Cash Out Refi CRE Purchase

[Krishna Shah]

Hi everyone,

I'm new to this. I'm helping my father expand his RE portfolio. He's obviously more experienced since he already owns one CRE property.

I have some questions.

He wants to stick to Bank Financing over private lending. His primary mortgage was sold to a private lender in the early 2000s and he claims he had to give an explanation each time as to why he financed with a private lender with such poor reputation every time his credit was pulled. Despite having an 800+ credit score.

Purchase:

He says banks don't offer 30 year loans for CRE. If that's the case is the best hope a 10/15 year loan with 30 year amortization with balloon payment due? Want to put 40% down.

What requirements do banks look for?


How would they calculate DSCR? Based on Noi/Piti derived from the 30 year amortization? Or from the actual 10/15 year loan?

Cash out refinance:

Hoping to get 70% LTV from current strip mall commercial property. 1 unit owner occupied. 30 year term. Does this sound realistic?

Would doing a cash out refinance first to purchase next property hurt the process in anyway?

What would be some common pitfalls in either transaction?

Thanks everyone.

Cash out Refi property located in Northern NJ, and hypothetical purchase mixed use or multi family apartment building located in Brooklyn most likely

[Krishna Shah]

Quote from @Chris Mason:

"If that's the case is the best hope a 10/15 year loan with 30 year amortization with balloon payment due? Want to put 40% down."

I'd set expectations for 5-10 year maturity, 25-30 year amortization. 

"What requirements do banks look for?"

Experience is a big one, which he has, so good there. 10% post-close liquidity is a common requirement.

"How would they calculate DSCR? Based on Noi/Piti derived from the 30 year amortization? Or from the actual 10/15 year loan?"

Based on the proposed amortization, so the 25-30 years. NOI, yes.

"Hoping to get 70% LTV from current strip mall commercial property. 1 unit owner occupied. 30 year term."

It's only considered owner occ if that 1 unit is >50% of the gross leasable area. But, either way, yes that's realistic. Compare/contrast 65% v 70% LTV terms to see if that last 5% is really important to him.

"Would doing a cash out refinance first to purchase next property hurt the process in anyway?"

Nah, that's normal. 

Let me know if I can help; good luck!

I hope they offer atleast 10. 5 would be a huge risk because even though the plan is to cash out refinance 2-4 years post closing date and extend the loan… 5 adds a huge amount of stress. But happy to hear it’s possibly 30 years amortization. 

His current loan is 10 years with 10 years amortization. He was always safe in regards to PITI but you never know. 

liquidity won’t be a problem. 

only brought up owner occupancy of 1 unit to see if it added any benefit for cash out refinance or caused any harm. I guess it’s a non factor. 

65%-70% really doesn’t matter as long as the $800k cash out happens with a new $1.1M loan. The appraisal isn’t in our hands. 

But thank you for your help, and encouraging words.