When Should You Start Refinancing?

How much time do you have? And they'll say, Oh, it comes up in about a week. Alright, we all know that's wrong. You would not start the refinancing process with that short a time schedule. So how do you do it correctly? Well let's first start off talking about what I mean by refinancing. Typically when you buy an R V park, you have to get a loan.

Very few people ever buy real estate for cash and they shouldn't because your return is much lower if you use cash. So if you have that bank loan, then the question is, you know, how long does the term go? The bank gives you an interest interest rate, an amortization length But typically the term of the loan is shorter than the amortization length. Most RV parks there's a twenty-five year amortization. That means if you made your payments every month for twenty five years,

you would own it free and clear. But most RV park loans are only five or ten years in duration. So if it takes twenty-five years to go ahead and pay it off. And the bank loans only five years, you'll have to do five of those bank loans to get that full twenty-five year term in before it's a hundred percent yours. So You have to first, when you're getting that bank loan, try and get the longest term you humanly can. Try and get ten years if you can. Try not to get five years.

Because I want to do it as few times as I can. I don't want to be doing refinancing of my loan over and over. It's stressful. There's costs in it. There's risk involved. So rule one, let's try not to do that many refinancings. Now, that being said, obviously you're probably gonna have to do at least a couple.

Even if you get a ten year term, assuming you don't sell the R V park, you'll have to do that ten year term and another ten year term and then a final five year term before that thing is fully paid off. So you'll never be able to get away with this topic using any form of traditional bank debt. Now I know a few people who've been able to l be lucky enough with a small town bank that didn't know any better to put it on a fully amortizing loan.

Just like they do a single family mortgage, but that is so insanely rare.

So for everybody else, what we're talking about, this topic should be of importance to you. So if you have a loan and it does expire on a certain date, when should you start the action of trying to find a new loan? I would say you would want to start, definitely start, in earnest, at full velocity, one year before expiration.

So if my loan ended in May of 2025, I would hit the ground running in May of 2024. Now why would I give one year head start? Gosh, that sounds like a lot. Well here's what's at issue. We don't really know when these loans come up what is going on in the lending marketplace. Maybe we're in some type of economic recession depression like the year 2008, and there may be fewer banks out there making a loan.

And they may take longer than it normally takes. The other issue is if I can't get a loan for whatever reason, I want plenty of time to resell that RV park. I don't want to lose all the value I've created in owning it and managing it properly. I refuse to lose that. So if I can't get a loan, I am gonna get that thing sold. So if I start a year ahead, it gives me let's say six months to get the loan, and failing that another six months to get it sold.

But now you're gonna say, Well gosh, now that I really think about that Six months to get it sold, that's really not a lot of time. You're right. So let's move it back even farther. It would not be imprudent to start your refinancing program not one year ahead, but even two years ahead. Now the problem is if you go too far, then you're gonna start refinancing the day you start the loan.

So that's probably not going to work, but on a ten year loan, there would be nothing wrong with seriously looking at starting the process anywhere from two years to eighteen months ahead.

And definitely an absolute minimum a year ahead. So what can I do to better influence th having the easiest route to refinancing? Well the the main item is Be a good borrower. That's the key to refinancing. So do all the things they want you to do. Keep the property in good condition. Keep good computerized records.

be the kind of person you would want to make a loan for. I tell people all the time, think like a banker. When you really consider that real estate is all about debt and all about lending, that who should we all emulate as an owner? We all need to emulate our banker. We need to do exactly what the banker wants of us. Because when we do that, we won't have any problem with the banking world. We'll have everything exactly as they like.

We'll have nothing but a happy lender, and that will give us a happy refinancing. Remember, more than likely, the person who will do the refinancing on your RV park is that existing lender. So the last thing you'd want to do is have that lender not like you or respect you because more than likely that's the person who's going to give you that new loan.

Also, don't forget as refinancing approaches, you have to ask yourself a couple more questions. Do I really want to keep this property or do I want to sell it? Because if you're going to sell it, the most natural time to do it would be as your loan winds down. That means you'd have no prepayment penalties, and you haven't taken the effort to go get a new loan yet. Also, most people when they do a refinancing, they put in that little extra effort on capital improvements such as roads.

to get it as attractive as they can for the refi process. Well, that's also the exact same best position for you to sell it. So often the best time of of all time to sell your RV park is the very time that you're thinking of getting that new bank loan. Also, the question comes, should you change the type of lending that you're doing?

If you've had a bank loan on that property since inception, but you've got it looking really nice and really improved the revenues and the net income, maybe it's time to take that next step.

and try and move that loan into conduit, also known as CMBS commercial mortgage backed security debt. The benefit of the conduit loan is you'll get a low, fixed rate, 10-year non-recourse loan. It's one of the most attractive dead objects you can possibly put on an RV park.

And sometimes it's a multi-stage process to get there. When you first buy the property from mom and pop, it's not in the right condition, it doesn't have the right numbers to allow you to get conduit debt. So many people start off with seller financing or bank debt on the property.

And as they gradually improve the property's performance, they move into the realm of being able to do a conduit loan. Conduit is very, very attractive debt. So before you just kind of just fall into the same rut of that bank loan coming up. you might consider maybe I should change over from that bank loan

to that conduit loan. Conduit loan is kinda like entering a club. When you have that conduit loan, you'll find it's very, very easy. Much easier we have found to refinance that conduit loan than it was a bank loan. Because only the best properties are vetted and approved for conduit debt. So once you've made that, once you've been able to join that club of debt with your property,

You're kind of blessed by many lenders who are impressed that you simply qualified for it to begin with. And the natural progression for many RV parks is simply to go from seller debt to bank debt. to conduit debt or from bank debt to conduit debt. And now, with this note coming up, maybe this is the time to make that move. Also, remember

Even if you give yourself plenty of time, it's possible things in the world will be going not well. We've all just gone through the the whole pandemic issue with COVID nineteen, and in recent times we had the Great Recession in two thousand seven, two thousand eight. So remember that you want to grab debt while it's there when you can get it. So when you start off that process, even if you started several years ahead, if Lendy was very strong, you had people contacting you.

wanting to give you a loan, maybe you should grab it now, while it's right there and good for the taking, because none of us can really look that far into the future. And if for any reason, when your loan comes due you hit the worst time in American history, bigger than the Great Depression, it doesn't mean the end of the world there if you aggressively work it.

Many banks, if the c customer's having trouble refinancing, will do what's called uh lend and pretend, which means they'll extend the loan on longer, let you keep making the normal payments. So you can still fight your way out of problems even then. But many times the issue is all about the timing. Give yourself plenty of head start whenever you need to refinance a loan on an RV park. This is Frank Roth, the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.