Cash out refinance for a paid off Commercial property

[Lee Divers]

Hello newbie here. I have a multi use property( 2 storefronts 1st floor 2 two-bedroom apartments 2nd floor) that I bought cash with a cash out refinance on my primary residence. I plan to hold this property. It was newly built in 2007 and needs no work. I want to do a cashout refinance on the multi use property. I know this would need to be a commercial real estate loan but wasn't sure how easy that would be. Has anyone had success with this strategy?

[Brian Schmelzlen]

Hi @Lee Divers,

You can do a cash-out refi on commercial properties.  They are fairly common once you have built up enough equity.

One tax issue that you may want to be aware of (if the commercial property is in an entity like an LLC) is the debt-financed distribution rules. Basically, in cases where you take on debt in order to make a distribution to the owners of a business, the portion of the debt related to the distribution may not be deductible. First, with proper planning you are able to limit how much of the debt is deemed to be related to the distribution. Second, whether that portion of the interest is deductible or not depends upon what the distribution is used for (interest racing rules).