How to Refinance a Light Industrial Property?

May 15, 2021

For investors looking to refinance a light industrial property mortgage loan, there are several things to consider. You will need to decide the type of loan you will refinance for and prepare your application to qualify for the best loan rates. Here is a quick guide on how to refinance a light industrial property.

Why refinance a light industrial property

There are many different reasons why someone would choose to refinance their investment property. You will want to consider your ‘why’ to make decisions along the way. Here are a few reasons refinancing could be suitable for your investment:

  • Lower interest rate

If you refinance your investment property to lower the interest rate, you are putting more money back in your pocket every month. Freeing up this cash can allow you to invest back into your business.

  • Change mortgage term

If you are strapped for cash and need to lower your monthly mortgage payment, you can refinance to extend the life of the loan. You will ultimately pay more over the full life of the loan, but it’s a way to free up cash now. Shortening the loan term does the opposite – increase your monthly payment to decrease the total amount you pay on the loan in the long run.

Cash-out Refinance

When you go with a cash-out refinance for your investment property, you can access the equity you own on the property. With a cash-out refinance, you replace your existing mortgage with a new loan for more than you owe on the property. The difference goes to you in cash to spend how you choose. Many investors choose to use the funds for renovations that could make more money in the long term. Others choose to invest into new projects or to simply have emergency cash on hand.

How to prepare for an investment property refinance?

There are a few steps you will need to prepare to refinance your light industrial property. Here is what you need to know about qualifying for a refinance mortgage.

  • Know the requirements

Your lender needs to determine that your business is a safe investment. They will consider the following factors:

  • Debt service coverage ratio (DSCR): The business’s cash flow as it compares to its debts.
  • Credit score
  • Net operating income (NOI)
  • Operating history: Is the business sustainable?
  • Gather your documents

To avoid any delays in the closing process, get your documents together ahead of time. The required documentation will vary between lenders, but generally, you can expect to show the following:

  • Business and personal tax returns
  • Business and personal bank statements
  • Year-to-date business operating statements
  • Proof of payment for any liens

Key takeaways:

  • Refinancing your light industrial property can lower your monthly mortgage payment to free up money for other projects and investments.
  • Investors can take advantage of ‘cash out’ refinances to get money on hand to invest back into your business and generate more income.
  • There are several requirements for refinancing a light industrial property. The more prepared you are, the better.

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