Recently a client engaged us to help them acquire an investment property that required an urgent settlement within the fortnight, that other lenders had failed to deliver on. The strategy was to renovate a Victoria style home in a prominent Melbourne suburb in a specific street, that commanded a premium price.
Private Lenders
Most private lenders that did a desktop valuation of this asset however failed to recognise the assets unique value, and future value of the asset once renovated. Worst yet despite the quality of the assets and the large amount of equity the client had across his portfolio, the major banks did not wish to help him.
This is really where private lending excels, and where having access to family offices like we do at Royce Stone Capital, makes all the difference.
Equity Release Via A Second Mortgage
To facilitate the settlement of the investment property, the client required an equity release from existing assets that he owned, which required the use of a second mortgage loan. This amount would then sit as the equity component for the purchase of the investment property. Additionally a private first mortgage loan would be used for the purchase.
First Mortgage Vs Second Mortgage
The question then becomes in such a situation, should two loans be done? A first mortgage private loan, and then a second mortgage private loan? Or should the two loans be merged and asset security cross collateralised, reducing the risk of the loan?
Due to our extensive networks we were able to source funds from a wholesale fund that works with Royce Stone Capital that brokers don’t have access to, who like to do higher risk second mortgage and caveat loans, who understand specialised assets.
A Blended Private Lending Solution
We engineered a cross collateralised security loan for the client which reduced the risk profile of the client and the deal. The loan used a blended rate of first mortgage and second mortgage rates, but a discount was applied due to the cross collateralisation.
Ultimately this blended solution was cheaper than doing a first mortgage and second mortgages on their respective own. Firstly, the blended rate was cheaper it terms of capital cost, it cut out multiple legal fees, and two different app fee rates were avoided. Furthermore the client was able to secure funding within the fortnight.
