Borrowing Against the Property to Buy the Property

TRANSCRIPTION

Hey this is Terry Hale,
commercial real estate trainer.
I had just finished
this awesome negotiation
and I wanted to talk about
the strategy that I used
to be able to get in on this deal
and borrow against the
property, to buy the property.
Alright, so it’s an advanced tactic,
but I’ve been using these tactics
and they’ve been done in big
corporations for a long time
to buy businesses as well.
And I wanna share it with
you, on a smaller scale
of what I do.
So of course, I purchase all
types of commercial property.
This one happens to be
a multifamily, 42-unit,
and the property had some
vacancy so there was an upside,
which is great.
But here’s the strategy that I used.
It’s called a subordination tactic.
What I did, was I created
a seller financed note
on the property because it
was owned free and clear,
meaning no debt-encumbered
on the property whatsoever.
I created a seller-financed note,
minus 20% of the purchase
price, so I put some skin
in the game, 20%, and I borrowed
that from a private party.
So borrowing that from a private party
means I have none of my
own skin in the game,
it’s a non-recourse structure,
so there is no personal guarantee,
never had my credit checked,
but here’s where the tactic
comes into play on the
subordination clause.
The subordination clause states
in my seller-financed note,
the seller financed note
went into the first position.
It has a subordination clause that states
that when I bring in a
certain amount of capital,
which happened to be
capped out at $300,000,
I can put that capital in the first position
and their seller financed
note gets subordinated
to a second position. So they
slide into the second position,
to allow a new first.
This right here is the
golden key to success
on this advanced tactic that
I’m making simple for you here,
because it’s easy to get
a loan in the first position,
especially when it’s gonna be in front of
a significant dollar
amount, like $810,000.
So now I can borrow easily
against this property
and the way it works is,
I’m borrowing against
their property, to buy their
property. Awesome technique.
I hope you enjoyed this little segment
of Advanced Strategies
Made Easy. If you dig it,
check out the link below,
I look forward to engaging
with you again in the
future. Take care. Talk soon.