All Forum Posts by: David Stewart

It’s not a matter of not understanding the benefits. I did the math. I’ve now used two velocity banking advocates’ own spreadsheets to compare velocity banking as a method of paying off a mortgage early versus simply adding the equivalent extra payments on principal. (That is how velocity banking pays the mortgage down: it pays principal off early.) The results I got with both were: velocity banking pays off the mortgage marginally faster—three or four months faster—but  at a higher interest cost (plus fees), than simple, direct extra monthly or periodic payments on principal.

It works. It just doesn’t work at a lower cost than a far easier method, and it doesn’t free up any more money either. It works at a higher cost than simply adding an equivalent extra principal payment on your monthly payment, or making twice- or once-yearly lump payments on principal.

I made my money back in full years ago. Most of my ownership in Apple stock is what I gained after I sold back enough shares (the stock has split twice since I bought it, and has gone up about 20,000% since my initial purchase) to equal the dollar amount I invested in the first place. (Results not typical. Past results do not guarantee future performance.) I actually make the amount of my initial investment back in dividends in less than two years, but I made the original investment back long ago.

I didn't say cash flow was better in stocks and bonds than in real estate. I said they cash flow. How well they do, and how quickly you can make back your original investment, depends on the specific security. Capital return on stocks is historically higher than on real estate. I don't know about cash flow. But you have to wait until your home is free and clear to get cash flow like $700 a month. I don't think that most investors in rentals pay cash for their homes so that all of most of their revenue is cash flow.

Stocks and bonds both produce cash flow for me. Dividends and bond interest rates are cash flow. And I can pull 100% of my initial investment out of an appreciating stock (I’ve done it with Apple, e.g.), and still have growing and cash flowing investments.

Jesse, I know what you're going through. I just put up a very similar post about a week ago. And I don't have an answer that works yet.

Real estate is--real. A share of stock is a billionth share of the ownership of a company somewhere else. A bond is a loan to that company, and not much. A share of a mutual fund is a millionth of a billionth of ownership of a company. These seem more comfortable to my wife because of conventionality.

A house is something we live in. The very reality of real estate makes it scarier to some. It's present. It's easy to grasp a big loss because the market went to hell, easy to imagine a tenant tearing a house apart, because we're in a house every day and we pay a mortgage every day, and go through buying and selling homes every decade or so.

The numbers you can use to illustrate, though, they aren't real and they aren't certain. Not like a torn up kitchen because the tenant got angry you evicted them.

If you figure it out, let me know what works for you.

And at the end of each month, your total owed, 1st mortgage plus HELOC, totals exactly what it would total if you simply paid an extra $2000 on principal of the 1st mortgage, without taking out the HELOC.

Assuming the spreadsheet that @DavidDachtara posted is a correct representation of "velocity banking," the strategy does work, in that it can pay your mortgage down faster. However, it does not pay the mortgage down with a lower interest expense than simply making monthly extra payments on principal equivalent to the HELOC payments would. It pays it faster than monthly extra payments on principal, but at a greater interest cost.

To use the typical advertised example of 7 years, I calculated the default loan in David's spreadsheet, $200,000 at 5% on a 30-year loan, and the default HELOC rate in David's spreadsheet, 7.5%. With those numbers, and with the goal of paying the mortgage down in exactly 7 years, the HELOC payment on principal would be $22,000 a year, repaid at $1908.66/month (except the last payment, somewhat less). The interest on the 1st plus the interest on the HELOC over the 7 years totals $46,486.

The alternate payment, $22,000 divided by 12, is $1833.33 (but a smaller last extra principal payment). Paying this extra on principal monthly pays off the mortgage in 7 years and 8 months with a total interest cost of $44,921.

The HELOC method ends up costing $1565 more in total interest. And I didn't even include the other costs of the HELOC: Closing costs and annual account maintenance fees. Based on a HELOC I know of, that can total, for 7 years, about $700. That would bring the excess cost of using the HELOC rather than making an equivalent monthly extra payment on principal to $2533.

Maybe the numbers work out differently if you do the method of a massive payment on the 1st from the HELOC every six or so months, with monthly payment of your entire paycheck on the HELOC, and payment all your living expenses from the HELOC, and rinse and repeat; perhaps there's some difference in the amortization of a few dollars. But I can't see it actually making up for the extra interest (and fees) you pay on the HELOC, which you don't have to pay if you simply make the extra payment on principal from your paycheck.

As for the statement that what you pay from your paycheck is gone, and the HELOC instead makes money available for emergencies or investing as you recycle paying it off every so many months, well, there's a simple remedy for that: Take out the HELOC and just do not use it except for those emergencies or investments. That way, if it's unused, you don't have the interest cost, at least.

But assuming David's spreadsheet is doing the numbers right for velocity banking, it does not cost less than simply making equivalent extra payments on principal, though it can pay off a mortgage in fewer months.

Google your county name and state and “property appraiser” or “property assessor.” For most counties, that will take you to a site where you can do property record searches.

What you are suggesting is almost certainly illegal. Your description is brokering. Unless you have a real estate license, you cannot do that. Now, if you could get him to sell you the house, after which you could sell as a principal—that is legal. But acting as a real estate agent without a license is not legal.

Another thing to watch out for besides properly handling homestead: Many states have a cap on yearly increases, and that holds only for each owner. Once a property transfers to a new owner, the cap’s effect is lifted, and property taxes are assessed on the new owner at the just, market, or whatever label the state gives it, value. So both the cap and the homestead exemption will come off, and the taxes can be, probably are, significantly higher than the previous year’s taxes on the former owner.

And 2015 taxes are likely to understate taxes even more, being so old.

See if your county assessor has a property tax calculator on its website.

Are you trying to do what was already done? Wholesale a house that's ready for retail sale, with a seller who does not have any problem that would serve as motivation for a low-price sale? The house may be awesome, but that's why there's no room here: It's a house at ARV because it's already A the R.

The seller is asking you to buy a pig in a poke, if she doesn't want to even let you get in by locksmith. There's possibly something very wrong, like a dead body in the house. (Kidding. Probably.) And even if there isn't, you are taking a big risk. You should insist on access.