Shafiq Hirani CCIMReal Estate Advisor, REMAX Distinctive · Real Estate Advisor at RE/MAX Distinctive Commercial | Washington, DC | Your Guide To Profitable Real Estate Ventures

Loan Surprise: Why Your Cash Out Is WAY Less! #shorts

14 Jul 2026 · 1 min

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1:22

In this short, Shafiq Hirani explains why a commercial real‑estate cash‑out refinance often yields far less cash than owners expect. Lenders apply two underwriting caps—the Value Test (based on the property’s appraised value) and the Coverage Test (based on the lender’s required debt‑service coverage ratio). The loan amount is the lower of the two, which can dramatically reduce the cash‑out figure. Hirani illustrates the gap with a $3.18 M value‑test limit versus a $2.72 M coverage‑test limit, leaving a $900 K shortfall after accounting for the existing $2.4 M debt. He also highlights a common oversight: loans are typically amortized over 25 years but have short terms (5‑10 years), meaning owners will face the same refinancing conversation multiple times. The key takeaway is to calculate the lender’s coverage number (income ÷ coverage requirement) before the lender presents it, allowing owners to negotiate or adjust the deal to maximize cash‑out.

Chapters

Notice what just happened. The Value Test would have allowed $3.18 million. The Coverage Test allows $2.72 million. The lender takes the lower number. Every single time. So your loan is $2.72 million. You owe $2.4 million, $7.2 million. You were counting on $1.2 million. You are getting $320,000. That is a $900,000 gap, and none of it came from the market, the rate, or your building. All of it came from the difference between your income statement and theirs. And one detail most owners miss entirely: that loan is amortized over 25 years, but the term is only 5 years. Some lenders go 7, a few go 10, which means you are back at this exact table before the loan is even a fifth paid down. So this is not a one-time conversation. This is a conversation you will have 4 or 5 more times over the life of that building. Getting it right now is not just about this refinance. Your cash-out number is not set by what your building is worth. It is set by what the lender says your income is divided by their coverage requirement. Find that number before they show it to you, and you still have time to move it.