Cross Collateralization: Using Equity to Fund Deals with ZERO out-of-pocket

By Will Heaton


A cross collateralized loan is simply a loan where more than one property (asset) is being used as collateral. For example, you use a rental property you have some equity in as collateral to secure your loan against a flip you are purchasing as an easy way to use less of your own capital. The two caveats to this type of loan are the collateral home has to be in Western Washington and CANNOT be owner-occupied. Intrust Funding will typically lend up to 65% of the homes fair market value (FMV) so if you own a free and clear home worth $300,000 we can lend up to (300,000 * .65) = $195,000. The real beauty of the cross collateralized loan is that we can even structure your loan so you have an interest reserve built-into the loan so you have no monthly interest payments, no upfront fees, no down payment and if you get a construction loan, no upfront rehab costs either. There is absolutely no better cash-on cash return in a real estate investment than a collateralized property loan from Intrust Funding!

Let's look at some examples:

For our first example, you own a beautiful vacation home in the San Juan Islands that is worth about $300,0000, but sadly you only make it over a couple times a year. You have it listed on Home Away and Airbnb; it earns good rental income and is fully paid off so you are going to keep it in' your portfolio. You just found a great project to flip, the purchase price is $500,000 and you think that it is going to need $90,000 to get it market ready in 6 months with an ARV of $775,000. Intrust Funding will secure the loan by going in first lien position on both your vacation property in the San Juan Islands and your new flip project. You have requested a construction loan with an interest reserve so you won't have to pay a dime out of pocket and your only additional costs from our normal construction loan is a $975 fee per collateral property that you want to borrow against.

Another example: You have a home you inherited awhile back with a long term renter that you do not want to worry or disturb. It's no great shakes, but they pay their small rent amount on time and are easy tenants. Let's say FMV for this home is $150,000, so using our underwriting guidelines we can lend you up to (150,000 * .65) = $97,500 to use as down payment for your next flip project. Which is great, because your money is tied up at the moment and you found a home with a $240,000 purchase price and you estimate that it will take you 5 months to complete the $40,000 worth of rehab and sell. Same as last scenario you request an interest reserve and a construction loan so you pay nothing out of pocket. When you finish your project you are able to sell it for $380,000 and make just over $50,000 on this deal using $0 of your own money.

Imagine if you were able to do this every 6 months and either build wealth for your retirement, increase your rental portfolio or just use this as a way to start investing in real estate with truly no money out of pocket.

To see if your property qualifies for a cross collateralized loan or to get prequalified for a loan on your next investment, contact Carolyn Gossett at [email protected] or 425.999.5203

If you haven't been to our Investor 101 Class, please join us every other Monday to meet our team and learn about the investment process. Visit our website for more information.

About the author…

Will Heaton is a co-founder and managing partner at Intrust Funding. As the fund manager, he is responsible for investor relations, underwriting, and new business development. Will has over 10 years of experience in multifamily and residential real estate. Drawing on his comprehensive knowledge of renovation financing and construction management, Will uses a value-add approach to complete his multifamily and residential real estate projects. He regularly gives educational lectures to real estate investors and has been quoted on numerous occasions in well-respected publications. Will has been recognized by the Master Builders Association and Built Green for his work with LimeLite Development and Infinity Land Management. He is an enthusiastic member of the community and enjoys participating in various non-profit groups throughout King County. In his free time, Will enjoys adventures with his wife and their two children, classic cars, and fishing.•

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