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Cross Collateralization for Private Hard Money Loans - YouTube
Channel: Private Lender Link
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in private and hard money lending some
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lenders will use cross-collateralization
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in order to get to the loan amount that
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the real estate investor requests
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in this video i'm going to explain what
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cross-collateralization means
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two sample scenarios and how to find
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lenders that will consider
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cross-collateralizing
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i'm rocky bhitani ceo of
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privatelenderlink.com where investors
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and brokers can easily find direct
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private and hard money lending companies
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throughout the united states
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if you're in the investment real estate
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business and want to gain insights into
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private mortgage lending
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be sure to subscribe to our channel and
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click the bell icon to be notified
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every time we release a new video in
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private and hard money loans
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real estate as a collateral uses
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security for the loan
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cross-collateralization happens when
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more than one property is used as
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security for the same loan
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when one property doesn't have enough
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equity to achieve the desired loan
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amount
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the lender may be able to use equity in
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another investment property to make up
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the difference
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the cross may include more than two
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properties there could be several
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properties
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included as collateral on the same loan
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however when you get to four more
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properties it's typically referred to as
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a blanket loan
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it's sort of the same thing but in most
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cross-collateralization situations
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there's one subject property that has
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most of the equity
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and just one other property is crossed
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to make up a smaller amount of equity
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needed
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let me give you a couple of example
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scenarios to help you understand this
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a cash out refinance is the most common
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loan type in which
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cross-collateralization is used
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in this first example scenario the
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borrower needs five hundred thousand
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dollars for a non-real estate investment
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she doesn't have much liquid cash in the
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bank but she owns two single-family
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rental homes
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both are on free and clear meaning
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there's no mortgages on them
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so her plan is to cash out equity on
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property a
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which is worth around seven hundred
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thousand dollars for an equity cash out
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loan
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most private and hard money lenders will
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max out at 65 percent loan to value
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so property a is not going to be enough
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it's only going to get the bar around
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450 thousand dollars
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to get the additional fifty thousand
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dollars the borrower has to pledge
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property b
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which is worth three hundred thousand
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dollars so when the loan's funded
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the lender's gonna have a first mortgage
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on property a
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and a first mortgage on property b and
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the 500 000
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loan amount is going to be secured by
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both the rental homes
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for our next scenario a real estate
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investor is in contract to purchase a
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multi-family property for two million
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dollars
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now for purchase loans most private and
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hard money lenders will max out at
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seventy percent
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loan to value so on this transaction the
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borrower needs to come up with six
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hundred thousand dollars
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but he only has four hundred thousand
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dollars liquid cash in the bank
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and it's two hundred thousand dollars
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short he owns an industrial property
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worth around
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one and a half million dollars but it
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already has a first mortgage in the
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amount of seven hundred thousand dollars
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from a bank
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and it's a very low interest rate so
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he's not willing to refinance it
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however the lender's willing to
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cross-collateralize that property and
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second lean position to get that two
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hundred thousand dollars
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so when the loan is funded the lender is
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going to have a first mortgage
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on the newly purchased multi-family
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property and
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a second mortgage on the industrial
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property now crossing collateral is not
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something that every single private and
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hard money lender will consider
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it mainly depends on their capital
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structure see if they're funding loans
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and selling them on the secondary market
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the loan buyer may not want to have
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loans that include a second property
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because it just adds a bit of complexity
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especially if the cross is in second
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lean position
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if you're looking for a private or hard
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money lender use our website
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privatelenderlink.com as a resource
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there's no fee to search and no
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registration required
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we have a filter that you can use to
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find lenders that will consider
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cross-collateralizing once you've
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selected a loan type and entered a state
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or major metro area
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look for the refine results section on
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the left and then click show advanced
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filters
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next look for the field collateralize
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multiple properties
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select yes and then click the apply
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button click on each lender's profile to
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learn more about their guidelines
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rates fees and much more if you found
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this video to be helpful please click
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the like button and be sure to check out
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our other videos about private and hard
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money lending
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thanks for watching and see you in the
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next video
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