Just paid off mortgage...Should I refinance and pull money out?

Question

I've been fortunate enough to build a good sized commercial real estate portfolio that I started building when I was in my late 20's. I started out looking to put some money back for retirement and I hate the stock market gamble, so I purchased real estate. I was blessed that it turned into a very successful business. Now that I've just turned 40 and my first commercial mortgage paid off this month and I'm trying to figure out what to do.

Several very wise and extremely successful commercial investors I know keep telling me to refinance, pull out capitol and invest that into new deals. I'm leaning toward this option but it feels so wrong to re-leverage a paid off property. LOL I'm wondering what other commercial investors do?  Do you pay off and hold or do you re-leverage and buy more?

Account Closed · Answer

@Adam G.

Not to be a wet blanket but, keep in mind nobody is guaranteed 60 years around here. At minimum, enjoy life to the best of your ability everyday. Risk exist in both action and inaction.

Steven Ko · Answer

I’ll start off by saying I don’t have the qualifications you’re looking for.

What I’ve learned is no one cares about your money more than you.  You understand your finances better than anyone else.  It may not be the best decision to have a free and clear property, but it is not a bad decision.  If you ask a bunch of investors what to do, they’ll tell you to invest.  If you feel uneasy re-leveraging, then I wouldn’t.  There’s always tomorrow and the next deal.

What would you tell someone else looking for the same advice?

I’m sure you heard all this before but hope it helps :)

Sam B. · Answer

@Adam G.

If you are rich and ready to retire at 40, just suck up the cash flow and enjoy life, no need to releverage!

If you have a money growth mindset and want to multiply your money, then refinance and reinvest into other properties.

My advice is to maximize your position by pulling cash out and reinvesting only when you see a pullback in the CRE market, or a really good deal.  We are in a sellers mkt as you know..

Anthony Rosa · Answer

Paying off a mortgage is a beautiful thing!!  Are your cashflows enough for a down payment on a commercial property? This way you're not holding an additional note for the property that you use to own outright.

Throw any economy downturn or upturn at a paid off property and you will always sleep good.

Adam G. · Answer

@Sam B. This is good advice, I never thought about sitting on them with no mortgage until the market corrected!!

The immediate downside, I can think of, is that this will effect LTV then. Right now I’m sitting pretty as values are WAY over what I paid when the economy was down.

Account Closed · Answer

@Adam G. I always say it depends.  Are you wanting to expand more?  Are you needing the cash flow now?  Looks like the cash flow isn’t a issue for you now so it’s really a matter of do you want to expand your CRE portfolio or just maintain what you have for the foreseeable future?

I mean you are my age so expanding seems like the natural thing to do, but I’m just beginning my RE journey and have a successful job outside real estate.

Brandon Hicks · Answer

@Adam G. I’d either cash out refi to do another deal or put the money into several syndication deals as a limited partner.

Steve Vaughan · Answer

I'd be more inclined to leverage if it wasn't commercial financing .   I was sick of the calls, balloons, adjustable rates and annual reporting requirements so I paid 2 off in 2017.

The high cost of an appraisal alone keeps me from refinancing, but mine are commercial multifamily as opposed to retail or office. Appraisals would probably be $7k a piece.

When I did inquire about getting cash out they said straight cash could go up to 50-60% LTV only but rate/term could go up to 70%. Because of that and asset protection I self-eencumbered both assets but doubt it would survive underwriter scrutiny.  At first glance they appear to be leveraged which may provide a little asset protection in addition to being in an LLC.

Asset protection concerns should enter the refi or not decision process. Congrats on having a paid off performing commercial asset!

Joe Villeneuve · Answer

Assuming your new investments would Cash Flow higher than the lost cash flow from the refi, it's probably a good move.  My question to you would be twofold:

1 - Are any of these NNN properties...including the ones you would move the refi money into?

2 - What reasons would you have for not refinancing?

Adam G. · Answer

@Patrick Liska

I assumed I would get lots of viewpoints which is what I wanted!! Lol

Your thoughts on my age vs retirement is exactly what has me leaning on cashing out. This is one of a good number of CRE assets in my portfolio but a number of them are paying off in the next few years. When I first got in the space I did 10/10 mortgages as I didn’t need much cash flow. I’ve since learned not to do that and started using 15 and 20 year amortizations.

Just paid off mortgage...Should I refinance and pull money out?

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