All Forum Posts by: Ernesto Maturrano

Hi All,

I was hoping someone in the BP community knows about any portfolio mortgage programs that offers a 80% LTV cash out refinance on an owner-occupied 2-flat building in Chicago. Here's the situation: I bought the property in 06/15 for about $340M and took a loan of $310M. I injected $50M in renovation and expect the value to be (conservatively) $430M. I live in one unit and rent the other. I'm looking for an 80% advance in order to recapture some of my capital.

Right now, Fannie/Freddie guidelines allow up to 75% LTV on a cash-out refi of a 2-flat. But perhaps some portfolio lenders in Chicago can do more. Appreciate any and all help given! Thanks!

I understand that they are family or family friends, but if the market is at $900, then maybe you can negotiate how they can earn the difference in the increase. 

Also, you want to understand all of the expenses - RE taxes, utilities, insurance, maintenance - and estimate 3-5% reserves. As a lender, I look at NOI in a different capacity - Gross Rents less Total Expenses before Debt Service = NOI. For what it's worth, I would consider leveraging if possible. It's great to have a free and clear property, but your return on equity is not as good as if you were to leverage.

Example:

Gross Rents (2x$650/mos.):  $15,600/year

Gross Expenses (taxes, insurance, utilities, other):   $9,500/year (approx.)

NOI: $6,100

ROI: 8.13% (NOI / Equity - $6,100/$75,000)

If you leverage 70%, loan amount of $53k / payment of approx. $4,050/year; your Excess Cash After Debt is $2,050 and your ROI is 9.32% (on equity of $22,000). Not a huge increase, but you just recaptured (or saved) $53k to use towards another investment.

@Mark Byrge @George Gammonmakes a good point in that you should stress test the property for all factors subject to change (interest rate, value, cash flow).  However, if the market were to tank and rates were to increase, you'd be hard-pressed to find any lender willing to provide financing.  Usually your originating bank will work with you under these circumstances.  If you pay on time during the life of the loan and establish a solid relationship with your bank, they will work with you.

Considering current conditions - you were approved by the bank, so it either means the property is a cash flowing property, or your a very strong borrower/guarantor, or both.  In which case, you should be fine when the loan matures.  In Chicago, we'll usually renew the loan, a much simpler process than a refinance. Renewals are closer to a modification or amendment than a refinance. 

Best of Luck,

Ernesto

As Jacob mentioned, each have its benefits and drawbacks. A multifamily may experience 1 or 2 vacancies for a couple months, but it should have minimal effects on the annual cash flow. However, a vacancy in a SFH means losing all cash flow until it is leased.

It depends on your risk preference/tolerance. 

Also, a commercial bank will still consider financing the acquisition of a stabilized 2-4 unit property with commercial financing.  

Chris,

Tough call.  The numbers look nice, but it looks like the Doctor is looking to retire.  In a small town, with the cml space suited for medical use, it may be prove difficult to find a tenant at market rents. 

Also consider that if you have a 5 year term loan, you may have trouble renewing if you cannot find a tenant.  At the least, if the building does not cash flow at the time of renewal your temrs won't be as favorable.