Interesting Financing Dilemma

[Nir]

Hi All,
A friend of mine has 4 properties under the same corporation. A mortgage broker offered him a 250K loan or LOC based on the equity he has in his buildings and replacing the mortgages he has with different banks, with one larger loan.

The loan is apparently based on some government special loan available for businesses/corporations. (I don`t know the program, exactly how it works or approved)

My question is:

Is accepting this kind of loan risky or recommended? assuming the loan itself is legit of course, isn`t there a financing (or refinancing) risk? for example, if the owner sells one of the properties next year, will he immediately need to re-qualify for the other properties he is not selling!? every time one of them is sold because the initial loan is a `package` based on all 4!?
How does this usually work? asking as I think with a regular loan, where each property is financed separately, mortgage renewal is almost automatic
and very easy as long as you paid on time during the initial term.

How do those combined loans/mortgages work?

THANKS & REGARDS,
Neil

 

[Thomas Beyer]

QUOTE (investmart @ Dec 2 2010, 10:45 PM)
..



Is accepting this kind of loan risky or recommened? ..


.. you lose flexibility when selling assets.



Thus, the reduced interest rate or increased cash into the corporation has to be seen in light of the planned exit strategy for those 4 assets !!



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[Nir]

QUOTE (ThomasBeyer @ Dec 3 2010, 11:42 AM) .. you lose flexibility when selling assets.

Thank you Thomas.

You mentioned you lose flexibility. More specifically, isn`t there a serious refinancing risk!? this is not just about losing flexibility.
I can think of different scenarios where owners want/need to sell some of their properties but not all of them.
well, most investors are like that.. sell one by one not all at once.

Am I missing something? Is this how it works when you combine your mortgages into one for all properties? What is the financing structure
that allows such owners to sell only some of their properties, not all of them, without going through the entire loan application every time?

I can think of a few possible structures but why guess when mortgage brokers know the answer

Unfortunately it sounds like a very bad idea!..unless someone can explain this to us here.

Regards,
Neil

 

[Thomas Beyer]

QUOTE (investmart @ Dec 3 2010, 01:13 PM) ..

Unfortunately it sounds like a very bad idea!..unless someone can explain this to us here.
Not neccesarily IF the plan is to sell all assets at once or the mortgage can be partially discharged or if the interest rate is really low !!

 

[Nir]

QUOTE (ThomasBeyer @ Dec 3 2010, 03:41 PM) Not neccesarily IF the plan is to sell all assets at once or the mortgage can be partially discharged or if the interest rate is really low !!

yes, I guess the option to have it "partially discharged" is key! Thanks!

Regarding the plan to sell all assets at once: correct, I just think such a plan in itself is risky if the plan becomes a financial condition since optimal time of sale is a moving target in RE. I`m assuming you do not have such a plan yourself (and if you do at least your financing does not depend on its implementation!) nor do I. Even if we planned to sell a few at once, in reality it might take a long time from the first property you sell to the last on the list depending on the property type, location etc. (sometimes ~2 years).

 

[Thomas Beyer]

QUOTE (investmart @ Dec 3 2010, 09:15 PM) .. I`m assuming you do not have such a plan yourself ..
indeed .. most asset we own do not have a fixed `we must sell in march 2015" type exit strategy .. it is quite flexible and investor driven or guided by personal circumstances or the market in general .. which is hard to predict 5+ years out !

Hence, usually EACH ASSET HAS ITS OWN MORTGAGE !