HELOC Lenders (Shred Method)

[Jason Coleman]

Hey BP,

Do you know of any HELOC lenders that lend on investment properties? Preferably interest only and above 80% LTV.

While the market is stalling a little my wife and I are considering the "Shred Method" to pay off some of these properties faster. Has anyone used this method? I understand most of the interest rates we have now are minimal so we will likely keep paying the minimum balance each month. However, we are considering attacking the higher loan amounts and the loans with a higher interest rate? I understand the net profit amount would be higher if we continue to leverage and scale, but there is something to not having a mortgage on half or all of our portfolio that interests me from a psychological standpoint. My wife and I own 4.5M worth of RE and have about 1.75M in equity. Good problem to have but I want to start paying off some of these loans to increase cashflow and make us impenetrable during a market downturn.  Thoughts? 

[Alex Hunt]

Hello Jason,

Usually, HELOCs for investment properties come with elevated interest rates, ranging between 12-15%. Additionally, they may only permit you to borrow up to 75% LTV (considering your existing note). It's essential for the property to maintain a DSCR Ratio of at least 1.0 across both notes.

Considering the present market conditions, refinancing might be a more advantageous option for you.

Please don't hesitate to direct message me if you'd like to discuss this further.
Thanks,*

[Caroline Gerardo]

None for above 80% loan to value. Non owner HELOC's are in the 75% ltv. or less.

Rates 10-22% are  and 15 year amortized this is not a good plan to pay off your lower rate first trust deeds

Shred Method is foolish if you have a rate in the 3's 

Having a mortgage with a low rate is better than a free and clear property. Fraudsters can try to attack a free/clear property with many scams but if there is a mortgage they have to pay it off to execute.

[Brittany Minocchi]

They're available, but not at 80% LTV. You'll max out at about 70%. If you're open to a closed end second (you can't make draws, it's lump sum), you could get up to 85% with a FICO of 700 or better.

[John Clark]

I disagree. A better and cheaper alternative is to put the paid-off property into a land trust. The land trustee then becomes a second set of eyes and ears (and a more credible witness when saying a deed was forged), preventing/reducing title theft.

[Caroline Gerardo]

@John Clark He can't transfer to land trust with a conventional mortgage. His plan is to pay down low interest rate mortgages with higher rate seconds, then have one maybe free/clear in time. He doesn't have a paid off property today.

With a land trust, a bad guy can see who owned the property before the transfer to a land trust so it's not really secret.

In a lawsuit a judge can order full disclosure from the Land Trust of the real owner (not just the trustee) and go after the person . 

With Land Trust you still have to file with IRS and state and form 1041 so that also not so secret.

The trustee has to be honorable, which you never know with money...

Title theft happens, it's rare. Lawsuits happen more often.

[John Clark]

Quote from @Caroline Gerardo:

@John Clark He can't transfer to land trust with a conventional mortgage. His plan is to pay down low interest rate mortgages with higher rate seconds, then have one maybe free/clear in time. He doesn't have a paid off property today.

With a land trust, a bad guy can see who owned the property before the transfer to a land trust so it's not really secret.

In a lawsuit a judge can order full disclosure from the Land Trust of the real owner (not just the trustee) and go after the person . 

With Land Trust you still have to file with IRS and state and form 1041 so that also not so secret.

The trustee has to be honorable, which you never know with money...

Title theft happens, it's rare. Lawsuits happen more often.

He's not touching property with a mortgage, remember? I said "paid-off property."

If I sell to you and you want it put into a land trust initially, then I deed into a land trust. "Bad guy" doesn't know for sure who owns it, and in any event, he now has to forge a trustee's deed to do something with the property. Hence, greater protection from title theft, which was the original point of what I was responding to.

Yes, judges can order disclosure. What's your point? I defy you to name a title vehicle that cannot be pierced, even LLCs owning LLCs.

Yes, have to file tax returns, but you don't know what your neighbors' tax returns say, and courts don't order turn over of tax returns as a matter of course, and even then, it's usually after judgment has been rendered.

Trustees have to be honorable, which is why I use established banks and trust companies.

Having your property in a trust will not protect it from a lawsuit. Having your property in your name will not protect it from a lawsuit. Having your property in a trust to protect it from scammers committing title theft, however, is cheaper than maintaining a mortgage on the property just to help prevent title theft, which is what was mentioned.

[Caroline Gerardo]

@John Clark he doesn't have a free and clear property, they all have mortgages. If he files a transfer deed to the Land Trust or if he "sells it" then property taxes increase, the change in hazard insurance becomes a tangle.

I wouldn't give authority to a bank person to collect rents, file evictions, deal with repairs... there are set up costs and on-going management costs. Also tax consequences. We don't know what states the properties reside.

Florida, Georgia, Hawaii, Illinois, Indiana, Montana, South Dakota, Virginia have different laws.

[John Clark]

Quote from @Caroline Gerardo:

@John Clark he doesn't have a free and clear property, they all have mortgages. If he files a transfer deed to the Land Trust or if he "sells it" then property taxes increase, the change in hazard insurance becomes a tangle.

I wouldn't give authority to a bank person to collect rents, file evictions, deal with repairs... there are set up costs and on-going management costs. Also tax consequences. We don't know what states the properties reside.

Florida, Georgia, Hawaii, Illinois, Indiana, Montana, South Dakota, Virginia have different laws.

He talked about paying off mortgages. You said free and clear properties had title fraud risk and therefore he should keep small mortgages. I said that the same protection can be had for less money than having mortgages by putting the paid off properties into trust.

most states have upheld the “Illinois land trust” — has nothing to do with Illinois per se. it’s a description of how little a trust can do without being declared passive and therefore executed.  

No trustee will take an assignment of the power to collect rents, etc. Your concerns are not valid. If the original poster wants to increase equity and create safety (and keep the little woman happy) financially, then maintaining leverage (mortgages) is not necessary if title fraud is a major concern; put the paid-off properties into land trusts.

[John Clark]

Quote from @Caroline Gerardo:

@John Clark he doesn't have a free and clear property, they all have mortgages. If he files a transfer deed to the Land Trust or if he "sells it" then property taxes increase, the change in hazard insurance becomes a tangle.

I wouldn't give authority to a bank person to collect rents, file evictions, deal with repairs... there are set up costs and on-going management costs. Also tax consequences. We don't know what states the properties reside.

Florida, Georgia, Hawaii, Illinois, Indiana, Montana, South Dakota, Virginia have different laws.

Oh, and by the way, an attestation to the insurer and others (mortgagee) will not change premiums nor constitute a “sale.”

There are considerations such as the loss of asset protection after judgment (beneficial interest is personal property, not real property), but if the property is clear of a mortgage and the concern is title theft (a concern you raised), then putting the property into a land trust is probably a lower cost alternative to maintaining a debt (which irritates the wife).

[Mike Bargetto]

@Jason Coleman

I would just focus on increasing overall net worth/cash flow instead of paying down what is likely very cheap money-especially when you’re likely to borrow it again in the future. This will decrease the overall burden of your debt. The current interest rate environment’s impact on HELOCs will offset any potential benefit very quickly. I think it’ll cost you more in the end.

In the meantime consider just storing your cash in a vehicle that offers a stable/consistent ROR.

[Don Konipol]

Paying off a low interest rate loan with a high interest rate loan is NEVER a good idea, no matter how it’s sliced, diced, or sold.  
If the goal is asset protection utilize bankruptcy protected assets such as retirement accounts, homesteads, private annuities, etc; an asset protection “plan” that utilizes limited partnerships, foreign asset trusts based in Nevis or the Isle of Mann, or renounce your American citizen ship and move assets to Lichtenstein.  If the goal is increased equity and wealth then upgrade properties judiciously and increase rents or trade up using real estate exchanges.  If the goal is psychological because you have too much debt to sleep well at night then sell some properties and use the proceeds to pay off the debt on your remaining properties; or better still obtain the services of either a psychologist who can get you over your uneasiness or seek out a financial advisor who can convince you of the difference  between consumer debt “ bad” and investment/business debt “good”. 

[Tony Jones]

@Jason Coleman Good question you asked. Did anyone actually answer your question? I would like to know.