financing secrets of a millionaire real estate investor.pdf

76 FINANCING SECRETS OF A MILLIONAIRE REAL ESTATE INVESTOR
• Copies of recent bank statements, retirement plan accounts,
and brokerage accounts
• Any other relevant financial information concerning assets or
liabilities.
• References from other bankers, lenders, or prominent members
of your community, such as a judge, politician, or bank
president
The more information you provide up front, the less surprises
the lender runs into, and hence the less likely it will be suspicious and
ask for more documentation.
Subordination and Substitution of Collateral
Subordination is asking someone who holds a mortgage (or
deed of trust) on your property to agree to make his or her lien subordinate,
or second in line, to another lien. For example, suppose you
own a property worth $100,000 that has a first mortgage to ABC Savings
Bank for $65,000. If you want to borrow $30,000 from First
National Bank secured by a second mortgage, you would have to pay
a much higher interest rate because First National’s mortgage would
be subordinate, or second, to the lien in favor of ABC Savings Bank.
See Figure 5.2. A second lien position is riskier than a first lien position,
so the interest rate is generally higher to compensate the lender
for its increased risk. If you could convince ABC Savings Bank to move
its lien to second position, First National would now be a first mortgage
holder and thus give you a better interest rate.
Keep in mind that you can use subordination to draw cash on
properties you already own. If you* purchased a property with seller
financing, simply ask the former owner to subordinate his or her mortgage
to a new first. This may require you to give the seller some incentive,
such as additional cash or paydown of the principal. Either way,
subordination is an excellent way to finance a purchase or draw
money out of existing properties.