Cash Out Refinances:
A commercial "Cash Out" refinance is an opportunity to turn some of your market value equity locked within your commercial property into cash without selling the property. Unfortunately, the cash out market was abused in the mania of "the good times era"; so the rules have now changed as values in the commercial market deflate.
Here's the present scoop on cash out refinances.
Gone are the days of pulling equity cash out of your commercial property to pay off personal debts, take a vacation or enjoy a new shot of cash for some personal pleasure.
Among the few remaining lenders who will do cash out, over and beyond closing costs, the rules are generally as follows:
· General Rule: Any cash out must be used to pay off "Business Debt" that will result in strengthening the business enterprise owning the real estate collateral, either directly or indirectly
· Cash out may be allowed to make improvements to the real property to either bring its condition up to stated standards, or to improve its collateral value for the benefit of the lender and borrower
· Cash out to fund an ownership buy out, may be allowed in certain circumstances.
· Cash out may be approved where the Loan to Value (LTV) is extremely low and the circumstances make good business sense and are not detrimental to the lender.
· Typically, any cash out at closing will be dispersed by the lender, or escrowed until payment is requested through the lender.
Lower Loan to Value (LTV):
Also gone are the days you could re-mortgage your commercial property up to 85% loan to value (LTV). Today's cash out refinancing limits loan to value (LTV) to between 50% and 65%.
In our present financial environment of falling commercial real estate values, commercial property values are almost exclusively determined by the "adjusted" Net Operating Income (NOI) of the property, times a capitalization rate (Cap Rate) determined solely by the lender for the geographic location of the property.
For more valuable information on how you can learn to value a property's ability to attract a lender, down load the Free Report "Commercial Property Purchase – Do the Numbers Work?" found under the "Free Reports" section of this website.
Commercial properties purchased within the last 4 to 5 years, will generally be valued at 20% to 30% less than the original purchase price, unless that property has an extremely strong adjusted NOI (Net Operating Income) that when capitalized produces a better present value. Contact me at 770-650-7870, if you need help with this issue.
On the positive side, there are still some lenders out there that are willing to do cash out refinances and they work for us!
Yes, the qualifications are tough, the LTV is much lower now, but deals are being done!
About a month ago, we closed a cash out refinance that saved the business owner over $70,000 per year by paying off short term "Business Debt” The LTV on the new commercial mortgage was 60%. The new mortgage was written with a fixed rate, no balloon, amortizing over 30 years.
Based of what you have learned here, if you think you can qualify for a cash out refinance, we can make it happen for you.