Multifamily Cross Collateralization

[Paul Shannon]

Hey all, thanks ahead of time for advice. I have an apartment I'm repositioning currently. I purchased it for $1,045,000, cap ex is $170,000. ARV appraisal was done pre-closing @$1,350,000, which would put the in-place loan at about 63% LTV. Recourse debt and no partners.

Once stabilized, I was considering a few options: 

1. Refinance. I should be able to get out about $180,000 @ 75% LTV. Cash out would be use to acquire another asset. No idea when that may come along. There would be fees associated with this obviously, which is a downside, but cash is handy.

2.  Cross-Collaterize.  In this case, if I find a property, I can leverage the other stabilized asset and use the equity in it towards a down-payment, etc.  Has anyone done this?  What are the pros vs. cons?  If its recourse anyways.  If I default, the bank is coming for all my assets anyways, so I don't see any additional risk outside of what I'm already taking.

One con I see is not having the capital liquid and finding better terms with another bank or using/qualifying for agency debt on a future deal.   

3. Keep the LTV at 63%. Better Cash flow. Still have access to short-term capital to put down on an opportunity. Then could refi later out of my existing property. Rate change might be a risk here. Could also look at sponsoring a deal and syndicating to get it done versus using so much of my own capital.

Nice to have some options, but looking for guidance specifically on cross-collateralization and risks, as well as what you would do.  

[Jeffrey Donis]

I like @Alex Bekeza's advice. Although I've heard of many real estate investors refer to themselves as "real estate buyers" because they like to avoid selling their properties, it does sometimes make sense to sell. Just make sure you're able to trade up if you do.