What should I do with my commercial building?

Question

Hi, All.

I'm super new to this. I have a residential and a commercial property, both with great long-term tenants.

The predicament: I'm subleasing the commercial building. I'll get it under my name in 2 years.

It's insured for over $1mill. I was thinking of refinancing it when it's under my name and cashing out to pay my house I live in and the rental house, then investing in a newly built duplex.

What do you guys think?

Tyler Palmer · Answer

First off—huge congrats. You're in a strong position already, especially with long-term tenants and control of both residential and commercial assets. That puts you ahead of most people trying to get into real estate investing. Let’s break this down a bit and look at it strategically.

Your Situation Recap:

• Residential Property (likely a rental): Already generating income.
• Commercial Property: Subleased, stable tenant, under your control but not in your name yet—will be in two years.
• Your Own Home: Has a mortgage you're considering paying off.
• Idea: Refinance the commercial once it’s in your name, cash out, pay off your home + rental house, and then invest in a new duplex (which is awesome because new builds = less CapEx headaches).

Here’s What I Think (Strategically & Practically):

Pros of Your Plan:

• Refinancing the commercial building could unlock a serious chunk of capital, especially if its value holds or appreciates by the time it’s in your name. Commercial properties can offer high LTV cash-out options, especially if it’s producing income reliably.
• Paying off your home and the rental eliminates bad debt and increases your monthly cash flow immediately. That’s financial breathing room + future leverage.
• Investing in a duplex (ideally in a solid rental market) gives you 2 more doors, newer construction, likely fewer repairs—and more rent coming in.

Considerations / Questions to Think Through:

• Will the commercial building appraise high enough in 2 years to support the refinance and cash-out goal?
• If it’s insured for over $1M, great—but lenders care about income valuation (NOI), not insurance replacement value.
• Keep the books tight. If you're subleasing, make sure you're collecting and reporting everything cleanly to reflect strong cash flow.
• Do you need to pay off your home and rental property completely—or just restructure debt?
• Rather than wiping out the loans, you might consider:
• Refinancing to lower rates (if market allows)
• Keeping some strategic leverage (cheap debt can be useful fuel)
• Using freed-up cash to build more income-producing assets (aka more units, more income)
• Can you house hack the new duplex?
• If you’re open to living in one side for a year, you could qualify for owner-occupied financing—meaning way better loan terms, low down payment, and great ROI.
• After that year, rent both units out.
• Tax strategy?
• You might want to run the whole plan by a CPA who understands real estate—especially if you’re thinking about capital gains, depreciation recapture, or cost segregation on the commercial.

• If it’s insured for over $1M, great—but lenders care about income valuation (NOI), not insurance replacement value.
• Keep the books tight. If you're subleasing, make sure you're collecting and reporting everything cleanly to reflect strong cash flow.

• Rather than wiping out the loans, you might consider:
• Refinancing to lower rates (if market allows)
• Keeping some strategic leverage (cheap debt can be useful fuel)
• Using freed-up cash to build more income-producing assets (aka more units, more income)

• Refinancing to lower rates (if market allows)
• Keeping some strategic leverage (cheap debt can be useful fuel)
• Using freed-up cash to build more income-producing assets (aka more units, more income)

• If you’re open to living in one side for a year, you could qualify for owner-occupied financing—meaning way better loan terms, low down payment, and great ROI.
• After that year, rent both units out.

• You might want to run the whole plan by a CPA who understands real estate—especially if you’re thinking about capital gains, depreciation recapture, or cost segregation on the commercial.

Tyler Palmer · Answer

@Toby Tobe LOL I understand wanting your own space. I hope everything works out!

Thanks!

Wale Lawal · Answer

@Toby Tobe

You’re in a strong position with both residential and commercial properties and stable tenants—well done. Once the commercial building is officially in your name, refinancing to pull equity can be a great move if the cash flow on the new duplex still works after you factor in your new mortgage payments. Just be sure to weigh the long-term returns of keeping that equity in the commercial asset versus using it to eliminate debt and reinvest.

Good luck!

Julio Gonzalez · Answer

Welcome aboard, Toby! You’re already ahead of the game with great tenants and a plan in motion!

Toby Tobe · Answer

House hack, ewwwww. LOL. I can't do that. Kudos to those who can. I need my space.

Thank you for your insight. These are great questions I need to mull over.

I'll definitely be talking to a CPA.

What should I do with my commercial building?

What should I do with my commercial building?

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