An Equity Question?

What if your client should want more security and more cash out of the deal as well? His best bet would be to split the $28,500 in to two new second notes- one for $14,000, secured as a junior lien against the duplex; the other note for $14,500, as a new second secured by the home he is selling to the buyer. By going this alternative route, the buyer still only brought $6,500 in cash to the closing table and your client is still holding $28,500 in secured real estate notes. But now, your client has much deeper equity behind each note ($90,000 + $14,000/$140,000 = 74% CLTV, and ($90,000 + $14,500/$125,000) = 84% CLTV. Now, what about that extra cash your client wants to pull out of this transaction? Frankly, this deal is still a little thin, but the duplex property has a two-year history under the buyer, and a deeper equity cushion. All things considered, your seller may still be able to sell the duplex note for perhaps $7,000 (depending on rate and term).

What if he needs $10,000? Well, that gets a little trickier but if he is willing to accept the possible risk of loss, your client can offer the 2nd real estate note he is holding against the house, as additional collateral for the duplex note. Or in other words, the note buyer would purchase the note secured by the duplex, which is additionally secured by the real estate note against the house. Your client still holds the house note, but in the event of default on the duplex note that was sold to the note buyer, your client may lose the real estate note on the house, but only if the note buyer is unable to recover $10,000 out of the defaulted note. And if the real estate notes are structured properly, your client can take steps of his own to protect his interests in both real estate notes. The result is that a deal with apparently little equity, now has a much higher protective cushion. Contact me for more information on structuring equity on a real estate note.