All Forum Posts by: Fred Stevenson

@Chris Mason I'm not sure if you were the guy in the epic thread about using the HELOC's to pay off the loans. So if it wasn't you sorry. But if it was you, I loved what you brought to the table. Thanks.

@chris mason Thanks for the reply. I was thinking of this strategy after hearing about using HELOC's as a checking account to accelerate mortgage payoff. Then I read the epic 17 page thread from a few years ago in which you totally absolutely demolished the idea as being smoke and mirrors. However, you did acknowledge in that thread that one could actually make it work if the rate on the HELOC was much lower than the loan rate. So that got me thinking about using my margin to do this since the rate is much lower than most of my mortgages. However, your point about the risk of the rate moving upward in the future is real, but I don't think it will happen in the next couple of years. So the only way I would use my margin account to prepay some mortgage payments would be only do it with like 20k or 30k at a time, so even if rates did rise, it wouldn't be impacting a massive amount of principle. After, @andrew crowley 's comments, however, I think the smarter play may be to use the margin for investing and transfer some cash from the checking account that's sitting dormant earning no interest into the margin account to reduce the interest payments on the LOC.

Thanks again so much for the feedback. This is why I love Bigger Pockets. 

@Andrew Crowley  Thanks so much for the reply. 

Thanks for the reminder that cash is king. It really isn't difficult for me to find investments that generate more than the 4.5% potential interest savings on a mortgage account. So I think the real question is whether I keep the cash and use it for future investments versus whether I use some of the cash to pay down debt. I think I'm going to lean toward using the margin and extra cash beyond reserves to invest. Then, I could just take some of my extra cash from the checking account and park it in the margin account so the margin is interest free (while leaving behind enough reserves in checking to handle bills and mortgages). If I ever need the cash back in my checking account I can transfer it from my margin account to the checking account instantly and then create the negative margin balance again. Or I can move it to my Schwab money market and earn like .01, but it is also as as liquid as my checking account and the cash can be transferred back and forth instantly at any time. I did look at re-financing some of my mortages, and I have several issues with this. #1, the titles for all my properties are held by my LLC's. So the only way I could refinance them using a conventional 30 year fannie mae and freddie mac loan would be to do quit claim deeds on all my titles, refinance, and then due a quit claim deed back to my LLC. This is a pain in the you know what, and would cost a few thousand dollars. Secondly, one of my lenders reviewed my current rates and terms for all of my mortages, and told me that I would need a 2% rate in order to be able to break even five years from now due to the increase in principle from all the closing costs which is tacked back onto principle. I don't see 30 year mortgage rates on rental homes getting to 2%, do you? So, I think my best option is to keep my mortgages where they are and use the margin account for future investments, rehabs, etc. and maybe to pay prepay chunks of mortgage principle every now and then.

Hey everyone, I have a checking account I use to manage my rentals and other business expenses. I have positive cashflow on all my rentals so my balance in this checking account is accumulating but earning zero interest. My initial plan was to keep accumulating savings in this checking account until I have saved enough to pay off one of my rental mortgages with enough left over to handle any unexpected maintenance, repair issues, or vacancies that may come with this COVID crisis.  It will take me 12-18 months to get to these levels.  In addition, I also have an income from my W2 job that I use for investing (stocks, private equity, rentals).  

I have access to a large line of credit through a margin account with my broker. I can borrow up to 50% of my portfolio value at 1.5% over prime so right now my variable rate is 1.75%. So my question is does it makes sense to take out a loan from my margin account (no fees) at 1.75% variable interest to pay off one of my 30 year fixed rental mortgage loans which has a a 30 year fixed rate of 4.5% interest. And then take a portion of my checking account balance and transfer it over to the margin account to reduce that balance in half. Checking account balance would also be reduced in half. I like this idea much more than getting a HELOC because the rate is much lower, no closing costs, and no financial colonoscopy applications to fill out. I would never max out my margin account as I don't ever want to be subject to a margin call.

I'm having a hard time coming up with reasons as to why this isn't a good idea, other than opportunity costs if I could be using the margin for other investments that would generate a much higher return than just paying down a mortgage that has a 4.5% rate. I have access to enough margin, though, that I could still utilize it for other investments if opportunities present themselves.  could also move it into a money market account with my discount broker and earn like .1%  . The idea of letting my money accumulate in a checking account at zero percent seems absurd.  Maybe the idea of paying off any of the mortgages early is also dumb, but one thing this COVID crisis has taught me, is that I would have a lot more piece of mind, if I knew that at least half of my rentals were paid off so I could absorb a loss of rents for a long period of time if it comes to that.  So far, all my tenants are paying, but this pandemic has made me question a lot of my previous ways of thinking. 

Any thoughts would be appreciated. 

@Nicholas Lohr hey Nicholas. I don’t have mortgages on three of them. I do on seven others

@Nicholas Lohr and @Jaysen Medhurst . So I just uncovered a much better route. I just got off the phone with my broker who manages all my equities through Schwab. He told me I can borrow 40-50 % against the value of my stock portfolio that he manages for me and the interest rate is 1.5 basis points over the fed rate which is basically zero. Meaning my rate would be 1.5%. The interest accrues over time and I can pay back the principle or interest whenever I want. No fees. 1.5% annual interest rate no fees. Holy crap. I may have to borrow money this way and pay off some of my friggin mortgages that are sitting at 4-5% right now. Amazed that I never heard of this before. No loan applications, no closing costs, low rate. It is variable but will always be just 1.5% over Prime rate.

The risks are if I borrow 50% and then my portfolio takes a dive then I would get a margin call, so to mitigate this I'll only borrow 20%. Other risk are rising rates, but they would have to rise a lot to hey higher than what I would get from a HELOC or LOC right now.

What do you guys think?

@Steve K. I wonder how SFR's that have been converted to assisted living are doing. I bet they're doing great cause they usually only house 7-10 tenants. Who would want to live in a building with 50 other residents after this mess? I would think the option to live in a single family would be better.

@Todd Dexheimer another area to kee an eye on is oil. Industry has been been devastated. There are syndicates who will raise money and swoop in and make a fortune when oil returns.

@Nicholas Lohr so far all my tenants are still paying rent. I don't have any mortgages at all on some of my properties, but combined I'd say it's about 40% - 50% LTV ratio. Most properties are in B neighborhoods. Two or three are in c's. Trying to sell a couple of the C ones.

Other issue is that all these properties have titles held by LLC's so don't know how easy it is to get a HELOC Or cash out refi on them? It would be a hassle to have to do a quit claim deed into my personal name just to get cash out.

Thanks for replies guys. I appreciate it.