Multifamily investors: how much do you refinance?

8 Replies

For multifamily investors, I'm curious as to how much of the property value you prefer to refinance?  For example, do you refinance just enough to take the cash out of a deal?  Or, do you always take the maximum allowed by the bank?  Or, do you find it is situation dependent (i.e. where rates are or if more steady income is desired?

@Rich C.  

It can depend on so many factors. You will be capped by LTV, generally 70-80% LTV and DSCR, which can be 1.25-28 etc. If you are able to pull cash out and deploy it into something that is going to give you a greater return then on paper many people would say to do it. However it depends on your personal situation. I prefer to be fully leveraged (75-80%) or paid off. This is hard to achieve over 5 years because of loans, pre-pays etc, however if properly planned for I think you can start achieving it over 10-15 years (paying off assets & leveraging others).

None. We are paying off properties.

@Chris Winterhalter 

@Michael Noto 

@Arlan Potter  

Thank you for the input. 

If you haven't won Power Ball or recently inherited 7 figures, I'd borrow as much as possible for as long as possible. We recently did a 80% LTV cash out for 30 years fixed at 4% interest.

At today's rates I'd be borrowing as much as possible in the likely event of higher interest rates in the future.  I still remember 15% interest rates in 1981. 

Totally depends on your personal needs and risk tolerance. A very smart person once said "Cash is King, but leverage is God"! Im growing my business so I try to pull as much cash out of each property as possible. With multi-family buildings, most institutions will loan on cash-flow. If you're buying value-add properties, fixing them up and increasing rents. Then a bank will typically loan on an appraised value that is based on the free cash flow. My area they use a Cap rate of 7 to 8 and need a DSCR of 1.25 or higher.

Liquidity on the balance sheet will help you grow your business. Just like in most investments, diversification is probably your smartest approach. Some cash and some equity is where you want to be. Previous commenters raising the point that interest rates are extremely low statistically speaking make an excellent point: being heavier on cash than normal might be a wise play at this point in time. At Jason Cohen Pittsburgh, we approach things with balance. Too much weight on one side of the pendulum usually tips the scale on growth potential. To learn more or to connect for further questions reach out to me at www.jasoncohenpittsburgh.net

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.