Sumter, SC · Member since 2020 · 13 posts · 0 votes
I may have stumbled upon a unique opportunity to get a great commercial property with a seller willing to seller finance. If I go this route would I still be able to cash out refi on that property because I want to brrrr it
Matt, it really depends on the value and the property cashflow once it's done. Also, the LTV will be an issue, don't expect an 85% LTV loan. You need to calculate exactly what the loan request would be on the back side, otherwise you are going to run into hurdles you may not be able to jump over and you will be stuck.
Is the seller financing the entire debt or is the seller financing a supplementary note? If the seller is financing the entire purchase you may be able to refinance out of that debt and into a more long term debt once the property is stabilized in the future.
Without knowing more it's hard to say what is possible. It could help knowing the entire debt/equity structure of the deal.
@Mack Benson this would be owner financing the entire debt I have stumbled upon a potential deal and the seller seems to be willing to finance this way I was worried that I may not be able to brrrr it because of this financing.
@Matthew Williams As long as you truly own the property (have title and the lien is to the seller), then shouldn't be a problem as long as it appraises. I've done a number of deals like this, buy with owner financing, putting in my money for the rehab, and then refi the whole thing with a bank. The refi pays off the seller, I get my rehab money back, and hopefully some extra from the equity created.
I know this is possible on the residential side as I have inquired about the terms with for the refinancing with a traditional lender - there are specific criteria that has to be met. Would think possible for the commercial side but check the criteria for lending with the bank. Sounds like a great opportunity good luck!
Yes, it’s theoretically possible. However, because sellers carrying 100% you’ll likely need to add some improvements, increase rents and market value in order to do a cash out refi. Most conventional lenders won’t go 100% finance, maybe 75% to 80% on cash out refi, unless it’s hard money.
Alternately, it may be better (if possible) to put some cash down on the deal so seller isn’t carrying 100%. May get you to your cash out refi goal faster.
Another option to consider if you get to that point of the cash out refi, is asking the seller to continue to work with you in moving the note to another property you may then acquire (hypothecation). You would get to keep the existing commercial property and also acquire another investment property as well. It’s perfectly legal (check with your CPA) and often preferable to the note holder as they may wish to defer capital gains, they enjoy getting a monthly check (often at above market interest only rates) and have collateral as security. These types of deals can be a true win-win and may afford you the ability to fast track your real estate portfolio.
Matt, it really depends on the value and the property cashflow once it's done. Also, the LTV will be an issue, don't expect an 85% LTV loan. You need to calculate exactly what the loan request would be on the back side, otherwise you are going to run into hurdles you may not be able to jump over and you will be stuck.