Rate/term refinance on a California 5-10 unit building
TL;DR: A rate/term refinance replaces the existing loan on a 5- to 10-unit California building without taking extra cash out. Investors use it to leave a bridge loan after lease-up, pay off a balloon, or move from a short commercial loan to a longer rent-based structure. The building’s in-place rents still have to carry the new payment. We arrange and shop the refinance with wholesale lenders.
Quick answer
A rate/term refinance pays off the current loan and closing costs and nothing more. On a 5-10 unit building it is most often the second step of a plan: buy or renovate with short-term money, lease the units, then refinance into a longer rent-based loan once the rent roll is stable. Start the refinance well before a balloon date or extension deadline.
The three refinances we see on small buildings
The first is the bridge exit. An investor bought a building with vacancies or deferred maintenance, renovated with a short-term loan and leased the units. Now the rent roll is stable and the bridge loan is expensive and short, so it is time for a long-term loan sized on the new rents.
The second is the balloon. Many small commercial multifamily loans have a term shorter than the amortization, so a large balance comes due on a set date. The third is a structure change: moving from a recourse bank loan with covenants and annual financial reporting to a rent-based loan that does not use personal tax returns to qualify.
What “stabilized” means to a lender
Lenders want a building that is leased and collecting. That usually means most units under lease at market-level rents, a few months of collections showing in bank deposits, and no open renovation work in occupied units. Leases signed last week help, but collections help more.
If the building is not there yet, a short extension on the bridge loan can cost less than forcing a refinance on a rent roll that does not support it. We will tell you honestly which side of that line your building is on.
- Current rent roll and every lease.
- Bank statements showing rent deposits.
- Trailing operating statement since the renovation.
- Permits and final sign-offs for the renovation work.
- Current loan statement and payoff, including any extension terms.
California items on a refinance
Your property taxes do not reset on a refinance, but if you bought recently, make sure the supplemental bill from your purchase has been paid and that the current bill reflects the new assessment. Renovations can also be assessed as new construction, which adds to the tax bill.
If the building is in a city with a soft-story retrofit program, have the completion paperwork ready. If units were re-leased after renovation, keep records showing the rents were set at turnover in line with state and local rules.
Who this fits, and who it does not
A good fit when
- A bridge loan coming due on a building that is now leased and collecting.
- A balloon or maturity date on a commercial loan in the next several months.
- You want a longer term and do not want personal tax returns to drive qualification.
Not the right tool when
- The building is still mostly vacant or under renovation.
- You or a family member live in one of the units.
- You need cash out beyond paying off the current loan (see cash-out refinance).
How the file moves
Share the payoff date
Send the loan statement, maturity or extension date and prepayment terms.
Stabilization check
We compare the rent roll and collections with what lenders expect from a stabilized building.
Program comparison
We compare wholesale programs and their prepayment structures, then the lender appraises and underwrites.
Payoff and close
The new loan pays off the old one at closing. The lender funds.
Questions investors ask about this loan
Can I refinance a 5-10 unit building out of a hard money loan into a DSCR loan?
Usually, once the building is leased and collecting. Lenders look for a stable rent roll, bank deposits that match it and finished renovation work. Start early so you are not refinancing against a deadline.
My commercial loan has a balloon next year. When should I start?
Several months before the date. Appraisals, rent roll reviews and insurance on multifamily files take time, and starting early leaves room to compare programs instead of taking the first one available.
Related reading
Send us the building, not just the borrower
Address, unit count, a current rent roll and the loan you have in mind. We read it the way a 5-10 unit underwriter will and tell you which wholesale programs are worth the appraisal.