Real Estate Investment Case Study

More Case Studies

Cash-out Refinance & 1031 Exchange

Hollywood Apartments to Verona Apartments
2012 & 2015 - 2018/2019 - Current
Engagement Type
Cash-Out Refinance (2x), 1031 Exchange
Realty Yield Role
Arrange Financing, Listing Agent, 1031 Exchange Coordination, Buyer's Agent, Arrange Financing
Investor Cash/Capital
Gary M

Investor Profile

Long-time owner/operator of several smaller apartment properties in Portland-metro. Client has over the years strategically sourced built-up equity in owned properties through cash-out refinancing and purchased additional income-producing real estate of various property types. Client has completed many 1031 Exchanges over the years as well.

Subject Property

2012: 16-unit apartment property located close-in, NE Portland, Oregon.

Engagement-s Objective

2012: Client was interested in both lowering his interest rate from 6.75% (2007 loan) to a current lower market loan rate of ~4.125% (2011-2012) as well as pulling some cash-out to use for another income-property acquisition in 2012.

2015: Client completed another cash-out refinance. Rates were at historical lows.

2018: Client engaged Realty Yield to sell the subject property and 1031 exchange into a newer property. The 1031 Exchange was completed in 2019.

The Opportunity-s

2012: Potentially pull-out over $200,000 in equity/capital while keeping the monthly payment about the same (within $200) and locking-in a new lower loan interest rate.

2015: Lower the loan interest rate (now hovering around historical lows) and pull cash-out for another acquisition.

2018: 1031 Exchange older building and acquire higher value, newer property.


2012: The loan packaging and placement process was conventional but there were some potential hurdles.

2015: This cash-out refinance was fairly straight forward. Primary objective was to take advantage of historical low interest rates.

2018: Property was prepared for sale, rents brought to full market, offering memorandum was published. Property was brought to the open-market (seller's market). Many interested parties brought offers.

The Challenges

2012 (cash-out refinance): In order to obtain the desired loan amount we would ultimately need an appraisal with an applied a cap rate that was on-par with the compressed capitalization rates we were seeing in “some” sell/buy transactions. Unfortunately, there were very few, recent, same-type vintage properties in the immediate geographic sub-market that had sold. What comparable sales would the appraiser use?

The other notable challenge was how the appraiser and lender underwriter would interpret the very light operating expense load that was being achieved by the owner. Since the owner was both hands-on and managed directly (no actual property management expense),the expense level was less than most other like-kind properties. How much would the appraiser and lender recast (adjust/increase) the expense load?

2015 (cash-out refinance): A fairly straight forward process. Maximum cash-out funds were sought. Some negotiation with the lender was required to get loan approval in an amount our Client was satisfied with.

2018 (sale): The sale was pretty straight forward, seller's market at the time. A flexible closing date was agreed to in the Purchase & Sale Agreement to allow adequate time to find a suitable 1031 replacement property.

The Execution

2012 (cash-out refinance): It was imperative that the submitted loan package objectively showed/supported that historical vacancy was almost non-existent and that ongoing property maintenance expenses could be continued at the low-end of the customary underwriting range. It was also determined that Realty Yield would need to research and assemble our own list of comparable sales.The idea being, that we wanted to “help” the appraiser “fill in the blanks” since like-kind comparable sales were few and far between. This required citing comparable sales in other high-dollar sub-markets (NW Portland, downtown Portland, close-in SE Portland).

2015 (cash-out refinance):

2018 (sale & 1031 exchange):

The Result-s

2012: After many conversations with the direct lender regarding income/expense line items, vacancy factor to be used and applicable cap rate we were on the same page with the loan officer. And, as anticipated, the assigned appraiser was having problems finding comparable sale-s to support the value we felt was warranted (equal to what the open-market would command). Our comparable sales list helped the appraiser reach a supportable valuation conclusion. A loan amount of $1,000, 000 was improved and funded which equaled the amount requested.

2015: A new $1.3 million dollar loan was secured at 3.47%.

11/2018: Property sold for $2.7 million, 1031 exchange funds used to purchase newer replacement property for $3,625,000.

Realty Yield Comments

This case study represents a typical, long-term engagement Realty Yield has with our Clients. There are usually multiple strategic decisions that are made over many years to best serve our Client's objectives at a given point in time. In this case, two cash-out refinances (2012 & 2015) to both lower the loan interest rate and raise capital for additional income-property purchases. And in 2018, Client decided to sell his long owned older property and acquire (through 1031 Exchange) a newer, higher value condo quality apartment property. Though our ongoing LANDLORD SERVICES we work with our Clients to make the right strategic decisions, at the right time.

Verona Apartments, Acquired (through 1031 Exchange), May 2019 - $3,625,000. Loan Assumption.
Verona Apartments, Acquired (through 1031 Exchange), May 2019 - $3,625,000. Loan Assumption.
Hollywood Apartments, Sold (1031 Exchange), November 2018 - $2,700,000. Additional: Realty Yield arranged cash-out refinance, 2012 & 2015.
Hollywood Apartments, Sold (1031 Exchange), November 2018 - $2,700,000. Additional: Realty Yield arranged cash-out refinance, 2012 & 2015.