Cash out refinance for a paid off Commercial property

Real Estate Agent · Boston, MA · Member since 2018 · 7 posts · 0 votes

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?

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Brian Schmelzlen

Accountant · La Mesa, CA · Member since 2017 · 477 posts · 476 votes

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).

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Account Closed
Investor · New York City, NY · Member since 2017 · 173 posts · 36 votes
8y
Absolutely, i just did a commercial loan with TD bank for my 3 unit property in Fort Myers. What is your question please more specifically?
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Lee Divers
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Real Estate Agent · Boston, MA · Member since 2018 · 7 posts · 0 votes
8y
@Anthony Gjolaj I would like to use the cash out on the commercial property to repay the loan on my primary residence. I was under the impression that lenders weren't too keen on doing cash outs for commercial properties.
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Lee Divers
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Real Estate Agent · Boston, MA · Member since 2018 · 7 posts · 0 votes
8y
@AnthonyGjolaj I would like to use the cash out on the commercial property to repay the loan on my primary residence. I was under the impression that lenders weren't too keen on doing cash outs for commercial properties.
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Account Closed
Investor · New York City, NY · Member since 2017 · 173 posts · 36 votes
8y
Lee that is not the case at all, who did you do your cash out with on your primary residence. Reach out to that bank, go in person and explain. Now, they don't typically give out 30 year fixed loans for commercial properties, this is something i am slowly learning, but then again thats something you can figure out along the way
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Lee Divers
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Real Estate Agent · Boston, MA · Member since 2018 · 7 posts · 0 votes
8y
Thanks Anthony for the advice...First loan is with Eastern Bank...thought I would need to go to another bank for the loan. I plan on using this strategy for future multi unit purchases.
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Tim Milazzo
Lender · New Smyrna Beach, FL · Member since 2017 · 122 posts · 54 votes
8y
@Lee Divers - you can absolutely do a cash-out refi using a commercial loan. How much cash you can take out will depend on a few things:
- Income on the property - if the property is not a source of stable cash-flow, that would be the biggest issue.
- Strength of the leases - who are the retail tenants? When is their lease expiration? A conservative lender like a bank will want to make sure they don't lend you money only to see the rental income dry up during the life of the loan.
- Strength of your personal finances - again, the lender will want to be protected if the income on the property goes sideways.
What do you think the property's value will be appraised at? What the current NOI?
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Lee Divers
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Real Estate Agent · Boston, MA · Member since 2018 · 7 posts · 0 votes
8y
@Tim Milazzo according to city the property is assessed about 20k over purchase price and the NOI is about $1000. I know commercial loans come with more complexities as well such as higher rates and balloon payments.
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Alex BekezaBusiness Member
Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
8y
@Lee Divers
Balloon Payments can definitely be avoided.
Many great 30 year terms available for multifamily, mixed use, and commercial as well.
@Tim
@Tim Milazzo asks the important questions. Lenders are going to primarily care about how this type of property cash flows.
[email protected]818-606-8823
Investor Property Loan5306 Reviews
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Brian Schmelzlen
Accountant · La Mesa, CA · Member since 2017 · 477 posts · 476 votes
8y
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).
2 Reply
John S.
Lender · Chicago, IL · Member since 2015 · 71 posts · 19 votes
8y
Interested in helping you get the loan you need. How much are you requesting? what are you parameters. Let me know if I can help in any way.
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