In this example a real estate firm wants to purchase an office building for $5,000,000. The firm needs a new hard money loan for $3,250,000, which is 65% of the property's quick sale value. This leaves a balance of $1,750,000 to be financed. The firm must put $1,000,000 of its own cash or equity into the purchase (20% minimum borrower investment isrequired). The remaining 15% balance is $750,000, which can be financed with a seller carry back or other subordinated2nd mortgage.
$ 5,000,000 quick sale price - 3,250,000 hard money loan (65% of appraised value) 1,750,000 balance
1,750,000 balance - 1,000,000 borrower cash or equity (20% borrower investment is required) - 750,00015% seller carry back or other subordinated 2nd mortgage $ 0,000,000
Example B:
In this example a real estate investor wants to purchase an apartment building for $8,500,000. He needs a new hard money loan for $5,525,000, which is 65% of the property's quick sale value. This leaves a balance of $2,975,000 to be financed. The invester must put $1,700,000 of his own cash or equity into the purchase (20% minimumborrower investment is required). The remaining 15% balance is $1,275,000, which can be financed with a seller carry back or other subordinated 2nd mortgage.
In order to help this investor qualify for a new hard money loan, the funding source can use a blanket loan. A blanket loan is a single loan over the property to be purchased, and over a second property already owned by the investor, to come up with the 20% minimuminvestment required of the borrower.
The second property, which the investor already owns, is another apartment building he purchased sevenyears ago. Today, the quick sale value of this property is $3,500,000, with a balance of $575,000 owed on it. The funding source can blanket a single loan over the apartment house to be purchased, and over the apartment house already owned by the investor.
65% of the $3,500,000 quick sale price is $2,275,000, minus $575,000 to pay off the existing loan on the second property. This leaves the investor with $1,700,000, which can be used for his 20% minimuminvestment in the purchase of the new property.
1. Apartment building to be purchased by the investor.
$ 8,500,000 quick sale price -5,525,000 hard money loan (65% of appraised value) 2,975,000 balance
2,975,000 balance - 1,700,000 borrower cash or equity (20% borrower investment required) - 1,275,00015% seller carry back or other subordinated 2nd mortgage $ 0,000,000
2. Apartment building already owned by the investor.
$ 3,500,000 quick sale price - 2,275,000 hard money loan (65% of appraised value) - 575,000to pay off balance owed on property $ 1,700,000 to be used for 20% borrower investment in new property
3. Blanket loan over both properties
$ 12,000,000 combined quick sale price of the two properties
$ 7,800,000 new hard money loan (blanket loan
(65% of combined quick sale price)
- 575,000 to pay off loan on old property - 5,525,000 hard money for new property to be purchased - 1,700,00020% borrower investment in the purchase of new property $0,000,000
