Unique Approach to Mortgage Loans (cross-collateralization)

[Jordan Bowley]

Hello again BG Bloggers! (I posted this earlier in another forum on accident!)

I am looking for anyone who has experience or a potential POC for someone who may know or has used cross-collateralization to negotiate a mortgage for a new property.

Background/Scenario: I am forming two LLCs, one parent out of state, and one in-state to hold properties. My investment group fully owns one property in the same state that we plan to purchase our second property. We want to purchase a 3-4 unit MF and attempt to have no down payment while still purchasing the property under the in-state LLC.

The Plan: Meet with as many credit union/local lenders as possible and attempt to use cross-collateralization to leverage our first properties equity to have the down payment rolled into the mortgage. The lien would act as insurance against the additional risk the lender would take on. The figures are roughly 120K value first property and looking for a 250-450k MF. I feel like that's enough to entice a lender to allow us to use this method. This is also an attempt to remove the need for a personal guarantee to prevent piercing the corporate veil.

Thoughts, opinions, or strongly worded responses of beer clanking approval?

[Jill F.]

@Jordan Bowley Our lender is a portfolio lender I don't think you could do that with a regular non-commercial lender-- We use a regional bank, Wayne Savings. The down sides I can see for these types of deals are exit strategy, all of our properties are tied up together and we have less flexibility to get out a particular property, and having all our assets tied to a single lender means that if one deal goes south every thing tied to it can go south as well.  In addition, we are personally guaranteed. It is a risk and it is not an insignificant risk. Where we are in our business, If we want to grow now rather than later,  and we do, it is for us the best risk alternative; other types of risk, (partners, hard-money (no personal guarantees but higher interest, or more depleted personal cash reserves), are all less attractive to us .  Everyday people take risks that would terrify me: doing things like flipping with hard money, or funding deals using "other people's money." That doesn't mean they're wrong-- They are just willing to tolerate different risks than me. Everyone has to figure out what type and level of risk they can live with.

Also, everyone I talked to wanted a personal guarantee for LLC real estate purchases (except some hard money places with really high rates). Did you find a reputable lender doing LLC loans at reasonable rates without a personal guarantee? what type of assets and history did they require?