When should I Refi my 4 plexes—I have 2-5 years to make moves

Question

I know nobody has the crystal ball but I am curious about your thoughts and past experiences of the market and RE interest rates. I have two different owner carries loans on two different 4 plexes. One rate is 4.75% and the other one is 5%. Those are completely acceptable but I have my choice when I Refi but my contracts states anywhere from 2-5 years left to do this. Many say these rates are at historical lows, but I actually have cheaper from a few years ago on other multi units.

So, do I hope they stay low or even come back down a little, of take the market rates now ? I really am curious what everyone’s thoughts are here. Thank you !

Richard Sherman · Answer

@Todd Powell That is great man! Sorry I missed this comment! GReat work, I always remind myself not to assume peoples motivations or Assume a "no" it is always worth talking to them and asking!

Richard Sherman · Answer

@Todd Powell I love the idea of paying off properties, especially if you do not have a better place to put the capital. Of course, the leverage can make the gains accelerate as well. If it were me I am probably not doing loans yet, especially if you think there is a chance you might sell (1031 etc) any of those.

Richard Sherman · Answer

@Todd Powell I agree, it is hard to know 100%, BUT, look that the trend over the past 5 years and where we are historical, I do not think they start going down, and rates are driven by inflation and Fed policy not by what's going on in the real estate market. I think the best case is staying level. If you have some lower rates currently you just have to weigh the guaranteed lower rate vs. longer term but only POTENTIALLY higher rate. Sounds good!

Richard Sherman · Answer

@Todd Powell I am getting as many units as I can (at a good deal of course as value-adds) at these rates. We are going to see them keep going up. I do not think we see them double but for sure continued increases.

Richard Sherman · Answer

Awesome news man! It is for sure the time to try and make some changes and get a better deal to help cashflow. We have been out of OR for over a year now (as in not buying there, we kept our 100 ish units though) I am now back sniffing around! I think there is a lot of pain to come though as a lot of owners are about to get SIGNIFICANT delays in rents and a huge increase in non-payment,,,with no way to get them out right now due to the virus.

Todd Powell · Answer

@Richard Sherman update for older post. I contacted my two other owner carries on both 4 plexes stating I was going to refinance and worked out deals for ZERO costs! Specifically, one 4 plex owner carry had a balloon in 8 years, and when I called the 80 year old woman had totally forgot about the balloon which was her mandate two years ago when I bought it. The rate was 5% amortized on 30 years. I was able to leverage the recent news and lower rates to get her to adjust the rate and REMOVE the balloon! So, its now 4% for a clean 30 years and lowered the payment $170 per month. The other 4 plex owner carry was 18 years still owing at 4.75% and I got him to flat lower the rate to 4%! Both of these, I wrote up detailed statements, had them notarized, and got them to Santiam Escrow in Stayton Or. The realty is that each loan would have cost me an appraisal, time and energy, and 1.75% loan fees, and escrow fees to achieve 3.6%. The sellers did not want to pay cap gains or depreciation back, so this adjustment cost me a little time on the phone, couple emails and cost me ZERO! Lowered my monthly costs and saved tens of thousands in interest !

Todd Powell · Answer

@Richard Sherman update: I got the seller with owner financing to extend same terms for another 13 years! 4.75% on a 4 plex, no appraisal, no points or fees and now updated and notarized. Worked out by simply asking and selling him on the concept of making interest and being the bank!

Todd Powell · Answer

@Richard Sherman One of my deals I actually have 9 more years, but the other one I have only 4 years left on the owner carry. I guess the 4 year call or sooner is my first order of business and at 4.75% there is no real rush other than if rates were headed upward quite a bit. I am always looking to deleverage or pay down debt. Of course, interest rates are a piece of that puzzle.

Todd Powell · Answer

@Richard Sherman that's what I am trying to figure out... no one has the crystal ball, but I wish I could know for sure as I kind of wanted to see if we were having a RE shake the next couple of years. I would definitely do some refi's if I felt these rates were surging upwards. Maybe I am being too hopeful? I am sorry, I have been busy on days off but lets get together sometime. Cheers Todd