All Forum Posts by: Dana Powell

Does TD bank look at DTI and/or tax returns for HELOC on investment properties? Or does it look at whether the rents can cover the new debt?

@Joe Villeneuve, can you give an example of how one loses money by refi the equity out of one property and putting it into a new one?  Oh, is it because of the cost to refi? I took out a cash refi at 4% and used it for a 20% down payment on another  property at 4% that is cash flowing a little over $1000/month.  How would you rate what I did?  Thanks for any constructive criticism!

 @Steven Goldman, I'm being quoted 6% with 3 points on a DSCR 10-year IO/20-year P&I. Last month I settled a similar property at 4% with 3.5 points on a 40 year DSCR with 10 year IO period! Do you think these rate increases are here to stay or will they come down after a few months? I'm just getting into DSCR loans and looks like my timing is well, not good! I'm in DC; I don't think sale prices will soften with these rate increases.

oops, apologies for accidental re-post.  I came back to update and just saw your reply @Nate Sanow; I did not receive an email notification of it. So, my situation is now the opposite of your scenario:  the owner countered with 4% P&I amortized over 30 years with a 15 year balloon and 30% down.  My broker is quoting 20% down  6% and 3 points for 10-year IO that then turns into a 20-year P&I at same rate. Obviously between the 2, the seller financing is better terms, but do you, @Caroline Gerardo and others think other lenders would have more competitive terms?  My middle credit score is 743.  I do have the 30% to put down with funds to spare for more investment purchases if and when rates settle back down. With P&I, I would now cash flow $1272/month. TIA!

Thank you @Caroline Gerardo for your well-thought out reply.  Terrific idea to extend loan to 15 years! Here are the broker's numbers:

4.375% at 1.375 points (I can buy the lender's rate down to 4%, which I guessed--maybe too conservatively--would cost a total of 2 points)

2 points is broker fee.

$1608 PITIA ($803/month for taxes, insurance and HOA plus $805 for interest only payment) with a $1650 market rate rent which results in an acceptable 1.05 DSCR (Lender will use IO not P&I to calculate) However, my actual rent will be $3113/month, as the apartment can easily be converted into a 2-bedroom for which section 8 pays $3113/month. So I will net $1500/month ($18,000/yr).

If I go with the broker's loan and get the seller to credit me $9060, the loan cost to me is only $3272 and I have the assurance that 10 or 15 or even 40 years from now I will have the same 4% interest rate.  I had thought with $18,000/yr cash flow that it would be okay to never pay off the principal, i.e., to gain equity only from the minimal appreciation this condo would generate.  

Do I need to pay down mortgage for my retirement strategy?: I don't have any heirs to whom to leave the property. Because of my low income on paper, the only loan for which I can qualify now or in the future is an asset-based one, thus, in the future I wouldn't be able to easily access the equity through a HELOC or refi.

The only debt I will have is 5 mortgages; I live rent-free in a room in one of the 5 properties; and the section 8 guaranteed rents for 4 of those, plus the reliable short-term rents from the high-end rooming house, cover the debt service and will cash flow $70,000 (or a proportionate value as rents and expenses rise) for the next 10 years, at which time I'll be 61. After 10 years, I'll pay P&I at the same interest rate for the next 30 years; even with that increased PITIA, I will be able to live off of the cash flow comfortably. Is this a sound strategy for my current semi-retired and future retirement living? These rental properties are my only source of income and I have about $20,000 in an IRA. Pre-Covid, my plan was to live part-time overseas to stretch my U.S. rental income dollars. I have no kids or spouse so I have to make sure I have enough money to afford home health care and housekeeping to avoid being shipped to the old folks home!
I would truly appreciate everyone's feedback on this plan!

My concern with the seller financing is that asset-based lending at a favorable rate may not be available in 10 or 15 years, forcing me to sell a high cash-flowing asset.  OTOH, as @Caroline Gerardo suggests, I would likely be able to save enough to pay the loan off in full if DSCR loans are no longer offered. Wait....did I just think my way through taking @Caroline Gerardo's more succinct advice? Well, as she put it upthread, "There NEVER is a dumb question, only growing, learning, helping, and making dough."  If you've reached this far and have any feedback on my investment strategy or how to finance this particular condo, I'm so forever grateful for giving of your time.

@Will Barnard, would also like your perspective in particular.

@John Morgan et al:

Do I need to pay down a mortgage for my retirement strategy?: I don't have any heirs to whom to leave my properties. Because of my low income on paper, the only loan for which I can qualify now or in the future is an asset-based one, thus, in the future I wouldn't be able to easily access the equity through a HELOC or refi.

The only debt I will have is 5 mortgages; I live rent-free in a room in one of the 5 properties; and the section 8 guaranteed rents for 4 of those, plus the reliable short-term rents from the high-end rooming house, cover the debt service and will cash flow $84,000 (or a proportionate value as rents and expenses rise) for the next 10 years, at which time I'll be 61. After 10 years, I'll pay P&I at the same interest rate for the next 30 years; even with that increased PITIA, I will be able to live off of the cash flow comfortably.

Is this a sound strategy for my current semi-retired and future retirement living? These rental properties are my only source of income and I have about $20,000 in an IRA. Pre-Covid, my plan was to live part-time overseas to stretch my U.S. rental income dollars. I have no kids or spouse so I have to make sure I have enough money to afford home health care and housekeeping to avoid being shipped to the old folks home!

I would truly appreciate everyone's feedback on this plan!

To @Mike Burkett et al:

Do I need to pay down a mortgage for my retirement strategy?: I don't have any heirs to whom to leave my properties. Because of my low income on paper, the only loan for which I can qualify now or in the future is an asset-based one, thus, in the future I wouldn't be able to easily access the equity through a HELOC or refi.

The only debt I will have is 5 mortgages; I live rent-free in a room in one of the 5 properties; and the section 8 guaranteed rents for 4 of those, plus the reliable short-term rents from the high-end rooming house, cover the debt service and will cash flow $84,000 (or a proportionate value as rents and expenses rise) for the next 10 years, at which time I'll be 61. After 10 years, I'll pay P&I at the same interest rate for the next 30 years; even with that increased PITIA, I will be able to live off of the cash flow comfortably. 

Is this a sound strategy for my current semi-retired and future retirement living? These rental properties are my only source of income and I have about $20,000 in an IRA. Pre-Covid, my plan was to live part-time overseas to stretch my U.S. rental income dollars. I have no kids or spouse so I have to make sure I have enough money to afford home health care and housekeeping to avoid being shipped to the old folks home!

I would truly appreciate everyone's feedback on this plan!

Oops, total cash flow would be $84,000:  $18,000 each for the four 2-bedrooms and $12,000 for the one 1-bedroom.  I conservatively don't include the smaller cashflow from the rooming house.  Okay, that's it.  Conversation eagerly welcomed!

But oh!  Even if I saved enough  to pay off the $242k loan for this condo by year 15--since I have no other source of income, would it be advisable to tie up so much money vs  living off of the cashflow from the broker's 4% interest only loan for the next 40 years?