"What is the loan going to be used for?" - What do lenders want to hear?
I'm doing a cash out refinance on a building that is owned free and clear.

The proceeds will likely exceed our investment in the property.

&amp;#x200B;

Why do lenders ask this question?  
What do they want to hear? What do they not want to hear?

Do they really care if I use the money to buy a yacht, pay for school, buy stocks, buy a distressed property, or buy a leveraged NNN property? 

I'm pretty flexible, so I am play within the guidelines of the lender. But I don't want to say the wrong thing.

What would you usually advise your clients to answer?
[{"id": "er1h9ig", "text": "The lenders will enjoy hearing that the money will likely go back into the property thus improving their security. \n\nThey typically do not enjoy hearing that you\u2019re spending it Vegas. I\u2019ve never had a lender dig deeply into that question unless it is project relevant (adding additional SF, etc.).", "replies": [], "depth": 1}, {"id": "er1hobs", "text": "The truth lol", "replies": [], "depth": 1}, {"id": "er1qdwz", "text": "u/_Pasja_ is right, lenders would love if the client is going to put the proceeds back into the property in the form of capex. \n\nIf that is not the case saying that the borrower \"wants to have cash on hand in order to be able to move quickly on other opportunities\" usually suffices.", "replies": [], "depth": 1}, {"id": "er1rrui", "text": "I'm coming from residential mortgage. The only reason I have ever asked what their plans for the money are is so that I could sell them on their goals and motivations. \n\nIf you tell me that you're going to use the money to buy buckets lottery tickets, I wouldn't care. Nobody would care. All we care about is your ability to repay the loan based on present lending guidelines and overlays. \n\nI don't know how it works for commercial, though.", "replies": [], "depth": 1}, {"id": "er1ymke", "text": "For an invested loan of any sort, the lender wants to hear it will be used for business purposes.", "replies": [], "depth": 1}, {"id": "er287z9", "text": "Lenders want you to have skin in the game. If they\u2019re cashing you out above your investment it might matter to them, but if you\u2019ve held it for more than a few years they shouldn\u2019t care. \n\nWhen we do a deal we care where it\u2019s going but not on a granular level like that. If it\u2019s cash out, it\u2019s cash out. If you\u2019re using it to improve the property that\u2019s great. If you aren\u2019t that shouldn\u2019t make or break your deal. If a lender is trying to direct how you can use the proceeds tell them to shove it. That doesn\u2019t effect their credit at all.", "replies": [], "depth": 1}, {"id": "er2iq0h", "text": ",**buy a distressed property, or buy a leveraged NNN property?**\n\n&amp;#x200B;\n\nMost lenders would not want you to increase your leverage in real estate as it could increase the chance of you defaulting on their loan.", "replies": [], "depth": 1}, {"id": "er35iy7", "text": "Commercial investments;\nA bank does not like vacancies. They would like the purchaser to be a user/investor, instead of the sole investor. Banks will love a positive track record of your business that you will be putting in your property. \n\nLet them know that you'll always have tenants. Let them know that you'll be making improvements to the property. Show them your insurance policy on the building (if you have one). \n\nAlso, make sure you get a tax appeal (only if you purchased the property under the assessed value).", "replies": [], "depth": 1}, {"id": "er36rai", "text": "We like acquisitions better than cash out refinances because with fresh equity brought to the table at closing, your more invested in the property and our interests are aligned. You are more incentivized to take care of the property, invest in the necessary cap ex and leasing costs. With refianances, we look carefully at the borrowers cost basis. However, if you have owned the asset for a long time, it is understandable that costs basis will be low. I will take that as a lender anyday over a cash out after owning the asset for 2 or 3 years. \n\nAnother reason I love acquisitions more than refinances as a lender is the borrower not wanting to over pay and thus the value is justifiable with an appraisal. With a refinance, our interests are not aligned with you wanting the value to be as high as possible. Appraisals for refis are also kinda sketchy at times. It is not unusual particularly for retail to have a a 100 bps swing in cap rates between acqusition and refinances. This was referred numerous times at CREFC. Thats absolutely nuts.\n\nWith the uses of ROE, I dont really care as long as it does not affect the property in any way. Its your money, do whatever you want with it. I might hold a portion of the proceeds upfront for TI/LC reserves if there is a huge roll but for the most part you can take it and use it for whatever you want.", "replies": [], "depth": 1}, {"id": "er3t3ni", "text": "Starting a new retail concept because my family says my Pizza is the best in the world? (that is a joke)", "replies": [], "depth": 1}, {"id": "er3uqg7", "text": "They want to hear value-add/capital improvements. At the end of the lenders want to see improving debt yields/DSCR. Is this for a commercial property? A lot of times they're probably just checking a box for their CMBS bond investors.", "replies": [], "depth": 1}, {"id": "esmvgn7", "text": "Commercial lender here. Never say you\u2019re going to use it to buy another property. Bank doesn\u2019t want to finance an investment which they have zero information about. Typically anytime you use it for property improvements it\u2019s a no brainer. Another popular use is to replenish liquidity for cash already used on the building or for paying down the loan quickly and now wants liquidity back.", "replies": [], "depth": 1}]