Owning commercial real estate is not for the fainthearted; commercial properties are far more expensive than residential properties, they cost more to maintain, and there’s the risk of seeing the value of the investment drop during a recession or economic downturn. However, while these factors may be off putting to some, keen and experienced investors see opportunity and ways to unlock capital in their properties. And, one of the ways to free-up some cash is through refinancing. The process of refinancing for commercial real estate, like residential refinances involve replacing an existing mortgage with a new loan. A commercial refi depends on the Net Operating Income (NOI) of the property, while home loans do not. The goal for the commercial investor or owner is to create a higher NOI to get a better loan term so you can pull out more cash.
It’s in your best interest
While interest rates for residential properties are at an all-time low; encouraging homeowners to borrow against the equity in their homes for that remodel project, it’s a little different when it comes to commercial properties. Interest rates are historically higher on loans for these types of properties as the term on a commercial loan typically shorter. The rate you get on a commercial real estate loan depends on the type of loan that you apply for. The rates can range anywhere between 5-30 percent, but the range for a typical borrower generally falls between 10 and 20 percent. As of January 2019, SBA 7(a) rates can be anywhere from the 7.75 to 10.25 percent range. However, if you qualify for a traditional bank loan, the rate can be as low as 5-7 percent.
Why should I refinance?
Seasoned investors use refinancing to free-up equity in their commercial properties, while saving money through lower interest rates on a new loan. There’s also the opportunity to increase savings when the investor has multiple properties that can be refinanced into a single portfolio. Most commercial real estate investors have a sizable portfolio and consolidation allows the owner to off-set certain risks of one property based on the strengths of another. There are many advantages to this, which often include amortization and a reduction in fees. Refinancing keeps money moving and that’s the secret to success for many investors.
Talk to the experts
At Landmark Title we have worked on many nuanced transactions, involving multiple properties and states. We understand the risks involved and our process involves due diligence, which allow our teams of experts to anticipate challenges and problem solve on behalf of our clients to ensure the closing is correct and timely.
With more than 40 years of experience, we provide commercial escrow and title services for commercial brokers, attorneys, developers, commercial lenders and private investors. If you would like to learn more about our commercial real estate services, please contact a member of our team here.