Thoughts? Mixed Use Commercial Property Conundrum...

[Chris Gossett]

True to my nature, I tend to swing for the fences and have hit several deals out of the park, while also striking out on others. I’m new to Bigger Pockets and it’s really given me some insight into many different investing avenues.

With this said, I need advice....

Two years ago, I purchased a small self-storage facility (35 Units; 1 office; 1 Warehouse (3,500 SF) and was able to obtain financing from the seller and ‘commercial hacked’ the property by converting some of the storage units into three (3) 1/1 Efficiency Apartments, with the ability to add more in the future, and added Climate Control units within the main warehouse area.

Purchase Price: $248,000

Financing: 15 Year @ 4% fixed

We have doubled the income with future potential of increasing income by another $2,000 using the existing structures in place. Current monthly cash flow is $2,000/month at 100% occupancy.

The Equity is there to access; however, I am hesitant to REFI and lose out on the interest rate that we currently have locked in. I also am hesitant to 1031 the property into the current market of Exorbitant prices....

What would you do?

[Henry Clark]

@Chris Gossett

Might not have followed the above correctly.

a.  Did you do a down payment on the original loan? Example:  If you did not do a Down payment on the original loan and then turn around and have to do a 25% down, you may not be able to refi and pull cash out, even with appreciation.

b.  You could go for an SBA loan 10% and refi out cash.  But then it is almost impossible to pull cash out in the future with the SBA.  Plus you couldn't use any appreciation as collateral for another deal, unless it was with the SBA.

c.  Interest rate.  We currently are looking a fixed 2.66% on an SBA 20 year amort loan; 10% down.  But the participating bank, is on a 10 year fixed, then switch to a normal 5 year refi, on a 20 year amort.  Texas- we are looking at financing in Texas and the four banks we have talked with are way off.  They wanted 35 to 40% down.  SBA, they wanted 20% down versus 10%.  I can get 25% all day in Iowa and SBA 10%, but the collateralized asset is in Texas, thus looking there first for financing.  

d.  4% versus 2.66%, is worth refinancing, but you are having commercial appraisals at $2,500.  Refinance charges.  Is this without down payment, and then with down payment.  Make sure apples to apples.  I would be happy to pay 4% with no down payment, versus 2.66% with 10% or 20% down; from a Cash preservation standpoint.

e.  Cash flow- 35 storage units at $100/month= $3,500;  Warehouse 3,500 sq ft at $.85/sq ft= $2,975.  I normally use 90% occupancy, your using 100%.  Total monthly rental $6,475/month.  With the apartments, your cash flowing $2,000; this is after the P/I payment?  With the 3 efficiency apartments $500 each, say,  $1,500;  this is using the existing square feet within the building, thus your total Revenue might be $7,500.  What I'm trying to get to is how much money do you want to pull out, versus the Cashflow your getting currently.  How many months to accumulate that much cash.  Might not be worth "Refi" out to get that amount of cash.  You will need to crank the figures to see.

f.  Second lien position- I wouldn't fight the fight with the banks.  They are not going to take that path.  Pay the original owner off, to me would be the only avenue, I would go down; as part of the refi.

g.  1031- if/with a 7% commission.  After holding the property 2 years, with adds.  Don't know that you have enough equity to make it worth the sale.  Also will you get another good cash flow property, like the one you have "in hand"?  As you mentioned, 1031 into the high priced market. With the 1031 you will be on a clock watch, which doesn't make for a good buy.

Subject to crunching the numbers, to refi or sale.  Looks like you have a good cash flow deal.  Just sit tight and let it generate cash.