Real estate investors and their Brokers have seen it all – sellers backing out, unreliable lenders, partner disputes, and just about everything else that could go wrong in a real estate transaction. However, one universal problem tends to rear its head often: Equity-rich real estate portfolios, but limited liquidity or income.
This combination can be a serious thorn in the side of Investors & business owners trying to secure new properties, and for brokers trying to secure, fast & effective mortgage financing for their clients. Especially in today’s market, brokers know they need to stay flexible and creative.
That’s where Cross-Collateralization comes into play.
What is Cross-Collateralization?
Cross-collateralization is a loan structure where the lender uses more than one property as collateral to secure a single loan. Instead of relying on just one asset to meet the required LTV and/or loan amount, the borrower pledges multiple properties, which may include fully owned or partially leveraged assets, to strengthen the overall deal.
This strategy is most effectively used in hard money lending when:
- The primary property alone doesn’t provide enough equity
- The borrower wants to access more capital
- The hard money lender wants additional security for the loan
Cross-collateralization allows borrowers to unlock equity across their portfolio and gives private lenders a stronger collateral position making it a powerful tool for complex or higher-value transactions.
What this can mean for brokers:
By adding cross-collateralization as a tool in your lending arsenal, you have the opportunity to serve a wider range of clients, and a competitive edge – getting deals done where others can’t.
So, when is the right time as a Broker to suggest cross-collateralization? Here are some examples of loans we have closed by crossing multiple properties to secure a single loan:
- Self-employed borrowers with strong equity
- We have a regular client that owns multiple senior living homes – typically an SFR that houses 4 or 5 seniors. He has been steadily growing his business utilizing our hard money lending services by cross collateralizing his existing senior living homes to raise the cash to buy additional properties. Most conventional lenders, including DSCR lenders, will not lend on a senior living home, so creativity is the key to making these deals work. Using cross collateralization to increase his borrowing power, this particular client went from 1 property when we started, to where he is now: owning 5 senior living homes across San Diego, and is now considering expanding to Los Angeles.
- We have a regular client that owns multiple senior living homes – typically an SFR that houses 4 or 5 seniors. He has been steadily growing his business utilizing our hard money lending services by cross collateralizing his existing senior living homes to raise the cash to buy additional properties. Most conventional lenders, including DSCR lenders, will not lend on a senior living home, so creativity is the key to making these deals work. Using cross collateralization to increase his borrowing power, this particular client went from 1 property when we started, to where he is now: owning 5 senior living homes across San Diego, and is now considering expanding to Los Angeles.
- Investors with multiple properties but tight on cash
- One of our long term investor clients specializes in purchasing fix and flip properties. He owns about 25 rental properties with great rental income but during covid, many of his renters did not pay rent for close to 3 years. The fix and flip business was booming at that time, however his cash flow was almost non-existent. There were multiple opportunities to purchase fix and flips, so by structuring hard money blanket loans on his existing properties, we were able to get him the cash he needed to have 10+ flips going at the same time in the Bay area cities of Mountain View, San Jose, Cupertino and Sunnyvale. Looking back, each of those deals ended up being incredibly profitable for him – and wouldn’t have been possible without the use of cross-collateralization.
- One of our long term investor clients specializes in purchasing fix and flip properties. He owns about 25 rental properties with great rental income but during covid, many of his renters did not pay rent for close to 3 years. The fix and flip business was booming at that time, however his cash flow was almost non-existent. There were multiple opportunities to purchase fix and flips, so by structuring hard money blanket loans on his existing properties, we were able to get him the cash he needed to have 10+ flips going at the same time in the Bay area cities of Mountain View, San Jose, Cupertino and Sunnyvale. Looking back, each of those deals ended up being incredibly profitable for him – and wouldn’t have been possible without the use of cross-collateralization.
- Businesses with asset-rich balance sheets but inconsistent revenue
- We closed a loan for a borrower in Ontario, CA that is in the auto sales business. He had great cash flow, but the majority of his liquid funds were tied up in automobile inventory. He had an opportunity to purchase an existing car lot for $950,000, but needed to close quickly and did not have the cash to do it. He owned 2 SFR’s in Perris that were free and clear. We were able to provide a single hard money loan by collateralizing all three properties, which enabled him to purchase the property and business with very little cash out of pocket. He then refinanced with an SBA loan, which took about 6 months to close, and paid us off. He originally contacted another hard money lender looking for a 10% down hard money but was turned down as the LTV was too high. That lender never even asked if he owned other properties!
Why Work with Vantex Capital on Cross-Collateral Deals?
At Vantex, we specialize in structuring creative, hard money asset-based loans, including cross-collateralization, without the headaches and red tape of traditional financing.
Here’s what sets us apart:
- Direct Lending Power: We underwrite, doc, and fund in-house, so there’s no delay waiting on third parties.
- Experience with Complex Structures: You’ve seen above just some of the cross-collateralized deals we’ve worked with, and that’s just a small sample. Whether we’re working with two properties or ten, you can trust that we know what we’re doing.
- Fast, Clear Answers: We give our prospective clients real-time feedback on deal scenarios, so you can set expectations with confidence.
Whether your are trying to unlock equity across your portfolio or close a time-sensitive deal that wouldn’t pencil with just one property, we’re ready to help structure the solution.
Need a quote or second opinion? We offer free consultations for brokers and borrowers. Contact us here.
Curious about how we work? Check out our FAQ page for answers to common questions.
Where can you find us? Remember you can also find Vantex on Linkedin, and X.
