All Forum Posts by: David O.

Thanks. It is hard to find a fourplex with positive cash flow in California. My fourplex has negative cash flow.

I will look into a HELOC.

I got a quote for a cash-out refinance for my primary home to take out over $1M cash at a 3.125% interest rate, 30-year fixed. This is much higher than my current interest rate. 

However, I do not have a clear purpose for the $1M cash. One idea is to put it all into a fourplex that I own, which has a mortgage of 3.875%. Another idea is to bank it in S&P 500 and wait for the right investment opportunity, such as a housing market crash.

Any suggestions? Should I do the cash-out refinance and foregone my super-low mortgage interest rate? Also after cashing out, my monthly debt payment will be super high which will require me to keep my current job (no early retirement). Thanks!

What is your experience owning a multi-family in downtown San Jose? I heard that it is not a good area for investment because it is a rough area and there are bad tenants. Is this still true? Is it worth it? Where can I find cash-flow properties in CA? Thanks a lot!

@Winston Covington

Thanks!

I am most concerned that HELOC will be considered in debt to income ratio. How will it be considered? Say if I have borrowed $1M with money interest payment of $1K, will $1K be added to my monthly debt? $1M amount will not be considered, only the monthly amount will be considered? Compared with just a purchase loan, will heloc make me more difficult to afford the rental property?

Assuming the loan for the rental property is $800K with monthly mortgage and property tax of $2000; rental income of $1600; my primary home monthly mortgage and tax are $3000, and my monthly W2 income is $10k.

Case1: with heloc, debt is $1000+$2000+$3000, income is $10k plus 0.75*$1600=$1200, which totals $11200. My debt to income ratio is $6000/$11200=54%.

Case2: without heloc, I buy the rental property with loan on day 1. Debt is $2000+$3000, income is $10k because on day 1 I don’t have rental income from the rental property yet. So my debt to income ratio is 50%.

Is the above calculation correct? So the heloc makes my debt to income ratio worse?

I am thinking about taking out a HELOC (~$1M) to buy rental properties. I do not have any rental properties in mind yet and am planning to apply for a HELOC, after approval I will then look for suitable properties to buy. After I purchase the rental property, I plan to cash out refinance - I heard that if I do a cash out mortgage within 30 days I will qualify for the same lower rates as a purchase loan. The reason to use HELOC to buy the property instead of using a purchase loan is because I think it will take a long time to close (my last purchase in June of this year took 60 days to close). Also, cash offer using HELOC will be more attractive to sellers.

I have never done this before. Is there any potential problem with this method? Specifically, will a HELOC negatively affect my mortgage application for the cash out refinance of the newly purchased rental property? I know that lenders consider debt to income ratio, but am not sure if a large HELOC will be considered by the lender negatively.

If this is not the best approach, any recommendations? Thanks!

@Arlen Chou Thanks! What problems do you see with HELOC? Yes I also heard that Wells Fargo suspended their HELOC.

Do you see any problems with my strategy other than the cash out vs. HELOC part? Thanks!

Thanks Jody.

I understand and agree that interest = PRT, however, I think principal in the PRT equation should be the total remaining principal (ie, total money you borrowed that remains to be paid back), not the monthly principal payment?

@Jody Sperling Thanks for your explanation. I do not understand why the simple interest rate is 155% in your example. Isn’t 155% simply the ratio of the interest and principle in the first month payment? Why do you call it interest rate?

I think interest rate should be defined as the annualized payment divided by the TOTAL amount borrowed (in your example it is 3%); interest rate should not be defined as the ratio of the interest portion and the principle portion of each money payment?

@Jody Sperling Thanks a lot, Jody! How did you calculate the 8% figure and why is it even high if I refinance in the earlier stage of the loan? I always had the suspicion that there is something wrong with refinancing as it delays the loan completion but could not figure out what exactly wrong. I know over the life time I will end up paying more interest, but if I always invest the money I cash out and if my investment return is more than than loan interest rate I always wins, right?

Regarding the refinance cost, I always do no cost no fee as it gives flexibility in the future to refinance again when interest is lower. I know this gives a higher interest rate but my thinking is similar to above: as long as my investment return is higher than the interest rate, I always wins by refinancing. Is there something wrong with this kind of thinking?

I am a newbie to BiggerPockets and would appreciate some advice. My wife and I have accumulated some savings that I think can allow us to retire comfortably even though we are still young and may be working for another 20 years. I had been a landlord remotely after selling our last primary residence and finally decided to sell it last year. We recently bought another rental property in Austin and want to buy more rental property as I just realized the great investment potential in real estate. 

We have ~$1M invested in mutual funds that we can sell after paying tax on the gain over the years which we can use to invest in rental real estate; we can also do a cash-out refinance on our primary home to free up ~$800K equity. We plan to refinance anyway with cash out or not as it will lower our interest rate, though the cash out option will have 0.125% higher interest rate than the non-cash out option.

Our dilemma is should we do a cash-out refinance or a regular refinance for now? If we do regular refinance, we may take out a HELOC in the future if we need additional cash to invest in rentals. I am leaning towards the cash-out refinance as it allows me to lock in the current low interest rate - I will probably park the cash in stock market while looking for deals in rentals. I understand HELOC gives me more flexibility especially when we are not too sure what/where to invest in now, but I do not like the fact that its interest rate will increase in the future. Is there any problem with this strategy? I have never intentionally tried to become a landlord and real estate investor before and I am starting new even though we have bought and sold multiple primary homes, therefore I would really appreciate any advice on the strategy, where to invest (I am in SF bay area), where/what I should learn...

Thank you so much!