Refinancing

When an owner refinances, a new loan retires the old one, usually for a lower rate, a different length or to take equity out in cash. For income property, the new loan amount depends on the NOI at the time of the refinance, not the NOI when the property was bought.

A lender sizing a refinance on the default house would capitalize its $28,892 of NOI to find value and test coverage. At 7.25% and 1.25 coverage, the NOI supports about $282,000 of debt. Raise NOI and the supportable loan rises with it.

Owners who improve a property often refinance once the higher NOI shows up on a trailing twelve-month statement. Lenders usually want to see the new rent in actual collections, not a projection, before they lend against it.