Many multifamily investors will face the choice of whether or not to refinance. Perhaps a property has appreciated and the investor wishes to pull out capital, or he is looking for better terms or a better interest rate. Brian Hamrick of Hamrick Investment Group joins Jonathan on this episode of the Real Estate Launchpad to share his list of 9 things to consider when refinancing, the refinancing process from an investor’s standpoint, why he pulled back from multifamily investing in 2015, and much more! This is an episode you don’t want to miss!
Why Brian stopped buying investment properties in 2015
Brian, like Jonathan, stopped purchasing investment properties in 2015. His primary focus is investing in his own backyard of Grand Rapids, Michigan. Prior to 2015, he saw assets at great prices that could make investors money. In 2015, he saw an increase in prices on the market. He did not want to pay more simply because competition came in and drove prices up. Brian says that the deals did not make sense anymore. He wanted to have the ability to present deals to investors that could provide an 8% cash-on-cash return as well as a double-digit annual return, and this was no longer possible in his market.
Why think about refinancing investment properties
Brian recently refinanced two multifamily investment properties. He says the biggest risk on a commercial loan is the interest rate. You risk the unknown of what an interest rate could be when you need to sell or refinance. He ultimately chose to refinance now because interest rates are currently on the rise. Brian notes that interest rate risk is lower with a 10-year loan than with a 5-year loan. A 5-year loan, especially with a pending recession, is a higher risk. There are many unknowns that can occur in 5 years that will affect the value of your property. He says that 10 years gives you more time to work with and time to grow out of problems. Ultimately, Brian chose to refinance to lock in a lower interest rate, and buy time to work with.
9 things for investors to consider when refinancing
Brian comprised a list of 9 things an investor should consider when refinancing. These are listed below. Be sure to listen to this episode as he elaborates more on each point.
- The dollar amount of the loan. How much money do you want to borrow against your property?
- The term (duration) of the loan.
- Do you have the ability to pull out more money at a later date?
- If you sell, how easy will it be for the next buyer to assume the loan? Or, will you have to pay a prepayment penalty?
- The ease of selling to another buyer
- Is there an interest-only option?
- What is the amortization schedule?
- Is the loan recourse or nonrecourse?
- What will the quality of life be like with the loan? Who is servicing the loan and how easy are they to work with?
What to expect when refinancing investment properties
Brian explains to refinance large investment properties, there are always hoops to jump through. Inspections must be done, engineering reports take place, an appraisal must be ordered, and environmental reports must happen. Brian explains this is all standard but very time-consuming. The asset manager must provide reports, rent rolls, and budgets to show that the property is performing. Though the amount of work is high, Brian notes that the process also gives him a better understanding of a property’s financials and budgeting. Not only are you working towards refinancing, but you gain more knowledge on your investment.
In This Episode Brian Hamrick says…
- [2:23] Who he is and what he does
- [5:51] Why Brian stopped buying real estate investments in 2015
- [7:30] Why deals did not make sense anymore
- [9:05] What he sees in the Grand Rapids market
- [22:03] Where things are headed in the market
- [24:50] Brian’s experience with refinancing real estate investments
- [26:41] 9 important things to consider for investors wanting to refinance
- [43:42] Where Brian is currently headed
Resources Mentioned In The Episode
- Bellwether Enterprise (sponsor) – contact Will Oldham firstname.lastname@example.org
Connect with Brian Hamrick
- Brian (@) HigInvestor.com
- Hamrick Investment Group
- Rental Property Owner & Real Estate Investor Podcast