Refinancing non-preforming commercal property

[Gregg Reinbold]

How do you refinance a under-performing commercial property?

I own a five unit apartment that I planned on refinancing this year.One of the units had been my primary residence, until I moved a few years ago.My mother had also lived in another unit. The remaining three units were not always rented because I have been overseas working for several years.

In 2013 I hired an apartment manager, and she was able to fill all five apartments in December.Tragically, one of the tenants committed suicide the next month.Since the suicide three of the four remaining tenants stopped paying rent.I guess not paying rent was their way of grieving.I evicted the third tenant today, so I now have three empty units out of five.The suicide unit has been cleaned and rehabbed and re-rented.

The property was part of an abandoned feed mill that I converted into apartments.December of last year was the only month I can show all five units were rented, so I don’t have much income history on the building. With the cost of the sucide clean up and evictions I am severe negative cash flow this year.  Not something most bankers dream about refinancing

 

[Jon Holdman]

What's the rest of your personal financial picture look like?  A refi on this property is almost certainly going to depend on your income, since the property is not performing.  Refinancing the $55K if the value of $150K is supported should be possible if you have the income from other sources to qualify for the loan.  You're not going to refi this for $55K+$100K if its only worth $150K.  Getting $80K might be possible.  To borrow on the property itself you'll need at least a couple of years of solid operating numbers.  A couple of years back a group I'm in refinanced a mini storage and the looked at five years.  The first two years were weak and that hurt the value.

Apartments plus storage is mixed use.  Those are harder to finance.  Five units vs. four makes it commercial.  Four units would have been eligible for conventional financing.

Try smaller banks and credit unions in the area where the property is located.

You say:

Was conversion done with permits and city zoning approval?