Using Refinancing for Real Estate Deals in IntellCRE

Introduction

Hey, Anton here. Welcome to this quick guide on how to use refinancing for your real estate deals in the IntellCRE platform.

Setting the Property Value

It’s very important to note that this is where your property value goes.

You can either use comps, price estimates, or minimum cap rate estimates. Let’s say we use the minimum cap rate estimate and the price for our property is $4.8 million.

Acquisition Financing Setup

You have several financing scenarios that you can use, starting with acquisition financing, which is the traditional financing for the deal.

We have the loan-to-value (LTV), loan amount, and down payment. These can either be computed automatically by the system, making sure that our debt coverage ratio is at least 1.25 or another specified number, or we can manually edit these numbers and customize the loan sizing and terms for the acquisition financing.

Enabling Refinancing

Once we have acquisition financing, we can choose to do a refinance for our property.

Clicking on refinance opens the refinancing interface and refinancing model. Here we set basic refinancing terms such as interest rate and amortization.

Refinancing Timing and Terms

The refinance month determines when the refinancing is triggered. For example, 120 months means the refinance happens in year 10 of holding the deal.

We can also set the refinance month to 60 months, 24 months, 12 months, or any other timeframe.

Additional refinancing terms include:

• Loan fee for the refinance

• Interest rate spread

• Interest-only period

Cap Rate Used for Refinancing Valuation

On the right side, we have parameters that are extremely important for refinancing, specifically the cap rate used for valuation.

As the NOI grows year over year, the NOI in the year when we refinance, combined with the cap rate used for valuation, determines the value of the property at the time of refinancing.

For example, if we refinance in year five at 60 months, we look at the NOI in year five, which is $237,000, and apply a cap rate of approximately 4.0. This results in a property value of $6.2 million.

Loan Payoff and Cash Flow Impact

Based on that value, we determine the loan amount and LTV for the refinance.

The proceeds from the refinance are used to pay off the remaining principal of the acquisition financing. We can see this in the cash flow preview panel at the bottom of the screen.

At the end of year five, the remaining balance of the acquisition loan is $1.9 million. When we refinance with a $3.1 million loan, that amount is used to pay off the original loan, and the remaining balance becomes the new refinancing loan.

Ongoing Debt Service and Exit

Moving forward, we pay interest and principal according to the refinancing terms.

At the end of the hold period, when we sell the property, the sale proceeds are used to pay off the remaining refinancing loan balance.

Cash-Out Refinancing Explained

The cap rate used for valuation, together with the NOI in the year of refinancing, determines the property value.

The LTV controls how much cash we receive from the refinance. This determines how much cash-out we pull from the deal after paying off the original loan.

Any remaining cash can be used for other projects, property improvements, or distributed to investors or partners.

Closing

That’s a quick guide on refinancing. We hope this is helpful, and see you in the next tutorial.