Sell, Refinance or Hold?

Most owners treat that like a personality question. Are you a seller or a holder? Are you conservative or aggressive? It is not a personality question. It is arithmetic with 3 columns. And in 30 years, I have almost never met an owner who had actually built the third one. I am Shafiq Hirani, MBA, CCIM. Today we build all 3 columns on the same building so you can see which one actually wins. Quick ask before we get into it. If these breakdowns help you think more clearly about your building, subscribe and leave a comment because I build the next videos from the questions in the comments. All right, let us get to work. Here is what usually passes for analysis. The owner gets a price opinion from a broker. Then he gets a refinance quote from a lender. He looks at both numbers and picks one. But those 2 numbers are not comparable. One is a gross sale price— before commission, before closing costs, before loan payoff, before taxes. The other is a loan, which is money you have to pay back. Comparing them is like comparing your salary to your credit limit. Both are numbers. They mean completely different things. And the 3rd option, which is doing nothing dramatic and improving the building for 2 years, usually never gets a number at all. Start with your gross price, then subtract, in order: commission, closing costs, which are title, transfer, and recordation taxes, and legal, your loan payoff, any prepayment penalty, then depreciation recapture, taxed at up to 25% on every dollar of depreciation you have taken, then capital gains on the appreciation, And for a lot of owners at these numbers, net investment income tax on top. What actually lands in your account is usually 20 to 30% below the headline price, sometimes more. That is column 1, and it is the only column most owners ever look at, usually only at the top line. Column 2: Refinance, Cash-Out Proceeds. And here is the appealing part. That money is not taxed today. It is loan proceeds, not income. But it is constrained by 2 things, whichever binds first: loan-to-value, typically 65 to 75%, and the debt service coverage test, which usually binds. And the trade is real: new payment, new term, and you still own the building, and every problem in it. Refinance is the right answer when the building still has room to run, And you want to keep running it. Column 3: Hold and Improve. This is the one nobody builds. What is the building worth in 24 months if you fix the NOI first? Take your current NOI, add what a real cleanup recovers, divide by the same cap rate. Then subtract the cost and the risk of doing that work. That is a real number. It just requires you to actually do something. And here is the line that gets me disagreement. Most owners who sell should have refinanced, and most owners who refinance should have sold. Almost nobody builds the third column, and it is the one that most often wins. I am not telling you to hold. I am telling you that you cannot know until the column exists. Here is what it looks like with numbers. Current NOI of $313,000. A real cleanup recovers $21,000 of it. That is $334,000, and at the same 6% cap rate, the building is worth $5.57 million instead of $5.2 million. $400,000 of value for work that might cost you $15,000 and 6 months of attention. Here is the math on a $4 million building. Column 1, sell. $4 million gross minus commission and closing, roughly $240,000, minus a $1.5 million loan payoff, minus taxes, call it $400,000. You net around $1.86 million. Column 2, refinance. That same building, at a 1.25 coverage test supports about $2.72 million of new debt. Pay off the $1.5 million and you take out roughly $1.2 million tax-free today and you still own the building. Now the tiebreaker, and it is the question nobody asks first: What are you actually going to do with the money? If you don't have an answer, a sale isn't a strategy. It is a taxable event with good lighting. Same story from video one, but now look at it as a decision. Before the cleanup, his NOI supported a certain price, and selling was clearly the right answer. After the cleanup, $24,000 in recovered NOI added about $400,000 in value, and that extra value also supported a bigger loan. Same building. Same market. The cleanup did not just raise his price, it changed which column won. He refinanced. Here is what to do next. First, if column 2 is looking like your answer, watch the Refinance Navigator series. That is the whole process, start to finish. Second, download the Sell, Refinance, or Hold worksheet. It has 3 columns laid out so you can fill them in for your own building. Third, book a 30-minute exit strategy session and we will build all 3 together. In the comments, tell me which column you are in right now and what is stopping you from moving. One sentence. Shafiq Hirani, MBA, CCIM. Keep navigating.