We're finalizing a cash out refinance for an investor who is cross collateralizing fourteen of his investment property condos that he acquired at foreclosure auction in 2011, issuing a $300,000 private money loan against the collateral with a combined $750,000 appraised value.
Cross Collateralized private money or hard money financing is becoming more common with real estate investors who picked up a bunch of low-priced condos and townhouses on the cheap in the 2010-2011 period. They paid cash to buy the properties and are enjoying the $10,000/mo net income they've been taking in for the past few years.
But, they are real estate investors, and real estate investors don't like sitting on their hands taking in steady paychecks while everybody else is out doing deals in a hot market. They gotta get in on the action and the action du jour is flipping houses. Everyone seems to be buying up outdated homes with Brady Bunch kitchens, going in and renovating the place, and taking an easy $30,000 profit on four months work. It makes complete sense to want to buy a few more properties.
With cross collateralized financing, most borrowers prefer to have a Partial Release Clause, which in the event they sell a property, they only have to pay off the portion of the loan that was assigned to the property sold. Most lenders charge a small fee at the time of partial release plus recording fees to the borrower.
Cross collateralized private money or hard money financing makes a lot of sense for investors to get their cash out to do more deals to either flip or to add more to their long-term investment portfolio.