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June 08, 2020 - Blog Article
How to Maximize Your ROI with Cash-In Refinance

When global crisis situations like natural disasters, epidemics, or perceived negative geo-political events occur it sends financial markets in a tailspin, so where exactly does an investor go to get a respectable return on investment and savings in 2020?

 

Historically, such negative events or outcomes have led global investors to what they perceive as ‘safe haven’ investments, which invariably are the Canadian Treasuries. Consequently, when demand for Canadian Treasury bonds increase, it drives up the bond prices and the benchmark interest rates take a dive, primarily in terms of mortgages. 

 

This allows the savvy Canadian retail CRE investor to make their move.  

In fact, people are already starting to hoard their money by liquidating various assets and investments that are not “pandemic-proof”. However, instead of letting all that cash just sit in a bank, those with retail CRE properties would do well to let a portion of it go towards refinancing their mortgages. 

How Does Cash-In Refinance Work?

Since your retail CRE property has accrued some equity over time, you are now in a position to get a loan with lower rates than when you took out your first one. Investors can refinance by going to another lender to get a new mortgage with better rates, or negotiating a better loan with your current lender. Refinance will generally not only cover your previous loan but allow you to get some cash out of it too.

In the current climate of low-interest rates, you don’t have to choose between cash-in and rate and term refinancing – you are likely to get a solid deal in this market, so you may find that you’re better off using excess money to lower your loan-to-value “LTV” ratio which in turn provides income or return on the cash-in portion that allowed you to get the lower loan rate. 

 

Real-life example

Let’s say that John took out a loan to invest in new retail CRE in Alberta. There’s a lot of foot traffic and little to no vacancy. John received a favorable interest rate for that time; however since there was not a global crisis occuring at the time he received the mortgage his rate is higher than 3.0%; however now  rates are lower than 3.0%. 

The retail center leasable units has several tenants; including, an anchor grocery store tenant, and business has overall been good for the grocery tenant. A few of the smaller retailers are also doing ok as they have adjusted their business to the current market demands. The cashflow that John’s receive from the property comes in consistently every month and it has improved since the reopening of some businesses. 

 

John has tenants that pay on time and his vacancy is low, so now he is in a position to refinance to take advantage of the generally lower interest rates and cash-in. By playing it smart, John’s making his money work for him. He is now able to pull out cash, repay investors, repay himself, or buy another mixed-use

retail CRE property in the province of Saskatchewan, Ontario or in Alberta, as more retail businesses are open for business again

 

Summary

In general, with more Canadian retailers back to work things are looking up for Canadian retail investors. Bond prices and the benchmark interest rates are down, and likewise, mortgage rates have declined as well. Therefore using cash-in refinance to help improve cash flow and to lower your loan ratios can prove to be a win-win scenario for you and your investors.