When you use private money for real estate investing there are several clauses your lending agreements should never be without. One of those clauses is the ?Substitution of Collateral? clause. Here?s how it works.
Wouldn?t it be great to be able to just swap one property for another on your mortgages? Of course it would, and when you use private money for real estate investing, you can? just by including one little clause in your private lender?s notes.
Here?s how the clause would read.
“Borrower reserves the right to substitute like collateral of equal or greater value” Did you see what just happened? By inserting one tiny little phrase in your private notes, you?ve created a scenario where you don?t have to pay off your loan and get a new one every time you sell and buy property. The flexibility and power this one little clause will give you is outstanding. Suppose you own a duplex that you used private money for real estate investing to obtain, but now you have the opportunity to sell at a large profit. Instead of worrying about the hassle of paying off the note and getting a new loan for your next property, why not just go out and find an equal or greater value property to invest that money in.
Once you finalize the transaction, it?s important that you file your lender?s security against the property with the appropriate government agency, normally your county clerk. Your lender will most likely insist on having a mortgage or deed of trust on file to protect their interest.
The flexibility and leverage this clause gives you is yet another great reason why using private money for your real estate investments is a wise idea.
Your investor will be happy to keep his money working, and you will too. It?s a win-win for both of you, and it?s possible because you thought to include a ?Substitution of Collateral? clause in your private money for real estate investing note. For more information visit http://www.private-money-real-estate-investing.com
Smart? very smart.
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