How does your equity change in a commercial mortgage cash out refinance? For example:
If you have a $500k 6 unit apartment building that you originally put $125k down on, that you intend to raise rents on. After you raise rents, the banks valuation is $700k.
What of that $700k will be your new equity, before you pull any of your cash back out?
Trying to figure out how cash out refi’s effect your debt and equity, and thus your debt service amount.
Thanks in advance!
pretty simple concept I think maybe I am wrong.
Equity = Value - Debt
Basis = debt and cash into the deal..
I think that's about right.
obviously debt service is a direct function of loan amount and interest rate and amortization schedule. plus tax's and insurance and other costs to run the railroad
@Jay Hinrichs so you are saying the $200k increase in value would be considered your equity in the property?
@William Wright my understanding and I could also be wrong is your equity would go from 25% to 46% before the cashout on a new appraised value of 700k.
500k-125k (down-payment)= 375k debt payment or 25% equity
375k/ 700k (new value)= .53 debt owed which means your equity would be 1-.53= .46%
Hope that helps.
@Michael Doherty that’s my understanding as well...wether or not that is the case though makes a huge difference. I’ll run with that for the time being.
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