Should I give up trying to refinance?

Question

I have been struggling to find someone to refinance a fully tented industrial building of mine.

I was originally looking for a 75% loan to value. For a reasonable interest rate, knowing today’s markets. I’ve been told by many local banks and credit unions that they will not do the deal.

To put it simply, I’ve been told that I do not have enough skin in the game myself in order to cash out some equity.

We bought the seller financed with only a $30,000 down payment. There is an $80,000 assignment fee so we ended up paying a bit more but our only down payment towards the building looks to be 30k. We’ve put maybe 25k into the building since ownership (which was June 23’), but apparently it isn’t enough seasoning for thanks to want to cash me out.

Here are some of the details:

Purchased: June 2023

Size: 4,300 SF

location: Greenville, SC

Tenant: NNN lease, 3 year lease with renewal options that commenced in April 2024.

Tenant pays $6,200 total. $5,000 net after taxes and insurance Internet is responsible for maintenance.

Down payment: 30k

Value: $725k +

Current loan: $440k

I just wanna pull $50-$75,000 of equity out of the property without being killed on a really high interest rate. My interest rate right now is 6.25%.

My question is, should I give up looking for a lender or private lender who would finance this at a rate below or around 8%?  Lastly, this loan would need to be heavily dependent on the actual property instead of my tax returns as I just quit my job a few months back to go full-time into Real Estate.

Arn Cenedella · Answer

@Wil Reichard

Cash out refis are generally more difficult than purchase loans or refinances at existing loan amount. With a purchase loan, the assumption is the contract price is market value so purchase appraisals will generally come in at contract price. With cash out refis, there is no market input on value.

The time period since acquisition is also an issue.

If I understand the numbers - $30K plus $440K loan plus $80K assignment fee - total “purchase” price is $550,000.

I would assume lender is asking how is current value one year later $725,000 when you effectively paid $550,000 a year ago? Did lease rate go up significantly in April 2024?

The loan amount is problematic. Most commerical lenders want $1M or more minimum.

You might reach out to Nikki Cooper at Truliant Federal Credit Union if you have not already.

You may just have to ride our existing loan until lease rate is bumped again.

Elias Halvorson · Answer

And you still own the commercial property at some sort of a net positive per month so you can list that. In fact, you can list the entire amount as income on your application. SUre you have a mortgage on it, but let them do the homework of subtracting your mortgage amount.

Wil Reichard · Answer

@Paul Halphen Not sure if it's any difference, but it would be a first lien position if I refinanced and paid off the seller from their note.

Wil Reichard · Answer

Arn, good to hear from you.

Yes, the property was rented at almost half of what market rent was. Tenant moved out and a new tenant moved in. Multiple offers over $700k when I listed it for rent as well.

I’ll reach out to her, thanks for pointing me in her direction.

AJ Exner · Answer

Hey Wil,

A lot of information to sift through, but honestly I think your toughest element is the 'at or around 8%' right now. Yes, your standard mortgage rates are dropping, but most of your true commercial lending options are always going to be slow to react so I'm still seeing commercial rates higher than that.

Sent over a DM, but would love to talk through some options if you are interested.Good luck!

Paul Halphen · Answer

It's a tough loan for a bank. 2nd position, guarantor wont underwrite, single tenant deal, short lease, cash out deal... I don't think you'll get money from a bank or credit union.

Stuart Udis · Answer

@Wil Reichard It seems the asset/collateral is the issue here, not the amount you have invested. A single tenant 4,300 industrial building will be deemed more risky by lenders. That’s why you’re encountering leverage issues. I believe the lenders you are communicating with are not articulating this well or simply don’t want to acknowledge they are conservative and it’s easier for them to point to the amount of cash consideration you’ve invested.

Elias Halvorson · Answer

That is in the past. But like I *meant* to write, I havent done one in a couple of years. However, you can put that commercial rent as your income. That should be enough to at least get you 20-30K. Not sure what you are planning on using the 50-75K for but if it is just living expenses, etc while you start your new career than just go with the 20-30K personal loan. Much better deal for you in the long run.

Wil Reichard · Answer

@Elias Halvorson I didn’t know they hadn’t checked pay stubs before. Good to know, I’ll give it a try!

Elias Halvorson · Answer

Just put income from your last job and put an estimate of what you will make in youre new job. I done a personal loan in a couple years but I didnt even have to show paystubs on some of the ones I've done.

Should I give up trying to refinance?

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