Hi fellow investors. I purchased an 8 unit apartment building back in May. Thank-you Bigger Pockets! I used a HELOC to close. I have since stabilized the property. I approached a broker about refinancing the property and freeing up my HELOC. It was suggested that I amortize the property over 35 years on a ten year term to take advantage of low interest rates. Here's the surprising part. Turns out I bought the property CHEAP (Thanks Bigger Pockets) and using a 5 Cap rate I stand to take $500k out of the property and completely pay off my HELOC.
Great news right! Not so fast! I have spent my life being averse to debt so I am struggling with this scenario. On one hand I would love to take that cash and buy another property and on the other hand I wonder if I would be better paying this property off quicker and enjoying a debit free asset.
I have been watching Robert Kiyosaki, Dave Ramsey and Grant Cardone to try to reset my thinking. Has anyone else struggled with this problem/opportunity.
Thanks so much and happy investing!
Hi fellow investors. I purchased an 8 unit apartment building back in May. Thank-you Bigger Pockets! I used a HELOC to close. I have since stabilized the property. I approached a broker about refinancing the property and freeing up my HELOC. It was suggested that I amortize the property over 35 years on a ten year term to take advantage of low interest rates. Here's the surprising part. Turns out I bought the property CHEAP (Thanks Bigger Pockets) and using a 5 Cap rate I stand to take $500k out of the property and completely pay off my HELOC.
Great news right! Not so fast! I have spent my life being averse to debt so I am struggling with this scenario. On one hand I would love to take that cash and buy another property and on the other hand I wonder if I would be better paying this property off quicker and enjoying a debit free asset.
I have been watching Robert Kiyosaki, Dave Ramsey and Grant Cardone to try to reset my thinking. Has anyone else struggled with this problem/opportunity.
Thanks so much and happy investing!
If you're debt averse, maybe just pull enough out to pay off the HELOC. There's no rule that says a cash out refinance MUST be for the max you can get. And this will allow you to use that same HELOC for the next one -- recycling is good for the environment, right? :P You did all that paperwork to get the HELOC, why only use it once?
Unsolicited, but my ratings of the following:
Kiyosaki - Pretty good. Some of the anecdotes in his book are a tad implausible, but I'll grant artistic license.
Ramsey - Good for people that struggle with debt addiction. Whenever someone calls me to consolidate $50k in credit card debt, I do the cash out refi, and finish with a referral to Ramsey. But not everyone needs the Ramsey medicine, just like not everyone needs to join AA, some people can have a beer and not get blackout drunk. No credit card debt except a little "rewards points" on the side, modest/no car payment, 775 FICO, living well within their means? Yeah, that person probably doesn't need the Ramsey medicine (OP, that seems like it describes you).
Cardone - Hard pass. I listened to one of his call-in radio-style youtube episodes. Someone with $2k to their name and no income with a rent payment coming due in a week, asked what to do. Cardone told him to invest his last $2k in Cardone's REIT. Yeah, pass, hard pass to boot. That's horrible advice.
Hey @Rob Mudd! Increase the velocity on your money. Leveraging an asset (smartly) will increase your returns and allow your money to do more. If the property cash flows decently while being leveraged, I would 100% do it.
I'd completely ignore Dave Ramsey on this topic, he preaches all debt is bad, but debt in this scenario is intelligent.
Hi fellow investors. I purchased an 8 unit apartment building back in May. Thank-you Bigger Pockets! I used a HELOC to close. I have since stabilized the property. I approached a broker about refinancing the property and freeing up my HELOC. It was suggested that I amortize the property over 35 years on a ten year term to take advantage of low interest rates. Here's the surprising part. Turns out I bought the property CHEAP (Thanks Bigger Pockets) and using a 5 Cap rate I stand to take $500k out of the property and completely pay off my HELOC.
Great news right! Not so fast! I have spent my life being averse to debt so I am struggling with this scenario. On one hand I would love to take that cash and buy another property and on the other hand I wonder if I would be better paying this property off quicker and enjoying a debit free asset.
I have been watching Robert Kiyosaki, Dave Ramsey and Grant Cardone to try to reset my thinking. Has anyone else struggled with this problem/opportunity.
Thanks so much and happy investing!
If you're debt averse, maybe just pull enough out to pay off the HELOC. There's no rule that says a cash out refinance MUST be for the max you can get. And this will allow you to use that same HELOC for the next one -- recycling is good for the environment, right? :P You did all that paperwork to get the HELOC, why only use it once?
Unsolicited, but my ratings of the following:
Kiyosaki - Pretty good. Some of the anecdotes in his book are a tad implausible, but I'll grant artistic license.
Ramsey - Good for people that struggle with debt addiction. Whenever someone calls me to consolidate $50k in credit card debt, I do the cash out refi, and finish with a referral to Ramsey. But not everyone needs the Ramsey medicine, just like not everyone needs to join AA, some people can have a beer and not get blackout drunk. No credit card debt except a little "rewards points" on the side, modest/no car payment, 775 FICO, living well within their means? Yeah, that person probably doesn't need the Ramsey medicine (OP, that seems like it describes you).
Cardone - Hard pass. I listened to one of his call-in radio-style youtube episodes. Someone with $2k to their name and no income with a rent payment coming due in a week, asked what to do. Cardone told him to invest his last $2k in Cardone's REIT. Yeah, pass, hard pass to boot. That's horrible advice.
@Chris Mason you just don’t like cardones style because you haven’t 10Xed your thinking. YOU MUST BUY MINIMUM 16 UNITS AS YOUR FIRST DEAL.
Joking aside, I’m not a huge fan of Cardone either
@Chris Mason you just don’t like cardones style because you haven’t 10Xed your thinking. YOU MUST BUY MINIMUM 16 UNITS AS YOUR FIRST DEAL.
Joking aside, I’m not a huge fan of Cardone either
My buddy saw a shirt that said "Don't be a little b...!" with his little 10X thing below it. Stay classy, Grant.
You need to run the numbers. It really depends on the cashflow the property generates and what you can buy with the $500k and the cash that will generate. Just like you buying low and selling high you will be be exchanging the cash for record level high priced assets. Rates are at record lows so that’s a bit of a wash as well but you will not be able to build equity like you did on this one unless you find a great value add deal. It’s all about tome value of money and velocity of the cash.
Solution - compound the cash by flipping or developing and use the profits to invest in other assets.
Hi fellow investors. I purchased an 8 unit apartment building back in May. Thank-you Bigger Pockets! I used a HELOC to close. I have since stabilized the property. I approached a broker about refinancing the property and freeing up my HELOC. It was suggested that I amortize the property over 35 years on a ten year term to take advantage of low interest rates. Here's the surprising part. Turns out I bought the property CHEAP (Thanks Bigger Pockets) and using a 5 Cap rate I stand to take $500k out of the property and completely pay off my HELOC.
Great news right! Not so fast! I have spent my life being averse to debt so I am struggling with this scenario. On one hand I would love to take that cash and buy another property and on the other hand I wonder if I would be better paying this property off quicker and enjoying a debit free asset.
I have been watching Robert Kiyosaki, Dave Ramsey and Grant Cardone to try to reset my thinking. Has anyone else struggled with this problem/opportunity.
Thanks so much and happy investing!
Hi @Jake S. . Thanks for the reply the property will cash flow around $200 a door so I'm pleased with that. Supercharging with leverage seems to be a very popular/favourable way to go.I recognize Dave Ramsey to be on the far end of the spectrum.
Thanks for your input! I appreciate your advice.
@Chris Mason Thanks for responding to my post. I appreciate you. Great observations and interpretations on the three fellows mentioned! I do believe in recycling and fully plan on using the HELOC again. Maybe I will not take the full amount offered and instead choose to lower the LTV to around 65-75%. This way I can have some dry powder and still be able to sleep at night.
Cheers!
@Caleb Heimsoth At this point I'd be happy/ecstatic to 2X my growth! Agree with your take on Cardone. He does seem a little on the fake side. I will say though that I have been able to mine some nuggets from his videos but it does require a healthy dose of skeptyasysum.
Cheers and Happy Investing!
@Rob Mudd your deal sounds like a pretty good deal, so I would just replicate that and ignore whatever the gurus say
@Greg Dickerson Thanks for taking the time to respond to my post. I appreciate your time.
Yes. having a plan for the funds is top of mind. My market is getting pricey too! I feel it's important to have dry powder for the right opportunity but you know how Murphy works!
I hadn't thought about you solution. Definitely worth thinking about!
Im a big fan of buy High sell Low. Speaking Cap rates. Hard to find these deals though
@Dan H. Thanks for your sage advice. I appreciate your reply! My LTV would be 80% so I agree that 65-75 might be more in my risk profile. A little reward might be in order but top priority is scouring for another Buy High sell Low opportunity (Cap Rate)
Cheers!
Leverage responsibly.