purchase price and the NOI is about $1000. I know commercial loans come with more complexities as well such as higher rates and balloon payments.

@Lee Divers

Balloon Payments can definitely be avoided. 

Many great 30 year terms available for multifamily, mixed use, and commercial as well.

@Tim 

@Tim Milazzo asks the important questions.  Lenders are going to primarily care about how this type of property cash flows. 

Hi @Lee Divers ,

You can do a cash-out refi on commercial properties.  They are fairly common once you have built up enough equity.

One tax issue that you may want to be aware of (if the commercial property is in an entity like an LLC) is the debt-financed distribution rules. Basically, in cases where you take on debt in order to make a distribution to the owners of a business, the portion of the debt related to the distribution may not be deductible. First, with proper planning you are able to limit how much of the debt is deemed to be related to the distribution. Second, whether that portion of the interest is deductible or not depends upon what the distribution is used for (interest racing rules).