An Overview: Refinance Your Commercial Real Estate Loan and Get the Best Deal From Your Lender
Typical motivations for refinancing a commercial real estate loan vary from the desire to stabilize monthly payments, release equity from the property or derive tax benefits. Whatever the reason, the aim is to know when refinancing makes sense.
When to Refinance
A sound business strategy is to refinance when rates are low, but this is not always the best plan. The optimal time for refinancing commercial real estate is when you’ve established yourself and your project has begun to show success in profitability and consistent payments. When your property has tenants and a positive, documented value, you’ve minimized the lender’s risk by showing that you can operate a profitable real estate project while maintaining the financial criteria set by the lender.
How to Get the Best Deal
Self-Storage and Personal Financials
Gather the previous three years of tax returns for your store. Highlight significant income or expense items to show net rental income. All numbers should connect directly to your tax returns. Spotlight gains in revenue while showing that operating expenses have been held to small increases. Summarize what you’ve been doing to financially strengthen your facility: show where you were able to increase rates or collect a higher percentage of late fees.
You’ll probably need to include a personal financial statement with your loan request. Certain lenders may want to see personal financial statements and credit reports on you and your partners. Hold off on large purchases for at least three months prior to closing on your refinance.
If you hope to refinance, Your loan-to-value (LTV) ratio can’t exceed 75%. A good LTV will help you to quality for a wider range of loan options.
If you’re refinancing your property, you must be able to service the debt. Your cash flow has to be 1.25 times more than the annual debt amount for the lender to be assured that you can pay the debt.
Credit that is not up to standards will make your refinance more challenging. It doesn’t have to be perfect but should show no bankruptcies, foreclosures or short sales.
Lenders like the comfort of financing with owners who have been in the industry long enough to have established a successful business. It makes you more desirable for obtaining a loan.
Most lenders require an appraisal. Double check your curb appeal. Be sure your property is clean and well-maintained and that facility records are up to date. You will want to submit a rent-roll report, a current unit-listing report and an occupancy report along with your loan request. Highlight security features like video monitoring and gate access control or keyless entry.
In addition to a new appraisal, your lender will probably require a phase one environmental audit, a survey, and title insurance. If you still posses these documents from a past transaction, it can reduce the costs of preparing new documents.
There are multiple loan options available for refinancing commercial real estate. Fundinghero.com is a good place to compare the top mortgage refinance companies offering competitive rates.
To save on additional costs, you can negotiate with your lender on interest rates, terms, points and prepayment penalties. Price your loan through several different lenders; and hopefully, you’ll end up with some cash to put in your wallet.