What should I do with my commercial building?

[Toby Tobe]

Hi, All.

I'm super new to this. I have a residential and a commercial property, both with great long-term tenants.

The predicament: I'm subleasing the commercial building. I'll get it under my name in 2 years.

It's insured for over $1mill. I was thinking of refinancing it when it's under my name and cashing out to pay my house I live in and the rental house, then investing in a newly built duplex.

What do you guys think?

[Tyler Palmer]

First off—huge congrats. You're in a strong position already, especially with long-term tenants and control of both residential and commercial assets. That puts you ahead of most people trying to get into real estate investing. Let’s break this down a bit and look at it strategically.

Your Situation Recap:

• Residential Property (likely a rental): Already generating income.
• Commercial Property: Subleased, stable tenant, under your control but not in your name yet—will be in two years.
• Your Own Home: Has a mortgage you're considering paying off.
• Idea: Refinance the commercial once it’s in your name, cash out, pay off your home + rental house, and then invest in a new duplex (which is awesome because new builds = less CapEx headaches).

Here’s What I Think (Strategically & Practically):

Pros of Your Plan:

• Refinancing the commercial building could unlock a serious chunk of capital, especially if its value holds or appreciates by the time it’s in your name. Commercial properties can offer high LTV cash-out options, especially if it’s producing income reliably.
• Paying off your home and the rental eliminates bad debt and increases your monthly cash flow immediately. That’s financial breathing room + future leverage.
• Investing in a duplex (ideally in a solid rental market) gives you 2 more doors, newer construction, likely fewer repairs—and more rent coming in.

Considerations / Questions to Think Through:

1. Will the commercial building appraise high enough in 2 years to support the refinance and cash-out goal?
• If it’s insured for over $1M, great—but lenders care about income valuation (NOI), not insurance replacement value.
• Keep the books tight. If you're subleasing, make sure you're collecting and reporting everything cleanly to reflect strong cash flow.
2. Do you need to pay off your home and rental property completely—or just restructure debt?
• Rather than wiping out the loans, you might consider:
• Refinancing to lower rates (if market allows)
• Keeping some strategic leverage (cheap debt can be useful fuel)
• Using freed-up cash to build more income-producing assets (aka more units, more income)
3. Can you house hack the new duplex?
• If you’re open to living in one side for a year, you could qualify for owner-occupied financing—meaning way better loan terms, low down payment, and great ROI.
• After that year, rent both units out.
4. Tax strategy?
• You might want to run the whole plan by a CPA who understands real estate—especially if you’re thinking about capital gains, depreciation recapture, or cost segregation on the commercial.