Multi-Family refinance options

8 Replies

I have a two flat on the west side of Chicago that has seen a jump in value since I purchased the property 2 years ago.  Both units are rented, and I have spoken to banks regarding a line of credit to use towards the purchase of another property.

Community banks so far are not interested in giving a line of credit, but have offered refinancing options instead.

My current rate on the property is 3.75%, so I'm not eager to move to a significantly higher rate (5.25%).  Does anyone have ideas of how best to tap into the equity of a non-owner occupied building so that I can fund another deal?

Thank you.

What percentage of the property value do you have in equity? Why are the community banks not interested in offering a line of credit? Is it because you don't have enough equity?

Hi Theo,

I have approximately 47% equity in the property.  Banks have said that they are not interested in being 2nd position on a non-owner occupied property.  They have said that it would be different if I lived on-site.

One bank also said that for a line of credit, they would only consider purchase price + actual cost of renovations for  determination of value.  Market value was not considered unless I was doing a cash out refi.

Hi Daniel,

I have a couple lenders who work in other states and would love to put you in touch with them. I’m sure they can give you great options. 

Please feel free to reach out at anytime.

Thank you,

Andrew Harrell

Jameson Sotheby’s Int’l Realty 

@Daniel Gibbs   It is tough to get lenders to do credit lines on south and west side.  When I see it the amount is 12-15% but I see people in your position utilize that huge equity as an easy way to get private short term money from friends and family and then clean it up on your cash out refinance on the new property.

At the same time look at your cost you pay for the existing loan vs a refinance.  The only portion you should figure the additional cost at 3.75% vs 5.25% is the principle loan amount you have now.  That may be cheap vs a second loan or private loan you get at 8-15%.  If you have a $100,000 loan at 3.75% and that goes up to 5.25% but your able to get another 50-100k out the additional cost on your current loan is only $1500 per year which is a small price to pay to go create some other opportunity that over the life of that second investment can yield you $50,000-$150,000.

My biz partner told me years back, "Don't step over quarters to pick up pennies", which to me most of the time translates to calculate the money you are not making by taking that next step vs the money you are trying to save.

@Theo Hicks

Great point @Mark Ainley . I would determine how much more you will pay per month with the refinance compared to how much extra cash flow you will make per month by using the refinance proceeds to acquire another property. You'll likely be able to refinance at a 75% LTV. Not sure what the value of the property is, but since you are in Chicago, I am assuming it is into the 6-figures. So, that's a lot of equity to pull out.