I bought, rehabbed, & now stuck in a commercial loan…

[Linda Burger]

I need some advise please. Quick history - i bought a sf in 08, sold in 22 - used proceeds to buy a duplex at 70% ARV with a commercial lender under my newly acquired LLC. My rate is 5% fixed for 5 years. I have a nice chunk of equity now and not sure what my next steps should be. I want to buy another multi but my loan has 4% penalty of current loan amount if i refi before 5 years loan is up. Do i request the same lender to do a refi cash out? Heloc? Pay the 4% and find a 30 year conventional? Clearly I'M a newer investor and really could use some knowledge. 🙏

[Jay Hinrichs]

Quote from @Linda Burger:

I need some advise please. Quick history - i bought a sf in 08, sold in 22 - used proceeds to buy a duplex at 70% ARV with a commercial lender under my newly acquired LLC. My rate is 5% fixed for 5 years. I have a nice chunk of equity now and not sure what my next steps should be. I want to buy another multi but my loan has 4% penalty of current loan amount if i refi before 5 years loan is up. Do i request the same lender to do a refi cash out? Heloc? Pay the 4% and find a 30 year conventional? Clearly I'M a newer investor and really could use some knowledge. 🙏

sounds like heloc if you can get one is the most cost effective route. U wont get 5% today on a new loan.

[Linda Burger]

Thanks for the quick reply. Do you know if there timeline minimums in WI for requesting a heloc on a commercial loan? Would I max out the amount for a down payment on my next property and then get another commercial loan, but this time as a rehab loan? 

[Linda Burger]

…Also, can anyone tell me if I’m in a good financial position here? 
my current loan is 102K. The value of my 2/1 duplex is around $225K. i own my primary and have similar equity but have a 45K heloc on that house. I have no other debt. I want to create a passive income stream now that I'm a single empty-nester in a few months. My son is going into the military - as his mother, would i qualify for any military promos? Or could i put him under my LLC for duo military advantages?

[Carini Rochester]

80% of 225,000=180,000

180,000-102,000=78,000

Seems like you're in a good financial position to get around $78,000 minus any closing costs (appraisal fee, loan application fee, etc.)

[Jonathan Taylor]

@Linda Burger call the lender who has the note and ask if they waive the PPP as some commercial lenders will consider it.  I would do a cost benefit and see where the use of that equity makes the most sense. If you have XX dollars and can make Y returns on it, then it is worth it to take the higher rate. 

[Stephanie P.]

Quote from @Linda Burger:

I need some advise please. Quick history - i bought a sf in 08, sold in 22 - used proceeds to buy a duplex at 70% ARV with a commercial lender under my newly acquired LLC. My rate is 5% fixed for 5 years. I have a nice chunk of equity now and not sure what my next steps should be. I want to buy another multi but my loan has 4% penalty of current loan amount if i refi before 5 years loan is up. Do i request the same lender to do a refi cash out? Heloc? Pay the 4% and find a 30 year conventional? Clearly I'M a newer investor and really could use some knowledge. 🙏

 Linda

You make it sound like having a loan with a 5% rate is the worst thing in the world. You're in a great position. Try to get a HELOC from a LOCAL bank, but if you can't it's not the end of the world. You did a good thing buying in 2022. It wasn't the top of the market. You got a great rate. Enjoy it. The same loan is closer to 7.75% right now.

[Linda Burger]

Hi! Thanks for the reply! It's not the 5% that I take issue with, it's that it's for only five years fixed with a penalty to refi. But even that is not super concerning, my whole point in the post was to receive advice on my next steps. Do I take the money out as a HELOC for my next purchase? Do I find a private investor to work with me? Am I positioned for an investor to see me as solid client? I just don't know my next move and I'm looking for some tenured advice. I want to take my equity and really be smart with it - create my wealth.

[Kristen L Garner]

Is it a hard prepay? Most prepayment penalties are calculated as follows unless it's a hard prepay or a step down prepay:

Loan Amount Remaining x 80% = Balance to calculate penalty from

Balance x Note Rate = Annual Amount

Annual Amount / 2 = Max Prepayment Penalty

To be sure of the penalty amount you can get a payoff quote from your loan servicer. If you go to their online dashboard you should be able to download it without having to actually call in or wait for them to send it. If the prepay penalty is too severe and not worth it to gain access to your equity then a HELOC would be a great option. If you do decide to go conventional for a cash out refi your rate will almost certainly be higher than 5% - so HELOC may be a winner regardless!

[Mike Dymski]

Call your lender and see if they will put a 2nd mortgage line of credit on the property.  Or, see if they will waive the prepay penalty for a refinance.  They will benefit by getting a higher interest rate on the refinance than 5%; so, they may be up for it.