Has anyone ever used an All-in-One Loan instead of a fixed loan?

Question

The flexibility of an All-in-One loan has some appeal on a primary residence to be able to keep your equity working for you. The lender gives you a 1st lien HELOC with a 10-yr draw period, rate is variable , and it is attached to a checking account where the money sweeps nightly as needed to keep the account at $0. I was wondering if anyone has experience with this type of loan and what have been some of your learnings?

Thanks!

Brian Goss · Answer

I was just wondering if anyone has used them for RE investing and what they have learned since it is a very unique mortgage product.

David M. · Answer

@Brian Goss I guess I don't understand your circumstances.  If you are using it for flips or some sort of brrr, then you are starting with an undrawn heloc effectively.  If you are doinga  long term deal, the undrawn heloc becomes a variable rate mortgage.

In the former, its just cash sorting / sweeping.  You'd better be doing that right now.  Say, have all your liquid cash in a brokerage account getting 5.25%.  have your pay check go there and pay your bills out of that account.  you'd better be paying credit cards and bills at just about the very last day of your float time.  If you can't live that lifestyle successfully, this all-in-one system is just smoke and mirrors / feel good

In the latter, you still need to live that sort of lifestyle above, and be hustling and hoping that the rate drops so that you can catch up.  The lifestyle, as I call it, has to be better than a fixed rate mortgage.

If you start off with a drawn heloc, well, its going to take a while to build up any appreciable equity to draw upon.  If you need that equity to do a deal, it must be a very small deal (buying a used car??) or you just don't have the wealth for the deal.

Is there something else I'm missing about this strategy?  That's just what I see.

David M. · Answer

@Brian Goss

So, if you want access to your equity..  just get a regular hloc, and if you are really hard over about the all in one process, you can still do it...  Anyway, this is where real estate investing "breaks down" with this "build up equity" vs. "accessing equity."  Some people don't have enough money and are trying to stretch it.  Part of the long investing is to build up equity.

For that matter, get an interest only loan...

So, after 10years, it basically becomes a 20yr loan?

Brian Goss · Answer

@David M. All good points. Paying down a fixed loan doesn’t give the immediate access to the equity to make another investment if the opportunity arises. You would have to do a cash-out refi or have a HELOC already in place that continues to grow as you pay down your principal. What I read about the all-in-one loan is that the line amount is not due back after 10 years but that the amount you can borrow gets decreased by 1/20th in the 11th yr and then 1/19th the next year and so on until the line is down to $0 by year 30. I’m an not comparing this vs a FRM for debt payoff reasons but from a financing option in place of hard money.

David M. · Answer

@Brian Goss

I haven't done one, but from what I've seen you need to be HYPER vigilant with your cash flows and payments, for all your expenses.  if you don't, you are not really getting the benefit.  And, you need to keep doing it.  Its becomes a lifestyle.

You REALLY need to be into that "lifestyle" since I believe your rate is higher.  So, you have to "beat" that difference.  Then, you need to keep managing your payments to actually have savings to make it worth while.

Maybe with automatic payment stuff and you can request changes to your credit card due dates, you can take as much advantage of the float.  I haven't run any numbers on this, but I've seen similar setups and at some point you are really just ahead the month.  So, potentially in theory if you get ahead by one "payment" you are already doing pretty good.

You need to be "ahead" on your income/loss, not "behind."  Some people don't have financial situation, nor have the bookkeeping to track or maintain it.

Again, I personally find it very stressful just thinking about living that way for the life of the loan keeping the lowest daily balance possible.  Just making extra monthly/periodic principal payments is good enough for me :)

Of course, you need to be a "saver," not a "spender."  It IS having a massive credit limit/card...

And, what do you do after your 10yr draw period is up?  And, beating 10% is pretty hard.  Rather just get a fixed rate loan at ~7% and pay down principal.

Just my two cents.  Happy to chat.  Good luck.

Brian Goss · Answer

The max rate (cap) I saw in documents was 9.96% but I think it would be different based on the borrowers credit score and situation.

Caroline Gerardo · Answer

Max rate is 22% ?