I currently have 7 properties with individual commercial loans on them totaling $192k. They are all 1-2 years into the loans.
10 year amortization
5 year balloons.
I have been speaking with another local bank who offered to consolidate all the loans into one loan amortized over 15 years, 5% fixed 5 year balloons. Doing so would increase my cash flow by $700/month which of course to me sounded great! A real estate attorney said he would charge me between $1000-$1500 for his fee, plus I would assume I would have to pay for title insurance again(which totaled $1034 on these 7 properties) plus have to pay a 1% origination fee of $1920. I am guessing total closing costs around $4500-$5000. With the increase in cash flow it would take me around 7 months to get my money back.
My questions are:
Has anyone out there consolidated loans like this before?
Is it possible to ask for a discount on the title insurance(7 properties at one time)?
Obviously the downside is the out of pocket expense for closing costs and the properties not being paid off for 15 years vs 10 years. The bank also said that if I wanted to sell a property they would break it off and modify the loan(not sure how they figure that, I need to ask some clarifying questions). I really would like to hear your opinions on this!
One thing to consider is that when you refinance to a different amortization, say 30 yr from 15, looks like a savings, and yes there's better cash flow, but the savings is measured in the interest bill at year end.
1/2% is the savings I see, just under $1000 per year. $5000 total cost to this on a 5 year balloon isn't worth it at all. There's really no savings. (I understand balloon to mean you need to refi in five years, correct?)
@Frank M. Yes the ballon is to reset the loan for another 5 year term. I did realize that stretching out the loan will cost more in interest in the long run, but I guess I was thinking that the tenants would be paying this and I might be able to gain a substantial increase in cash flow....just trying to figure out if it's worth it or not.....
@Bill Sargeson - I'm in the middle of trying to do something similar. You can surely ask for a volume discount on the title insurance (most probably will come from the actual title search), especially if they are all in the same county. Also, consider rolling your closing costs into the loan.
@Bryan L. That is a great suggestion! I didn't think about rolling the closing costs into the loan....quick math indicates it would only add about $30 to the payment and I get to keep my capital and increase my cash flow. I bet the bank would do it, thank you very much for the tip!
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