Major decision on commercial property

[Justin Mathews]

I have an urgent decision that I could use help on... My wife and I bought an 11,000 ft² Warehouse space and have white boxed it. It appraises for $800,000 and as of today we have about $550,000 into it with renovations and purchase cost. Unfortunately, we just found out that we're going to need a brand new roof for $105,000 plus an additional cost of $65,000 in other construction costs for a grand total of $175,000 more than our original budget.

Our current loan is almost maxed out and we don't have enough money to complete the project using just cash we have saved personally. We need an additional $175,000 to bring it to market ready ASAP. This brings me to the decision...

We own a rental house that is worth $300,000 and that is completely paid off. That house brings in $2,100 a month cash flow today. In order to complete the warehouse, the bank is suggesting that I take out a loan at 5.95% against the house in order to get the cash we need. That works out to about a 1400-1700 loan payment each month on the house.

My question is should I go ahead and take out the full 80% that I can possibly take out of the house equity? This would leave me approximately $65,000 cash to invest in another property after the warehouses leased. Alternatively, I could just take out the $175,000 that I need. If I only take out the 175k I'm left with the lower mortgage amount and more cash flow out of the house each month, but I can't buy another property.

I am thinking it doesn't make sense to leave the cash in the house and not deploy it especially since I'm going to incur closing and title cost either way. With the additional 175,000 on the warehouse we will be at a total of about $725,000 debt and it is worth at least $800,000 and it will be 100% updated and ready to lease. I'm looking to hold because it's in a developing area and the long-term equity play is significant.

So again, do I take out the $175,000 or do I max out the equity withdrawal at $240,000? Is there a better way to get the cash that I need? This is certainly the fastest and cheapest way I can think of vs trying to get another commercial appraisal on the warehouse. If I paid for another commercial appraisal on the warehouse the appraised value will likely have gone up but probably not enough to borrow another $175 against it anyway.

I really appreciate your thoughts! I need to make a decision Monday.

Justin