Hi there,

is that true that if we buy a property undervalue which worth more then it is easier to refinance for example if i buy 5 units apartment for 365000 actually it worth 562000

so it would be easier to refinance or not please tell

@Ekamjot Singh

Yes, it is easier to refinance a property if you are refinancing at a lower LTV amount. Typically, banks and credit unions will refinance small commercial properties up to ~70% LTV. If you are looking to take out less cash (under 70% LTV) it is a safer investment for the lender.

With that being said, it sounds like you have not purchased a property yet. It is also important to make note of that commercial properties are valued from their NOI; not comparables like a 1-4 unit properties.

@Charles Carillo

what is this LTV sir??

@Ekamjot Singh , LTV is loan to value. $700,000 loan on a $1,000,000 building would be a 70% LTV. @Charles Carillo makes a good point: value is determined by net operating income (NOI) and cap rate. It's a simple formula. Value = NOI/cap rate. To increase the value, you will need to increase the net operating income by increasing income and/or decreasing expenses. The nice thing about the formula is that it's powerful. For example, if the cap rate for that type of property in your area is 6% and you increase income by $1000/month, you have just increased the value by $200,000 ($12,000/6%). With a refinance, you could potentially get cash out, a commercial BRRRR.

Hope this helps,

@Bob Langworthy

thanks sir i got it

thank you so much i appreciate your answer and its really helpful