Thinking To Refi My Owner-financed Office Building, Need Advice

[Mark B]

I'm in new territory here. Would love some advice on my next move. Here's the stats:

I purchased a $300,000 office building about 3 years ago with owner financing. The interest rate is fixed at 7% and has a call in about 7 years. I put 30k down and probably have about 250k left on the note.

With the low rates, I'd like to get a conventional refi. I have rehabbed the building some and I bought it pretty good. Let's say it appraises for $400,000, my new LTV would be about 63%.

Are conventional lenders doing this kind of refi with nothing down? Seems like if I have this amount of equity in the building that it would be a safe bet for them. The building has 3 tenants and is cashflowing well right now. (But one of the tenant's is my co.) But I do not occupy 50% of the space which I know is a watermark of some kind. Are there any issues the banks will have with this?

Any ideas or bits of advice on this?

Thanks, Mark

[Darryl Dahlen]

If you occupied 51% of the space it would put you in contention for an SBA loan. Since you occupy less then the required space for the building to be owner-occupied you would have to make a case that you intend to expand your business by taking over a space one of your tenants currently has when their lease expires. Not exactly a sound strategy to go after SBA financing, but it has worked on one occasion for one of my clients.

Since you bought the property 3 years ago, the equity the property has will be considered yours. The property type isn't a favorite of most lenders given most places have plenty of inventory and lease rates are dirt cheap, but IF the property's financials are solid, and yours too for that matter, you should be able to get refinanced.

I'll say this though, I honestly don't know if you should refinance the property. Given the low loan amount, and the fact your terms aren't that bad, I don't know as you'll find a whole lot better.

Small balance commercial rates are currently in line with what you already have. I have one program that has rates in the 5s, but that's on a 5/30. You have a fixed for the next 7 years. It's kind of a trade off.

You also have to balance the monthly savings you'd get from a slightly lower rate versus the cost to obtain the new loan. So what if you save 100 bucks a month if the loan cost you 5g to get it?

Shaving off a point or two on a multi-million dollar loan makes a big difference, but on a 250K loan not so much.

Just giving you a couple things to consider.