Getting ready to refinance a commercial building. Any pointers?

Question

Back story on the building: It's a multi use building ( 2 commercial spaces and 2 apartments above the commercial spaces). However when I bought it the building wasn't making any money and the 2nd floor wasn't usable at all.

Without writing a book on what we have done to this building I will recap the main points.

Bought the building this year ( $63K Cash) using hard money at 8% interest. When I bought the building it was in shambles the whole second floor was one space and was not functional( no plumbing, electric, heating or air, and a leaky roof).

Since buying it , we have rented out the front commercial space and renovated the second commercial space and I'm using it for my real estate office. The whole upstairs is new( we tore all the plaster out, added installation, all new wiring with separate meters, all new plumbing and drains, new drywall, new drop ceilings, new flooring, new heating and air, and a brand new rubber roof). Since all the renovations we now have tenants upstairs in the 2 apartments ( 2 bedroom/1 baths).

I plan on giving the appraiser a detail document showing repairs, leases, utility bills, and a copy of the taxes.

Any pointers on anything else I should do? I'm trying to pull out as much money as a I can to re invest.

Derrick E. · Answer

@Shane Craig I'm in the area. First place I would try is Community Trust Bank. Get a hold of Jim Fitzwater at the Pullman Square location in Huntington. He is the commercial lender and that's where I would start.

Ashley Pimsner · Answer

@Shane Craig

In my opinion since this is 4 units or less it would be considered a mixed use property, but  because of loan size it might be easier to get a portfolio loan from a small local bank or credit union.

Many posts are commenting on appraised value and improvements etc., but an overlooked point is the NOI or net operating income and DCR or debt coverage ratio the building produces?

These are akin to your gross personal income and dti or debt to income ratio for a conventional loan.

Make sure to have leases and be able to document the income for all 4 units.

Do you pay yourself rent in the 2nd commercial space you use as a Realtor office or do you have an idea of what it rent for?

The income is another key component for the appraisal, so make sure you can prove it.

You don't necessarily need a commercial loan-just a local portfolio lender like a small community bank or credit union that may underwrite loan more like a commercial loan, which is the reason I have stressed the need for buildings documented income.

Just my 2 cents.

Brian Stephens · Answer

@Shane Craig Hopefully you have had some luck with finding a lender but as others have mentioned, you will absolutely have to go through a local bank or credit union.  When you call make sure to ask for a commercial loan officer so that you are sent to the correct person.  Because of the commercial space and the size of the loan, a commercial loan will be your only option.  If you have never gone through the process of getting a commercial loan it is a completely different animal than a loan on 1-4 unit residential investment property.  Every lender will have slightly different requirements so if you don't find what you are looking for keep dialing.  There are some loan limitations that are true at 95% of local commercial lenders:

- LTV is almost always based on the Appraised value or purchase price + documented improvements, whichever is LESS.

- Maximum fixed rate term is typically 5-10 yrs and payments are amortized over 20-25 yrs instead of 30 yrs.

There are others of course but these two seem to surprise clients the most if they are new to commercial lending.

James Wilcox · Answer

@Shane Craig show the appraiser your scope of work and what you have put into the project. Be generous with your numbers and really show them all the nice things you have done at the property.

Stephanie P. · Answer

@Shane Craig

Rural and loan size will be an issue for national lenders. Try a local bank.

Shane Craig · Answer

@Stephan

@Stephanie P.

I owe less than 75K on the building and I think it's worth $150-165K.

The building is located in Ashland Ky ( Small rural town located in North Eastern Ky).

Stephanie P. · Answer

@Shane Craig

The lender is going to order an appraisal, but you should have a good idea of the value. What do you think it's worth?  How much do you owe on it?  What state is it in?

Stephanie

Greg Dickerson · Answer

You need to go to several banks as they all have different appetites and offer different rates and terms.

Tim Johnson · Answer

Go to a small local bank.  Being owner occupied you are going to really limit yourself on lenders and a small community bank is going to be your best choice.

Monica Lewis · Answer

I don't have any pointers, but I'm just commenting because I'd love to hear some as well.

Getting ready to refinance a commercial building. Any pointers?

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