Flipper/Rehabber · Gresham, OR · Member since 2018 · 9 posts · 3 votes
Please help! I worked really hard on my first multi family property and created a lot of equity but also was able to lock it down on a 30 year mortgage at 3.25% apr. I’m not sure if I should refi and enter the commercial world of finance and pay a higher interest rate with the unknown of future rates and having to be forced to refi every ten years. If anybody has creative ideas to get some of my equity out and still keep my loan please chime in. The banks will not do a second on a commercial property. Thanks in advance
Rental Property Investor · San Diego, CA · Member since 2018 · 242 posts · 234 votes
7y
@Brian Stevens
Consider selling the 5 plex and doing a 1031 exchange and buying a 10-20 plex.
You can use the $300k+ in equity as your down payment and you roll into the new property tax free.
I sold 1 condo in San Diego and traded for a $1.3 million 14 plex in Kansas City MO about 6 months ago. I’m now getting $3000 per month positive CashFlow and my tenants are paying off my $1m loan at $2500 month. Plus application, plus tax Benefits.
I did the same thing 2 other times in the last 9 months and now own 26 doors.
Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
7y
3.25% on a 30 year fixed mortgage is an incredibly good rate! Why would you want to refinance it? Not only would you have to give up that great rate, but you would also have to pay more in loan origination fees and perhaps another bank appraisal of the property. Also remember that loan costs are the most during the early years because the amount you pay in interest is proportionately much higher than what goes towards principal. Keep your equity in the property and your current loan performing. It's helping your credit score too as long as you pay on time and hold the loan for a good long time. Look for other ways to raise money.
Flipper/Rehabber · Gresham, OR · Member since 2018 · 9 posts · 3 votes
7y
Thank you for your response! I keep hearing that it’s not smart to keep a lot of equity sitting in a property. I have 300+ in equity that I can’t get out. I also feel like it’s not smart to pay more on this property because the rate is low. I’m just kinda confused as to what my best move is from here. My wife and I have six children and we are currently house hacking and doing our best to still move forward while trying to raise a family. I have maxed out my LTD for purchasing and feel like I’ve hit a wall.
Rental Property Investor · San Diego, CA · Member since 2018 · 242 posts · 234 votes
7y
@Brian Stevens
Consider selling the 5 plex and doing a 1031 exchange and buying a 10-20 plex.
You can use the $300k+ in equity as your down payment and you roll into the new property tax free.
I sold 1 condo in San Diego and traded for a $1.3 million 14 plex in Kansas City MO about 6 months ago. I’m now getting $3000 per month positive CashFlow and my tenants are paying off my $1m loan at $2500 month. Plus application, plus tax Benefits.
I did the same thing 2 other times in the last 9 months and now own 26 doors.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7y
@Brian Stevens If you got a 30 year conventional mtg, it’s not commercial.....I assume this is 4 units or less. Try for a heloc if you want to access the cash, some banks will do helocs on non owner occupied also but harder to find.
I keep hearing that it’s not smart to keep a lot of equity sitting in a property.
90+% of the 'dead equity is bad' crowd are talking about residential houses. They have no idea of the sky high appraisal/refi costs or crummy terms of commercial loans.
That and a lot of them are new and just spewing what they've 'heard'. They are driving their net worth, yet giving you advice. LOL
Keep in mind, even if you have $300k in equity here (well done BTW!), a new loan will only be up to 70% of value. And they tend to appraise refis on the low side. Does that change things?
I agree with Marcia 100%. Get expansion $ elsewhere. Your current terms are too good!
Flipper/Rehabber · Gresham, OR · Member since 2018 · 9 posts · 3 votes
7y
All great information! I am new to the BP family and I finally thought I’d just ask for a little help! This is a commercial property and is zoned for 5-8 units and it sits on 2 acres. Cash flows well however the interest rate keeps me from doing anything. I have thought about doing storage units on the lower half but how do I offer security to an investor?
The question is does it really cash flow well. With 300K in equity valued at a opportunity value of 10% your equity is generating $2500/month of your income. If you were to pay yourself that $2500/month as a required return on all that dead equity how much would the property be generating in regards to positive cash flow. That is the amount the property is actually generating. Your cash should/would be earning a minimum 10% otherwise your return on your cash is only the 3.25% you are saving on your mortgage.
Is your cash equity worth more to you that a 3.25% return. I know my money is worth far more than that. If you are not willing to pull the equity you should seriously consider selling and redistribute your equity to maximise your returns. If you are happy parking cash in real esttae with a minimal return, realising it is at risk with a market drop, then do nothing.
It's all your money, you decide how much it is worth and how hard you expect it to work for you. Your 300K is saving you 3.25%, you decide if that is enough.
Flipper/Rehabber · Gresham, OR · Member since 2018 · 9 posts · 3 votes
7y
I understand that concept. The property cash flows over 3k a month currently and I look at the equity as money for potential growth in other areas or within that same property if I could pull money out. If the market goes down than that equity number changes but my cash flow should stay the same or close too. The question that I keep asking myself is “what is 3400 a month worth in passive income”. Meaning how deep would I go in debt to get that return? Everything in my Gut says that paying it off is the way to go because I will then have 5000 a month in passive income for the price of 315k! Then I think that if the money is only costing me 3.25 to borrow than maybe it’s not the best choice and my money should be used elsewhere. I hope I’m explaining my dilemma appropriately without getting too wordy. I understand that this is kinda a good problem to have, I just really want to make the right move! The property could pay itself off in about ten years if I just put the money back into the property but I’d be only saving the 3.25 interest rate.
Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes
7y
Since you have land, I would investigate more on the storage unit idea. If there is a market for it, use your cash flow from your property and hopefully more from your job and invest in the storage units. You can put those up pretty cheap and build them out slowly as you save up the cash. It is at least worth looking into.
If it cash flows $3400/month your cash is generating $2500 (10% return on 300K) of that then the property itself is generating $1400/month. $1400/month is the true value of the property. You are generating $280/door/month...not bad assuming your expenses are projected for the life of the property and not based on yesterdays numbers.
It all depends entirely on your goals. If you are content with a 3.5% return on your money and have no desire to grow your investments there is no decision to be made. Park your cash and forget about it.
If on the other hand you believe your money should be working harder for you then the choice is simple. You either refinance and invest in additional income properties or sell and transfer your investment to a larger property using the 300K as a minimum DP or spread it among multiple properties again using only a minimum DP on each.
You need to decide what category of investor you are. Either you park your cash feeling that having paid off properties producing very little CoC is adequate or you invest with the approach that cash must earn it's keep and be used to generate more cash flow and greater appreciation potential in multiple properties.
It should never be a question of what should you do, it is a question of what do you want to do. Only you can make that decision. Others may suggest based on what they do but what others do is irrelevant. Make a decision, flip a coin, do nothing. When it is all said and done it makes absolutely no difference, aside from income, what you choose.
Investor · Jonesboro, AR · Member since 2017 · 136 posts · 79 votes
7y
@Brian Stevens
Refinancing wouldn’t be in my list if things to do. It will mess up your depreciation schedule. Sell it, exchange it, leverage it, or keep it in books to fatten the bottom line.
I refinanced a couple of mine years ago. Wish I hadn’t
Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
7y
@Brian Stevens
Maybe you could tap some of that equity with a line of credit.
I’ve done it with <4 unit properties. Not sure what the landscape is for credit lines backed by commercial assets.
Orangeville , Ontario · Member since 2017 · 10 posts · 0 votes
7y
I like the severance and self storage idea. It sounds like the property may not have the highest value yet? I think there is no easy answer here. I would make a spreadsheet to compare opportunities and work the problem until an answer falls out. Are you looking for cash flow or equity build? What gets you the most of what you want? Build the self storage or sell and put it into a new property I think are the two most viable options.
Lender · Chicago, IL · Member since 2018 · 352 posts · 147 votes
7y
Is this the only property you have? I agree, term of the loan is too good to redo, although I didn't get all the terms of the loan, I doubt this is a 30 y fix product, so if is just amortized over 30 y, is this an arm or a ballon. Do you have funds to get another building without refi? LTV is lower on refis so having $300k in equity is not relevant. What is the value of the property? Do have other funds beside the equity that you could invest? Can you perhaps purchase another multiunit as residential since terms are better? Are you married, can perhaps you spouse get the multiunit by herself? Could you show that the multiunit would be owner occupied so you can get it with minimum down payment? That's affected by your current residence, sq footage, value etc... there are so many options, you should know what you want to do and channel in that direction, hard really to get advise from other people on what your next investment should be as there are a myriad of options, we all have different investment style and strategy...
Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes
7y
@Brian Stevens
I don't consider 1-4 units commercial
real estate but I personally would
never do a commercial loan on a single
1-4 unit when you can get residential financing. I would look at line of credit options to take the equity on. Keep calling around and don't beat around the bush. Just ask "Do you provide home equity line of credits on non owner
occupied real estate?". We call hundreds of lenders and get through the calls
Flipper/Rehabber · Gresham, OR · Member since 2018 · 9 posts · 3 votes
7y
@Diana Muresan
Just to paint a more clear picture. This is a 5 plex that I converted from a four plex after getting residential funding, 3.25% apr for 30 years it’s zoned commercial and zoned 5-8 units. It sits on a 2+ acre piece with the plex and parking lot sitting at the very front. I bought it for 350k, I owe 315k, it grosses 5600 a month. It is currently listed at 950k. It has had some activity but no offers yet. It clears about 32-3400 a month depending on water and electricity. I am married with six children. I recently purchased three homes with additional tax lots that I’m trying to develop. I was hoping to get some advice on how to access some of my equity from the plex to help with my other investments and continue to invest. We are currently house hacking and my wife is at her wits end. I know that I can put the money to work if I refinanced it but it pains me to give up that rate. The property has future development potential as well. I’m curious what the BP crowd would do?
Lender · Chicago, IL · Member since 2018 · 352 posts · 147 votes
7y
@Jason Graves I close in all 50 states, we are a rare breed of a federally charted mortgage company, usually only retail banks are, the rest are state licensed. We have 24 lenders in the house and we are a bank ourselves with conventional loans, also portfolio, new construction, renovation for both owner occupied and investment, foreign nationals purchasing in US, jumbo, non-agency (alternative income), FHA, VA, USDA, commercial 5-75 units, basically I am a one stop for all :-)
Lender · Chicago, IL · Member since 2018 · 352 posts · 147 votes
7y
@Brian Stevens it's really a question of investing styles and I try to steer clear from sharing my pearls of wisdom as my investment strategies are personal to what I would do, I Watch my borrowers and they all have different strategies, some conservative, some aggressive and some in the middle. Sometimes I have a borrower who would do all at the same time, I would refi a property to either pull out cash or just to take it out of a VA or FHA loan only to invest in another MF and at the same time flipping an investment property with a renovation loan. The only thing we know for fact is that will cost you about double to refinance, now that that's establish, it's really your decision how you want to proceed.
Flipper/Rehabber · Gresham, OR · Member since 2018 · 9 posts · 3 votes
7y
Are there any banks or lenders that will allow an equity line or a second mortgage on a commercial property? I have called all the banks and credit unions in my area and they all want to be in first position!
Flipper/Rehabber · Kansas City, MO · Member since 2011 · 2k+ posts · 712 votes
7y
If it's owner occupied and you have huge equity, don't refinance and get the big loan as we head into the predicted down market. You might like that equity and cash flow in say 2020.
Do however find out about a Home Equity Line of Credit. You set it up once based on your equity and then you can borrow money and pay it back like a credit card basically. You can use that to pay cash for the next Buy and Rehab and then refinance to a permanent loan.
Although you did say they would not do a 2nd mortgage. Maybe talk to a different lender. You might find what you need at a different bank.
Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
7y
I am in the same basic type predicament. So no answers, only empathy.
I guess the biggest question is - what is the value of the property, how much do you depend on that cash flow? What (conservatively) could you do with that equity if you used it?
BP is full of folks that dont really understand what a situation like this is like. Most beleive that chasing doors and max leverage is the way to go. This works in a strong up economy with low prices and low int rates. But we are moving into a different world now so ,,,,,
Flipper/Rehabber · Gresham, OR · Member since 2018 · 9 posts · 3 votes
7y
@Mary Mitchell
I know I’m not alone! I like having the cash flow but it just sucks to leave equity sitting, I would love to find a equity line on it. I have debated on moving my residency back into it and bringing it back to a four plex just to pull the equity out. I’d say conservatively there’s 300k in equity.