These days it is near impossible to refinance investment property for many reasons. First of all let’s define what investment property is. Investment property includes anything that is not a residential, owner occupied property. This can include a non-owner occupied single family home, an apartment building, an office building and even raw land. To refinance each type of investment property requires a different approach.
The key point to remember, though, is that banks and lending institutions are very picky about re-financing. The government mandated financing options that Obama’s administration put in are really meant for owner-occupied properties, NOT investment property. In my opinion, though, there is a big hole in this one-sided approach to re-financing.
Let’s take the example of an office building. To refinance this investment property the banks really look at several factors. The first is the strength of the financial statement. On its own, does the rent cover the mortgage, property taxes and insurance, for example? In fact, of late, banks have been scrutinizing every aspect of commercial investment property ownership. They also look at the financial strength of the borrowers, as well.
Every year, the banks are going through review processes to see if the property can stand on its own financially, the current market value of the property, financial strength of the borrowers, how the general market is in that area and other things, such as whether property taxes are current and other liens that may have popped up since the initial loan was put in place.
Apartment re-financing is going through a similar process as the commercial office building. Although, if you’ve owned the property for a number of years, a number of banks seem to have less requirements, albeit still pretty intense documentation gathering.
To refinance a residential investment property, the banks do not require as much documentation as apartment buildings or commercial office buildings, BUT with the recent down turn in property values, be prepared for an appraisal. The appraisal itself could create a problem for you, especially if the LTV or loan to value has shrunk significantly. With a single family residence, the banks have less to support the income of the property as they would with a commercial office or apartment building. And, the strength of the borrower has even more weight.
Speaking of strength of the borrower … forget about what used to be fairly common … stated income. Essentially, the banks want to see what income you make. You cannot just tell them what is and expect them to nod and say ok anymore.
How can one refinance a raw land investment property? Not very easily. In fact, this one category of investment property is probably the single most difficult one to evaluate. The reasons are pretty simple. Appraisal comparisons are hard to find and there is no income generated from the raw land. How is the bank then going to evaluate your worthiness? Primarily on the strength of the borrower.
As you can gather, to refinance an investment property is one of the most difficult things to do during this economic downturn. The administration has not come up with anything for investment property owners that come close to the owner-occupied market. But even those people are having a hard time staying in their homes.