Private Money In. Bank Money Out: The Refinance Exit Strategy

A property that can't be bank-financed today often can be in a year — once it's leased, once the work is done, once there's an operating history to underwrite. The obstacle isn't the asset, it's its current condition.

Private capital funds the phase where the property is being changed. Bank capital funds the phase where it's stable and boring. Using either one for the other phase is where the cost shows up.

The refinance has to be sized on stabilised income against rates and terms available at that time, not on the ones you'd prefer. If the permanent loan won't cover the short-term balance plus costs, the gap comes out of your pocket — and you'll know that going in or you'll find out at maturity.

Coverage is the constraint that usually binds. Work out the debt service the property can support first, then let that determine how much permanent debt exists to pay off.

Conventional lenders generally want an operating history before they'll underwrite a repositioned property, and they want leases, statements and a clean title picture to go with it. Some measure value from the current appraisal; some measure from what you paid.

That's a real constraint on when the exit can happen, and it belongs in the plan from the beginning rather than being discovered when the short-term loan is sixty days from maturity.