All Forum Posts by: Enrique Reyes

It kind of sucks that you have to re-enter information every time you get in and out the app.

Michael: With absentee, why do I want them to have lived there for 7 years + and have 40% + equity?

How do I find public data on % equity? I know I can find number of years owned on tax records.

is there any reference to this strategy? I would imagine that this strategy has more detail to it in order for a commercial bank to grant a blanket mortgage on 10 individual property under an LLC.

If by being more effective you mean paying the mortgage sooner then that is correct but if you mean you pay less in interest then it depends on the HELOC interest rate. Short answer it is much faster to pay off a mortgage making the remainder of $2,000 after making mortgage payment than it is using a HELOC. You can pay off a mortgage making extra payment in 9 years 11 month. All the methods I show below the shortest time is 10 years 2 months when chunking a HELOC with a mortgage. 

Chunking $10K @ 3.75% interest rate it would take 10 yrs 2 months to pay off a loan of $200K @ 3.75%. The mortgage would be paid off in 9 years 5 months and the HELOC 8 months later. You would end up paying $36,773 in interest payment. In an apple to apple comparison with a traditional mortgage making extra $2,000 payment a HELOC will beat it every time as long as they have the same interest rate. Also, you would pay less in interest.

Chunking $10K @ 6.475% interest rate it would take 10 years 6 months pay off a loan of $200K @3.75%. The mortgage would take 9 years 6 months and the HELOC 11 months. You would end up paying $39,278 in interest. At 2.725 (6.475%-3.75%) interest rate higher a HELOC would pay $2 more in interest than a traditional mortgage making extra payment. It would take longer to pay off the HELOC and mortgage together compared to making additional $2,000 extra payment each month.

Chunking $10K @ 9.2% interest rate it would take 10 yrs and 5 month to pay off a loan of $200K @ 3.75%. The mortgage would be paid off in 9 years 7 month and the HELOC will take 10 months. You would end up paying $41,705 in interest. At a much higher interest mortgage and HELOC would end up paying $2,433 more in interest payment and it will take longer to pay off.

When comparing apple to apple a HELOC combined with a mortgage does well against a traditional mortgage making extra monthly payment. Based on other factor the HELOC is better because of the easy access to equity even at higher interest rate. I would be willing to pay an extra $2,433 for this easy access to my equity. Psychologically it does make most people make extra monthly payment since they know this is money they can take back if they need it. In some of the comments some people said that they have their money sitting in their savings doing nothing vs. putting it to use against debt or to work hard for them. At the end of the day the question people should really be asking is are they willing to pay extra for easy access to their equity or not? If they are then a HELOC is the way to go. Otherwise, just make extra payment and put some of your money in saving. It will protect you in an emergency and at the same time pay your mortgage soonest. It is the safest thing to do.

I bet those who pay their mortgage early by making extra payment and those using a HELOC to achieve the same goal are a very small group.

The following link has a more user friendly spreadsheet where you can verify my calculations and play around with the numbers. 

https://bit.ly/2DlaSDy

Victor, The difference between what you are saying and what I am showing in the spreadsheet is that you are not including mortgage payment in your expense column. For you, mortgage payment is an additional expense. When I speak of expense I'm including total mortgage expense under the expense column so that your total expense is $3K. However, total expense does not include HELOC expense.

You can play around with the excel sheet to reflect your scenario and since the play money is smaller your chunk time period will increase to a number greater than 4 month per draw. At the end of the day the numbers don't lie. A HELOC is way more effective than making extra payment monthly or paying a mortgage down the traditional way if your goal is to payoff the mortgage the fastest way possible.

Using the information in the calculation the income is $5K a month, monthly expenses of $3K, monthly mortgage payment of $983.88 and monthly HELOC interest payment of $64.54 to $80 per month depending on your monthly average balance. Assuming that you are using rent money to make mortgage payment ($983.88) instead of your own cashflow. Imagine your HELOC approved amount is $25K and you are only using $10K every couple of month. You would use the $1,935.50 to pay down the principal on the HELOC. As you can see in the spreadsheet the max you use from the HELOC is $13,732.72 while still having the capability of making additional withdrawal if needed.

$5,000 - $3,000 = $2,000 Cash remaining

$2,000 - 64.50 = $1,935.50 Cash Flow

983.88 - 983.88  = 0

25,000 - 13,732.72 = 11,267.28 HELOC Balance

However, remember that on the 15th and the 30th of the month your paycheck is parked in the HELOC. You are only paying about $500 per month using the HELOC for balance you can't pay with a credit card. So even though you are using $10K every couple of month your average balance is rarely above $10K since you have your monthly paycheck keeping the balance at its minimal. Since a HELOC is based on the monthly average balance your principal payments are small. The short answer is that you are paying off the HELOC balance with your remaining cash flow. You would only have $1K play money if your expenses were $4K instead of $3K.

@Daniel Weed I used your spreadsheet and modified it to reflect daily amortization along with daily usage of the account as you would normally use it (Tab HELOC). @Brian Cardwell I used your example $5K income and $3K expense for this calculation. The calculation is based on you using your credit card to pay most of your expenses and paying the credit card at the end of the month before it is due. Amounts you can't pay with the credit card you would use the HELOC. Using this calculation you are keeping your daily balance at its minimal.  https://bit.ly/2DlaSDy 

@Daniel Weed Thanks for the calculator. Using your calculator I see that you assume that a HELOC and a regular mortgage would charge the same interest. Is it your experience this is the case or are you using it for calculation purpose? I would assume that a HELOC interest rate would be higher and is adjustable. Also, it seems that the HELOC in your spreadsheet is interest only HELOC, is the strategy more powerful when it is an interest only HELOC? @Victor S. when you plug in the numbers i'm sure that extra payment can beat the HELOC but maybe your too focus on one scenario. Using a HELOC the extra payment can be used to seize other opportunities if they present themselves such as buying a new property below market while the extra payment once you use it in the traditional way, you can't take it back. If you keep that extra payment in savings you won't be saving in interest payment.  It really depends on your strategy it seems.

I did a coaching session with Rod Khleif and I really enjoyed his enthusiasm. He really brought a lot of value in just one and half hour call. The only issue I had with his programs is how short a time the coaching programs are. 

Option 1: 15K for 6 month which included 3 times a month 1:1 coaching directly with him and 1:1 coaching once a week with one of his 8 coaches. There were a lot of other training, software, and videos included such as syndication training, high performance call, 1:1 deal analyzing, scripts and much more.

Option 2: $5,000 for 30 days and then $295 a month after that. Everything in option 1 except for 1:1 coaching. 3 coaching calls  per month and the ability to call/email him when you find a deal.

Option 3: $2,995 for his course and a special deal of $1,997 if I made a decision on the phone. This included wholesaler course and other videos on commercial property.

Since I'm looking for 1:1 mentoring I felt that the best option would be option 1. But my biggest concern is that such a large expense for such a short time would not add as much value as what I'm looking for. He did try to work with me by extending my time from 6 month to a year which led me to ask him question about his turnover rate and success rate of his mentee. He was not able to answer those questions satisfactory hence why I decided not to join his program. Although I do like how personal and upfront he was on the phone due to the fact that his program does have such a short time limit I don't expect to develop a mentor-mentee relationship that is more transformational. 

If anyone on bigger pockets is on Rod Khleif coaching program please let me know how it turned out for you? Did you achieve your income goal? What percentage of those who joined would you say reached their income goal? I believe this question addresses how effective the coach is at helping his mentee achieve their goal and if this is more of a transactional experience or a transformational one. 

I would caution anyone from joining Peter Harris program. I was considering joining his program after listening to him on a podcast where I got the idea that we were profit sharing based on his mentoring. Then when I get a sale call from a representative of his he mentioned that I would have to put a 12K deposit in order to join the program. The moment the sales representative said this I was turned off since not only was he asking for a split but on top of that he wanted what they call a retainer. 

I gave the sales rep the benefit of the doubt and asked him, "Of the people that join your program what percentage do you retain? And of those you retain what percentage succeed?" The sales rep had no clue or desire to get that information for me. The fact that I was asking him a lot of questions led him to tell me that he does not believe I would be a good fit for the protege program. From his comment it sounded to me like they are just looking for people that can fall for a sales pitch. Like other who commented about Peter Harris program it seems to me that they are more interested in profiting from their protege than helping them succeed. If anything you are paying them to be their bird dog. Make sure to ask bigger pockets members questions before you fall for these sales pitch.