8-unit commercial refinance advice

[Nathan Wierzgac]

I've recently put under contract a property in Fayetteville, NC that was turned from a quadraplex into an 8-unit. I'm aware now that the ARV is going to be based off my markets cap rate and NOI but since there is no track record of previous income as an 8-plex how would that play an effect on the ARV or acquiring a commercial cash out refinance loan?

What is the seasoning period needed to show NOI for the cash out refinance for a commercial property??

[Alex Roter]

Hey Nathan,

If there is no track record of previous income, then the Lender will typically use market rents from comparables to determine the Net Operating Income. They will see what use select properties in close vicinity that have similar building characteristics and see what those landlords are charging for rent, as well as their expense and vacancy factors. Luckily, Fayetteville is non-rural, so there's a good chance the Lender will find sufficient comparables to warrant a strong value.

Regarding the seasoning period to show NOI for a cash-out refinance, the Lenders I've encountered typically compare what the rents collected are vs market rents, and usually go off of the lesser of the two. So seasoning did not really play a factor.

I've seen seasoning become a factor when wanting to do a Cash-Out Refinance based on an After Repair Value (after renovations are completed) to use the newly appraised value. The Lender ruled that if the property was purchased less than a year ago, then the value will be based on the Purchase Price + any renovation costs added as a dollar-for-dollar figure. However, after one year of seasoning, this Lender would allow for the value to be based on the newly appraised value, which can be significantly more due to renovations providing more value than the dollars invested (ideally $2 in value for every $1 spent on repairs).

There are many types of Lenders with varying, ever-changing guidelines. Working with a mortgage advisor is a great way to find a product suited for you. Feel free to message me for more details.

Hope this helps,
Alex Roter