Pledging Property As Collateral

[Arnie Guida]

I inquired on financing for a 12plex and the lender, a local bank, offered several options, one of which was pledging one of my free and clear 4plexes as collateral for most of the down payment, and then about 5% cash from me to have some "skin in the game" (his term).

I was unaware of this option, and thought that was pretty aggressive. I'm meeting with him today for further discussion, and was hoping for some advice on what to ask. Do they just put their name on my 4plex title? How do they specify the dollar amount, or percentage of ownership of my 4plex? What do they get in return, just partial ownership? That's it? Don't they want some cash during their ownership?

As for terms, he said it was 3 years, and a ball park interest rate of high 5's to low 6's. Does that sound competitive?

Any other advice you can offer as far as questions for me to ask would be appreciated.

Thank you,

Arnie

[Patrick L.]

They wouldn't own any part of your 4-plex.  It would just be attached to the other mortgage as additional collateral.  They would have the first mortgage on it so you wouldn't be able to refinance it.  If they foreclosed on the new property they would take both properties in the foreclosure.   By adding in an additional property it lowers the loan to value amount to make up for not making a full down payment.