Will banks refinance at an LTV that doesn’t cash flow?

Question

Looking to eventually refinance a 7 unit apartment... will banks refinance at the appraised amount on an LTV that doesn’t cash flow? Say -400 to - 600 a month or so...

I don’t mind absorbing this overhead if it means I get the majority of my initial investment out of the deal

Cory Carlson · Answer

The easy answer is no. Income and asset based lending comes down to the financials. If your DSCR is below 1.25 (or whatever that lenders threshold is, usually around there) they will not lend on it. That is just one of the many initial underwriting criteria. A good commercial mortgage broker in the market of your property that has connections with the banks will be a much better resource to you than these forums.

I am sure someone will chime in with some insight on some special lending idea/package that is much more difficult than just conventional financing.

Evan Polaski · Answer

@Steve Davis, I agree with Cory. Each lender will have their criteria, and you cannot exceed any of them. Typically 75% LTV or 1.25 DSCR are the two you run into most. And you will be capped at the lower. I.e. if 1.25 DSCR hits at a $500,000 loan, it won't matter if the property appraises for $2mm.

The only exception I have heard is when you get into value-add or construction products. For value add, you might get into a 1.10 DSCR, but the stabilized DSCR and value have more conservative levels than standard, from the products I have seen. And obviously, you are not looking at construction since this is an existing building.

Ryan Daigle · Answer

@Steve Davis no conventional lender would do that, no. Any I would be skeptical of anybody that's willing to put up money on the hope of appreciation only.

Todd Dexheimer · Answer

I hope not. HUD will go to 1.18 DSCR. That is the lowest that I know of. Getting your money out, to lose $400 to $600/month is a very risky deal. You'll lose $4800+/year in the lowest rate environment we've ever seen. Think about if a few things go wrong at the property.

Will banks refinance at an LTV that doesn’t cash flow?

Will banks refinance at an LTV that doesn’t cash flow?

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