Is cash-out refinance for personal payout a common thing in commercial real estate?
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[{"id": "fgjpdd3", "text": "You'll have a hard time understanding this type of thing if you're looking at it through residential investment eyes. Commercial and residential are different any multiple ways, one of which is how debt is used and how its viewed. Your comment about refinancing and paying more interest is a good question and all else being equal the answer is yes you'd pay more interest. So what? It doesn't matter how much you're paying in interest or any other specific variable. Interest is probably lower than what you'd pay in investor distributions. You may be paying more interest but does it increase cash flow? Commercial is rarely \"buy with debt, pay the debt off, enjoy the cash flow\". Debt is a tool. How that tool is used depends on the individual investor.", "replies": [], "depth": 1}, {"id": "fgjq8cm", "text": "It's very common.  Commercial developers do this to re-capture their equity.  They borrow at low rates and put the excess proceeds into other projects with higher yields, or pay investors.", "replies": [], "depth": 1}, {"id": "fgjvu4m", "text": "Commercial RE requires large amounts of equity injection, and if you\u2019re doing a value add project, even more capital. If it were multi fam for example, do the improvements, raise rents, stabilize, and refinance the property and payback your equity holders, or at least partial reimbursements along with their share of the waterfall, of applicable.\n\nCommercial is as complicated as you want to make it.", "replies": [], "depth": 1}, {"id": "fgk38b1", "text": "Lender here, commercial finance requires use of proceeds be for business purposes. Equity recapture needs to be for investment purposes, not living expenses.", "replies": [], "depth": 1}, {"id": "fgk3eja", "text": "If they have private money they owe, it's probably at a higher interest rate than what a refi'd rate would be. Hence paying off the higher interest rate makes more cents", "replies": [], "depth": 1}, {"id": "fgk5y7v", "text": "If you can borrow at 4% and buy more property that offers a higher return, you'd do that, right?\n\nI wrote an article that touches on this but I'm hesitant to link to it here given self-promotion concerns. You can find the article if you Google search \"4 Ways to Increase Cash Flow from Your Multifamily Properties\" (with quotes).", "replies": [], "depth": 1}, {"id": "fgk7bfx", "text": "It's the best way to de-risk an asset by recouping most of not 100% of ones initial capital investment while receiving an \"infinite\" return on future cash flow. You can use that cash to live off of, or more ideally reinvest the cash into another investment to compound your return. \n\nAlso proceeds are tax free since you don't pay tax on money you received from a loan.", "replies": [], "depth": 1}, {"id": "fgl8faf", "text": "CRE lender. Cash outs are very common. Cash out your investors to realize more return if you are projecting more noi growth and or cap compression. Personally, I don't give a shit what you use the money for if the leverage is OK. If the property needs Capex then do that then put it on black. Since you are a first time investor, don't base your plan on a cash out refi. Cap expansion or rate increases would bury you", "replies": [], "depth": 1}]