Using Cash-Out Refinancing to Meet Your Goals
A cash-out refinance is a potent tool for commercial real estate – it provides investors with tax-free liquidity they can use to achieve their real estate goals.
As you pay down your loan balance, you lower your loan-to-value (assuming the property’s value does not decline). If you initially borrowed 80% LTV on a $1 million property, and you pay off $100,000 of the balance as the property’s value increases to $1,250,000, you now have a LTV of 56%. You might potentially be able to borrow as much as $1,000,000 against your property, pay off the existing loan and have $300,000 now available.
$800,000 loan / $1,000,000 property = 80% LTV
$700,000 loan / $1,250,000 property = 56% LTV
$1,000,000 loan / $1,250,000 property = 80% LTV ~ $700,000 loan paid off; $300,000 available before associated fees
A cash-out refinance could be especially helpful to replace a commercial real estate loan of a shorter duration, enabling an investor to pay off the loan on time, potentially get more favorable terms, and provide funds for capital expenditures or to pay off investors.
So, check the mortgage balances relative to your property’s equity, and see if a cash-out refinance might make sense for you.
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