Commercial Lenders - Is this feasible?

Question

I'm looking at buying a small, 8 unit building in the SE US.  My purchase, closing, rehab, etc. should come out to 125k and  I'm going to pay cash for everything.

Units are all 2/1's and conservatively will rent at $525 per door in a strong rental area.  I also calculate (conservatively) that the building should pretty easily appraise between 225k and 250k.  What I would like to do is refi after about a year or so and pull 130k out which represents an LTV of 52-57% based on my appraisal figures.  I'm using a 42% expense ratio (should be lower due to the renovations)  which gives me a DSCR of over 2 assuming a 15 yr note at 7%.  Is this something that can be done, and more importantly, someone would be willing to do?

It's been a while since I've dealt with a bank, so I thought I'd start here first.  If anyone can, please provide details, or shoot me a PM.  Thanks.

Darryl Dahlen · Answer

I agree with Financexaminer. If you don't have a strong banking relationship with a bank who will allow for a cash-out, you will be hard pressed to take out that sort of cash with any conventional lender.

However, in situations like this, hard money is sometimes an option. You go to a hard money lender for a loan, hold it for 6 months, then do a rate and term refi with a conventional lender.

Granted, you're going to pay a higher rate, and points, for hard money, but it is about the only way I know where you can do what you're asking.

Bill Gulley · Answer

Brian, didn't see you were out of your "area" and the comment about bank relationships kinda had me wondering since I was pretty sure you could pull that off. SE US, well, I see what you mean, sorry....unless you have a relationship with a national bank that has offices there??? Probably not because you would have done that!

As we wonder around trying to buy outside our home turff, that's a real problem, just another reason I stick close to home. I know there are greener pastures, but after it's all said and done, I'm not sure how much greener...so I'm still here! Good luck, Bill

Brian Levredge · Answer

Thanks, Bill.  The problem I have withe portfolio lender is that I'm not a local guy and most of them like to lend locally, especially to those people who they already have relationships with and who have sizable deposits at the bank already.  My contacts down there tell me that doing any type of commercial deal without those criteria being bet is next to impossible, thus my posting here.

I have a decent private money network but thought I would see what else is out there.  Thanks for the response.

Bill Gulley · Answer

Brian, I would not guarantee it, but it is possible....and from a portfolio bank. This is where keeping a good banking relationship can be valuable. I have borrowed many times when I did not need to, just for the business relationship....after years of paying as agreed and the bank making money, it makes saying "no" a lot harder.

Your numbers sound good. Saying this will work a year from now is hard to say as well, who knows what will come down as a regulatory requirement concerning cash out refis....

Another way, instead of cashing out in cash so to speak, when you buy the next property, use a blanket mortgage at a much higher LTV and get a release fee for each building/property. That will move your equity to another property keeping cash in your pocket for the rehab...or whatever.