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Multi-Family Refinance & Cash-Out

Realty Yield Investor Client:Gary M

Client: Gary M
Engagement Type: Multi-Family Refinance & Cash-Out
Realty Yield Role: Mortgage/Loan Arrangement
Investor Cash/Capital: N/A

Income-producing real estate investment: Multi-Family Refinance & Cash-Out

Investor Profile

Long-time owner/operator of several smaller apartment properties in prime locations.

Subject Property

16-unit apartment property located close-in, NE Portland, Oregon.

Engagement Objective

Client was interested in both lowering his interest rate from 6.75% (2007 loan) to a current market rate loan of ~4.125% (2011-2012) as well as pulling some cash-out to use for another income-property acquisition in 2012.

The Opportunity

Potentially pull-out over $200,000 in equity/capital while keeping the monthly payment about the same (within $200) and locking-in a new loan interest rate at historical lows.


The loan packaging and placement process was conventional but there were some potential hurdles.

The Challenges

In order to obtain the desired loan amount we would ultimately need an appraisal with an applied a cap rate that was on-par with the compressed capitalization rates we were seeing in “some” sell/buy transactions. Unfortunately, there were very few, recent, same vintage properties in the immediate geographic sub-market that had sold. What comparable sales would the appraiser use?

The other notable challenge was how the appraiser and lender underwriter would interpret the very light operating expense load that was being achieved by the owner. Since the owner was both hands-on and managed directly (no actual property management expense),the expense level was less than most other like-kind properties. How much would the appraiser and lender recast (adjust/increase) the expense load?

A couple/few thousand dollars of projected net operating income and/or an applied cap rate of just 0.50%+- one way or the other could impact the valuation conclusion by as much as $250,000 which equates to $175,000+- in approved loan amount.

The Execution

It was imperative that the submitted loan package objectively showed/supported that historical vacancy was almost non-existent and that ongoing property maintenance expenses could be continued at the low-end of the customary underwriting range. This would get us to the NOI we believed the property warranted. That would be part 1.

It was also determined that we (Realty Yield and borrower) would need to research and assemble our own list of comparable sales.The idea being, that we wanted to “help” the appraiser “fill in the blanks” since like-kind comparable sales were few and far between. This required citing comparable sales in other high-dollar sub-markets (NW Portland, downtown Portland, close-in SE Portland).

The Result

After many conversations with the direct lender regarding income/expense line items, vacancy factor to be used and applicable cap rate we were on the same page with the loan officer. And, as anticipated, the assigned appraiser was having problems finding comparable sale-s to support the value we felt was warranted (equal to what the open-market would command). Our comparable sales list helped the appraiser reach a supportable valuation conclusion.

A loan amount of $1,000, 000 was improved and funded which equaled the amount requested.

Realty Yield Comments

The learning point is that without proper preparation, research and experienced guidance the outcome could have been much different (lower estimated valuation), and ultimately something less (loan amount) than the borrower/client desired. “Dimes are dollars” in transactions like this. Every detail needs to be attended too. Realty Yield has this expertise.