"Replace Your Mortgage" HELOC Strategy

[Account Closed]

Hi all. Apologies if this topic is addressed in another part of the forum; I've checked through and couldn't find anything which specifically addressed my question. 

I am a young investor with no experience when it comes to the real estate market. I have begun doing a lot of research and really enjoy and value the resources BiggerPockets is putting out. In doing my due diligence and trying to learn as much as possible, I have come across a company called "Replace Your Mortgage". I am curious if anyone else has found this site and could provide their experience or thoughts in general about the company's HELOC strategy.

When it seems to good to be true it usually is, but this strategy does make a lot of sense at least on paper. Yes, when following this strategy the individual must be very diligent in keeping up with the cash flow required, but if they do, I do see how it makes sense even with the variable interest rate associated with the HELOC.

Any thoughts/suggestions?

[Seattle Eltons]

I too was intrigued by this when I saw the video by Michael Lush so I started looking into it. Live in one unit of a 4 plex and found a Credit Union here in Seattle that agreed to take the first position of my Home, and because of appreciation and my initial 20% down payment, I was able to get the full 500k. Since my loan was 430 I had 70k open to me. Then I sold another property and instead of sitting on the cash I put it in my HELOC, that way instead of getting .05% in the bank, I was getting about 2k on it because I no longer had much of a payment (about 80k). It also has an intro rate of 1.9 percent which means in the first year alone I'll have paid the debt down to such a large extent interest rate won't make a big difference. It's capped at 7%. But I'd rather pay 7% on 100k then 4% on 350k. Simple math.

Then, all of my incoming rents and my paycheck paid it down each month. I suddenly owed about 60k in 2.5 months. Then I found a deal that I couldn't pass up so I got a massive discount on it since I was paying cash from the HELOC (really hard to do in Seattle). The money was working for me when I had access to it, and ready to go when I found an opportunity worth investing in. I've been singing the praises of this ever since I got mine done back in November, and it truly is the best of both worlds. Access to the cash when you need it, but keeping your interest payment low when you're not using it. I didn't use replace your mortgage at the time because I found the bank myself. I moved all my banking to the institution that issued the heloc. There are many advantages that I didn't realize then, that I realize now, aside from the obvious which I just mentioned.

1. I feel less exposed to the markets now because my principle is getting paid down so aggressively, a 10% swing is easy to stomach since I'm easily getting more than 10% of equity in less than 6 months (depending on the size of my paychecks which fluctuates).

2. I'm no longer compartmentalizing my debts from my earning. Psychologically, I now associate it all as one thing. Every time I write a check off my heloc account I see my debt rise. And every time I deposit rents or paychecks, I see my debts go down, my interest payment go down, and wealth go up. 

3. I get a small rush each month when I see how much debt I've eliminated. I have several other rental properties and I'm going to try and get a heloc in first position on each of them as well. That way I can get access to the capital as well as pay them down faster. If I don't see any good deals then I just pay debts down more quickly while waiting for the next recession or whatever.

4. I realize that the obsession with interest rates is exactly what banks want you to obsess about. They profit from people focusing on interest rate and monthly payment totals. This is how they make money, and why banks always own the most valuable real estate in every major city. Think about it. 

I wondered if it was too good to be true when I first started and I can say that it isn't. It's the perfect product, and the 30 and 15 yr fixed loans seem like such a ripoff in comparison. But it depends on if you have some equity in your home and you're cash positive at the end of every month. Most banks won't do it if you have less than 20% equity.