Leverage your Buying Power With Blanket Mortgages

Leverage your Buying Power With Blanket Mortgages

Most real estate investors have two simultaneous goals they want to achieve from their investments. These are equity and cash.

Sometimes they are intertwined; for example, when you sell your property you convert your equity into cash. But sometimes they are completely separate, as happens when you have a property that generates cash as a rental but it has no current equity in it.

Of these two, cash is still king.

You want to hold on to (or generate) cash for your own personal living expenses. But what happens if you see a great deal on an investment property and can’t buy it without putting up your own cash or taking on a new loan or a partner?

A blanket mortgage could be the answer.

What is a blanket mortgage?

With a blanket mortgage, you give the lender a lien on a piece of property (or properties) that you already own as additional collateral for the loan on the property you are purchasing.

Many times, a private investor might be leery to lend on a single property, but if the loan is being secured by multiple properties, then the lender may feel it is a safer investment and provide you with financing.

Here’s how it works

You want to purchase a property for $500,000. You find a lender, or possibly even the seller, who is willing to loan you $350,000 toward the purchase price. You are in position to use only $50,000 of your own money to acquire this property. This means that in order to get the property, you will either have to find someone who is willing to hold a second mortgage on the property for $100,000 or you will have to put up more of your own cash.

You are aware that even if you can find a lender for the second mortgage, the terms will be horrible due to the lender’s position in title and the additional risk.

However, you do have three other properties you own that are worth much more than the loans currently on them. In other words, you have equity in these properties.

What you can do is offer the lender willing to loan you $350,000 a blanket mortgage that includes the property being bought and the three additional properties you own.

Use your equity; save your cash

Now you are offering the lender four pieces of property as collateral for this purchase.

Even if the lender is in second position on the blanket parcels, when the equity in your properties is sufficiently attractive, the lender likely will feel more secure; after all, if you default, there will be multiple avenues for them to use to collect against you.

So, with a blanket mortgage, the lender is willing to loan you the complete $450,000 you need as a single first mortgage, and with better rates and terms than a first and second.

You have used your equity to leverage your buying power and saved your cash for other investments or personal use.

Just be careful, because if you do default on this loan, you have now put your other properties at risk of foreclosure.

Picture Credit: Flickr

Contact a Texas Commercial Real Estate Agent today:

KWCSA_09Luke LeGrand, ePRO 210-843-5853


Leverage your Buying Power With Blanket Mortgages

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