Here's a question that came up recently, and I felt like it was good enough to share here.
The question was "I have a lot of equity in my first rental property, and I'm ready to cash out refinance and buy another property with the cash I pull from the rental. My problem is that my commercial lender is quoting me 5.5% on a mortgage that has a 5 or 10 year balloon. Is that what other investors are seeing as far as commercial loan rates?"
You're on the right track if they're sending you to the commercial lender at the bank when you ask for a cash out refinance. Even though it's not a commercial loan, their retail lenders are all just going to offer the Fannie/Freddie options.
I don't see much of a problem with getting a new loan every 5-10 years if the money is good. You are still maximizing leverage, and the money ought to cost something! My suggestion though is that you ask if your commercial lender will give you a line of credit on the property. You didn't say why you want the cash, but my guess it's to buy more real estate! The credit line will still probably only have a 10 year term (sometimes you can borrow for 10 years and then you have an additional 5 or 10 yr period to pay it all back) but there are some huge advantages.
- Many banks will charge very low or no closing costs on a credit line
- You only have to qualify for the credit line once - if you're flipping or cash buying and refinancing, you can rinse and repeat without even notifying a lender!
- Though the rates aren't fixed, you only pay interest on the cash you're using. That way you only have payments when you are actually using the credit line, and any additional cash flow can just go right back in to paying off the line.
This is pretty much the infinite banking concept, but with SO much more control. The property is throwing off so much more income than a bank account would, so why not just become the bank and collect all the interest for yourself?
