Quote:
Originally Posted by astrocytoma
I was thinking about taking a cash out refinance on a commercial property I own. Even at a conservative 8% cap rate I should be able to cash out with around $800,000. Even if the valuation comes back higher I still don't want more than $800,000.
I only have 4 years left on the property at a sub 4% interest rate.
Though it doesn't make sense from a strictly numerical perspective to take a new 30 year loan at 7%,
I hope to use the $700,000 to buy new commercial real estate valued at $2.8M using a 30 year commercial loan.
Then I will still building equity, and possible cash flows from multiple properties. I don't really expect cash flows year 1 with 7% interest rates but I'm sure I can refinance once rates fall, and NOI will continue to increase.
My question is on how lenders/underwriters move forward with this kind of transaction.
From the cash out refinance side I'm assuming its about NOI/Cap rate/Appraisal/LTV, but what about from the purchase side for commercial?
Will they look at Debt To Income Ratio just like standard mortgages? If I have a partner will both our gross incomes be seen as one combined entity, or will it be divided based on % of ownership?
As in I make $300K, and he makes $300K so combined $600K or since my stake is 60%, and his is 40% so combined $180K+120K=300K?
Will they count personal expenses against us like personal mortgages we both have?
Thank you for the help.
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I am not clear on the property you are looking to finance (cash out on). Is this a property owned with your partner? If so, is your partner willing to tie up the property for your loan - willing to pledge it as security? Or is your income from another source, a partnership that has nothing to do with the commercial property? If that is the case, your income will be based on your personal returns, the business returns, by your K1 percentage of business owned. It's pretty straight forward - if the net profit (after add-backs) is 500K and your K1 lists you as 60% owner, you will receive credit for 300K income. A cashflow analysis will be done on the property you are financing. To answer your question regarding ratios, yes and no, but not the same way. They will be really looking at the strength of the income of that building on it's own.
Commercial is much different than residential lending. I can share (which you have or will find) commercial financing is not overly plentiful, and cash out, even less so. Cashout is a redflag in itself, only from the POV people tend to cash out when there is a financial challenge. They are going to examine your financials to confirm that is not the case. Tell the lender about your plans to expand, and (do not be surprised) suddenly they want to get up into your business and look at the soundness of what you will be buying.
Gather two to four years tax returns, personal and business - I would go ahead and your business plan for the 2.8M project. I don't know if they will let you off with a P&L for 2023 for your business (and building - I cannot tell if that building is part of your partnership) - you may need those returns, not an extension. Sorry, not really much help - sounds like you are asking the right questions to get where you want to go.
Good luck
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