There are many advantages that can come from refinancing a multifamily property, including a lower interest rate, more favorable terms, and cash-out proceeds. Adhering to the following guidelines can increase your chance of success.

Gather documentation on your property and tenants

To approve a refinance, lenders will require proof of your property’s ability to service the debt. Make sure your operating statements and rent rolls are up-to-date, organized, and legible.

  • Rent rolls should include each unit’s bedrooms and baths, square footage, beginning and end lease dates, and vacancies.
  • Include your trailing 12 months (T12 or TTM) report that includes all income and operating expenses for the previous 12 months.
  • Operating statements should be broken out by month and show all unit rent and other property income, such as laundry facilities and parking, as well as all expenses.
  • Lenders often want to see two to three years of previous operating statements.

Prepare for third party inspections

The appraiser, engineer, and lender will all do inspections of the property, including entering a select number of occupied and vacant units. The lender will coordinate the inspections with the property manager. Very often, all inspections are scheduled for the same day and time to minimize the impact on tenants.

Showcase your property’s improvements

Any capital expenditures (CapEx) on your multifamily property could increase its value and improve your odds of landing a good refinancing deal. Show proof of all your property’s upgrades to your lender, including examples such as:

  • Upgraded flooring
  • Kitchen upgrades like new appliances, countertops, and cabinets
  • New or upgraded landscaping
  • New roofs
  • Repaved parking lots

Work out your refinancing goals in advance

There are several ways to use refinancing to get a better deal. Are you looking for maximum cash-out proceeds? More flexibility? Researching up front and communicating your goals to your lender will help speed the process towards an outcome that best suits you.

Look out for prepayment penalties

Another important consideration is the prepayment penalty that might be due on the existing loan should it get paid off early. Ask your loan originator to help determine the approximate prepayment that would come with paying off the existing loan, which could impact total cash-out proceeds.

Refinancing offers many potential financial benefits. Effectively preparing in advance can put you in an advantageous position to make the entire process run smoothly and score you the best terms for your refinance.