All Forum Posts by: Hao Kung

I'm contemplating trying Nationstar for a conventional (5-10+) property loan. Anyone have any experience using them as a lender?

Their feedback that I have seen has been mixed, but mostly due to them being a big servicer.

The lenders I typically have been using have slowly been increasing their fees over time, so nationstar has the best GFE in terms of fees so far, so I'm leaning towards giving them a shot...

Thanks,
-Hao

Chris, when I looked at margin rates for my brokerages (Fidelity/Wells Fargo/Sharebuilder/AMTD) they were all very high, like roughly 6%, and I'd like to use this as a form of longer term fixed financing, not short term line of credit.

I already have a 250K HELOC @ 1.01% under prime which I can use for short term floats.

I like the ability to take out a fixed 3.25% 12 year loan since I don't believe rates can stay this low forever.

I'm not sure its standard that there's a call if the collateral drops, I'm calling banks today and getting more details.

The one drawback is the short loan terms, looks like the max fixed length is around 12 years, which results in fairly large payments. i.e. $840/mo on $100k @ 3.25 for 12 years...

So I know secured loans are not a new concept. And from previous threads on here, they seem to be fairly unpopular.

But at least for my situation, they seem like reasonable ways to finance rentals without having to liquidate stocks.

Here's a summary of my situation and my thinking, I'd appreciate comments on where my flaws in the analysis are:

- 8 conventionally financed properties, so I can only buy 2 more using conventional mortgages.
- 12 mo expense reserves in liquid accounts (both for proof of funds and downpayments for new purchases)
- Rest of my assets are in stocks/investment accounts.

Idea: Since it looks like secured loans can be had for fixed prime rates (~3.25% currently) and various stocks/bonds are currently yielding similar if not higher dividends in my portfolio. I can put this money to work twice by taking secured stock loans out against high dividend stocks.

Concrete example: lets use BND (A total bond ETF, currently yielding: 3.31%)

EV analysis:
No secured loan: Stock Dividend + Appreciation

Secured loan: Stock Dividend + Appreciation - Fixed Loan Interest + Rental cash flow

So lets say I borrow money @ 3.25% to buy a rental house that yields 8%. The dividends off from BND pay for the fixed loans, so assuming no market value change in the price of the security, this is roughly equivalent to selling stocks and buying in cash.

But lets look at the other interesting cases:
1. You use a stock that yields higher than the fixed loan rate. You now are free rolling on the rental and stock appreciation.
2. The stock used as collateral goes up in value, now you net the appreciation + dividend differential + rental cash flow.
3. The collateral stock drops a bit, but not enough to justify default, this scenario is no different than normal investing losses, and I also have an 8% rental which only helps.
4. The stock used as collateral drops a ton, it sounds like you can default with no hit to your credit or anything, the bank keeps your stock, and you keep your house. This scenario is no different than just selling your stocks immediately and buying the property free and clear except you paid interest for some time as well (but dividends offset this to a large degree).

Conclusion:
So long as Rental return > fixed interest rate for the secured loan, this is a clear win + gives you extra capital to keep in the stock market.

This seems great to me, it makes sense to me that banks would want to make these loans, as they are getting tangible assets that they can easily sell/recover. And they are still making prime by lending you effectively your own money.

What am I missing here? This seems almost too good to be true given that I already have stocks and rentals. This would just let me have more of both without increasing my risk?

That just doesn't seem possible.

Thanks,
-Hao

Hi everyone, I found this site fairly recently and have found the articles and forum posts to be very helpful.

I'm Hao and live in the greater Seattle area and currently work in the software industry. I've pretty much been looking for passive income my whole life, and this housing crash finally has given me the chance to jump in.

My RE experience so far:

I first considered buying rental properties in WA in the early 2000's but the numbers never worked out. But with the big crash in 08, combined with the fact that I go to Vegas fairly frequently, I noticed the cash-flow numbers started to look really good in Vegas. I started going down every month in the summer of 08, went through a few agents before I found a good one that also does property management. I was lucky to have setup a HELOC(@ prime -1.01%) early in 2008 with my primary home before the crash really hit, so I had a decent amount of initial capital to use.

I was pretty sure I would be buying into a decline, and making mistakes as I started out, so I started focusing on newer REOs but in so so areas (read North Las Vegas) to start. 2008 REOs weren't in the best condition compared to now as banks weren't equipped to handle the load I guess, I remember seeing entire neighborhoods with 50% being REOs and all in pretty beat up condition. Eventually closed my first deal in Sept 08, the numbers weren't great, but after all expenses including managment fees of 8% and an 8% vacancy rate, it would cash flow around $100/mo so I did it.

Closing was smooth (got a 5-1 conventional arm with ING), repairs were done, and it was rented within a day or two, no problem. I kept going to vegas every month looking at more properties, closed a 2nd in north las vegas in December. #3 in Feb finally moving to a nicer area, Green Valley, but caught the falling knife a bit on this one. But the cash flow numbers just kept getting better and better, combined with mortgage rates that dropped continuiously. I ended 09 with 6 properties (1 with a partner). 2010 I closed another 4, and I've bought 1 more this year.

Future/Goals:

So to summarize my present situation, I've got 11 rentals, 3 were built in the 90's, the rest are pretty new built around 2003-2005, mostly on 30 year fixeds with a few on arms, and one free and clear. My properties are all generating cash flow now, and in total roughly running at 40k/year factoring in actual expenses and budgeting $600 per property for repairs.

I'm pretty happy so far even with all the mistakes I've made...

I've still got 2 more conventional loans I can use to acquire properties (only 8 mortgages including my primary). But my days of easy financing are about to be over, so I figured this forum would be a good place to ask for suggestions on where to go from here.

Basically, once I max out my 10 investor loans, I'll be limited to partnering up to buy properties, paying off a loan to get a new one, or portfolio lending/all cash??

I'd like to leverage OPM if at all possible given these current rates.

My goal is pretty much to increase my passive income as fast as possible(with 75k/year cash flow as the initial goal), but in a safe way(read cash flow first, any appreciation as a bonus). I have a stable decent job but I'd like to retire before 40 and I think this environment is pretty much a once in a lifetime chance to acquire rentals at such low mortgage rates, especially with a massive inflation wave coming. I'm counting on the US govt trying to inflate away its debt problems, hencing 30 yr fixed loans at < 6% will be great long term. Right now I'm happy with buy/hold and trying to get to 20+ units, but assuming this market turns eventually, I have nothing against trying to switch to larger multiunit properties etc.

Sorry for the long post! I'd love to hear from anyone else who has been investing in Vegas as well...
-Hao