Commercial LOC v. Refinancing
What are the pros and cons to pulling out a line of credit on a building versus refinancing? Wouldn't refinancing be more beneficial since you can individually pocket some of the funds tax free? I am aware that refinancing increases LTV and mortgage amount but I believe you can still take some home. Would anyone please offer their two cents for a scenario like this because I know of companies that have both a LOC and refinance. Just trying to specially understand when it's best to do one or the other. With a LOC, you're able to purchase properties more attractively, but isn't that the same condition with a cash out refinance? Thanks.
[{"id": "drxpzmb", "text": "It all boils down the term. It is ideal to put long term financing so you can focus on mgmt and more properties. It reduces your risk of the LOC changing terms or even disappearing on you in a recession. ", "replies": [], "depth": 1}, {"id": "dryh6lr", "text": "I would say its almost always better to do a cash out refinance because of the fixed rates. It does comes down to the purpose of the funds. If you wanted to use the cash to flip houses, maybe a line would be better but it really just depends on how much time you anticipate not using the money. For example, if there is a 6 month downtime between flips, a line could be cheaper.\n\nPersonally, I prefer the certainty on fixed rate mortgages. I use the cash out to buy more multifamily buildings and repeat.", "replies": [], "depth": 1}, {"id": "ds3egh5", "text": "LOC generally has a shorter term, floating interest rate, flexible prepayment (if you want to sell within the term), and full recourse. \n\nPermanent Refinance has a longer term (5-25 yrs), fixed interest rate, prepayment penalty, and non-recourse (depending on leverage). \n\nIn my opinion, it all comes down to term and prepayment flexibility. If you are a \"fix and flipper\" go with a LOC. If you are looking to hold the property long term and do not want to worry about rising interest rates, put it to bed with a permanent mortgage and like BobaTFett said, focus on the property operations. \n\nIf you are holding long term, feel free to PM. Permanent mortgages come in many different flavors (Agency, Life Company, Bank, etc.) and I am happy to help give you an idea where each of these lender types will be most competitive.", "replies": [], "depth": 1}]