Reasons for selling instead of cash-out refinance?
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[{"id": "fi2n4qp", "text": "There are plenty of reasons to sell instead of refi. Here are just a few that come immediately to mind: \n\n1) You don't believe in the market/asset anymore\n\n2) You don't like your partners\n\n3) You inherited the property so your tax basis was stepped up and you wouldn't have to pay capital gains tax on the sale.... so you'd get more money. \n\n4) Something happened to the building/neighborhood that gives it new value that you personally can't unlock, so you sell it to someone who can and would pay a premium. \n\n5) Someone is willing to pay a stupid price!", "replies": [{"id": "fi2qwzy", "text": "Adding. Low cap rate Market. If you trade in sub 5 cap rate markets you barely pull out any equity.", "replies": [], "depth": 2}, {"id": "fi2rtd6", "text": "I\u2019d add there\u2019s more. \n\n6. A bank refi will generally never equal the price as the market is willing to pay.\n\n7. Time. It\u2019s possible that despite the good market and real estate it no longer fits with the owners lifestyle goals.\n\n8. Capital needs. There may be other projects and the owner needs liquidity.\n\n9. Bonus depreciation. Under trumps new tax law it\u2019s can be a favorable time for people to sell a property and not pay any taxes.", "replies": [{"id": "fi3rehf", "text": "10. Something shifted in terms of management...maybe a property manager quit and you can't find a new one, maybe you managed to lease to several awful tenants and you're sick of dealing with them.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fi2oobr", "text": "Do me a favor, consider any numbers as a suggestion.  65% 'requirement' doesn't mean anything.  Why would someone sell rather than cash out?  Because they don't want in the deal anymore.  There's a million reasons that other more seasoned vets will be happy to expound on from their personal experiences.", "replies": [], "depth": 1}, {"id": "fi2t940", "text": "I\u2019ll give a scenario.\n\nYou build an apartment building for $100 million with a $65 million construction loan.  When the building is complete and stabilized, say it has a value of $120 million based on $6 million in NOI and a 5% cap rate.\n\nYou have 2 options.  You can sell or you can refinance.\n\nOption 1 - Sell the property for $120 million and receive $55 million in net proceeds less the broker fee and closing costs. That\u2019s a gain of $10 million on your $35 million in equity.  This is a 157% equity multiple.\n\nOption 2 - Refinance with a permanent lender to cash out as much as possible while keeping the property.  Say you get a 70% LTV, 10 year, 4%, interest only, fixed rate loan.  That is an $84 million loan.  Your construction loan is repaid and you receive $19 million in net proceeds and continue to make $2.6 million in NOI annually going forward.\n\nSelling gives you a higher IRR.  Many RE investors intend to hold for the long-term to realize increases in value that compounds and therefore, do not sell.", "replies": [], "depth": 1}, {"id": "fi2tcpm", "text": "There are no requirements in CRE. Usually the LTV/LTC guidelines are driven by the cash flow of the property. Investors sell for myriad of reasons. Capital return reasons, hold periods for reits, lots of investors only want to be in a property for 5-10 years because as the property ages the capex requirements increase, diluting IRRs.", "replies": [], "depth": 1}, {"id": "fi308ld", "text": "Awesome question I\u2019m loving these responses!", "replies": [], "depth": 1}, {"id": "fi3dfk5", "text": "Cash is king and leverage increases both upside and downside risk.", "replies": [], "depth": 1}]