All Forum Posts by: James Kendrick

I had a brick go through a double pane.  Pulled it off, took it to Crown Lumber and Supply at 1224 N. Central.  It took a couple of hours and he charged less than $200.  He does the reseal and everything.

Something that has not been mentioned is the difficulty in finding good property management.  I am on my first Cleveland deal and the recommended property manager has failed to find a tenant after 60 days.  I've seen plenty of commentary on bad property managers in Cleveland but very little on who anyone would recommend.  

I don't think you can answer that question in a general fashion.  Baltimore city is block by block, tenant by tenant.  Obviously the more depressed areas will have the cheapest properties.  Everything else being equal the lowest rents will let you screen the most tenants.

@Renee Bridwell perhaps you could post the name of some lending institutions that offer 1st lien HELOCs on any type of property.  If such a product is available I think many of us could benefit from that information.

@Max T. Time to load up on liabilities!  Except when you can get equity faster.

@Bill F. TLDR buy rentals.

Here's my uneducated opinion (ramble)...The tax bill will permanently shift the country into high gear for a generation or more assuming Congress agrees to extend the rates when the time comes.  People are just now seeing the tax savings coming through on their paychecks.  Not to mention the ridiculous expansion of the standard deduction, child tax credit, and lower tax rates across the board both on a personal and corporate basis.  Residential real estate has had its run and now its time to pay.  Artificially low mortgage rates fueled by yield curve manipulation by central banks all over the world has to have its day of reckoning and the debt must be paid back.  This will normalize interest rates causing mortgages to become more expensive.  Younger homebuyers of all shapes and sizes will balk at elevated home prices when they exceed 3X average annual income.  They just won't be able to service such a large amount of debt.  I'm not even thinking about the ones with student loans, which is a bigger issue.  This will shift those buyers into lower cost rentals, further expanding their purchasing power.  Rents will rise as competition outstrips supply, wages adjust accordingly, purchasing power expands further, and on and on.

Take this set of circumstances and couple it with rising oil prices (think shale production) and a weakening US dollar and whatever else is going on with economic stimulus and I see government-defined inflation on the horizon.

@Brian Cardwell Yes I agree you can still try it but I would think you need a very large spread between what you can get on a HELOC and what your carrying costs are. If you have access to 4-5% HELOC money and your first lien position is north of 10%, then I could see it possibly working. But it's still problematic because you still need to make a contractual monthly payment on the first lien regardless of the balance or activity on the HELOC. This makes the strategy more capital intensive. And with mortgage rates so low and prime-based HELOC rates rising rapidly, its a numbers fail. That's why I say you are better off just attacking the debt.

There is another way to accomplish this same result on any loan using something easier to obtain than a HELOC but it involves more sophistication and planning and is not for everyone. I'll just leave that there.

Wow you guys are bringing back some fond memories.  Hopefully those days will return soon. 

@Bill F. Definitely not talking about stagflation, which would indicate lagging economic growth.  The economy is roaring and will experience levels of growth we haven't seen in many years.

@Don Spafford@John KaiYou are 10-12 years too late for this.  The value of the strategy is no longer available in the US.  What you are doing now is overcomplicating a simple Suze Orman or Dave Ramsey payoff strategy.  

Here is how the strategy worked in the good ole days...

-Some banks and credit unions combined a 1st lien 30yr fixed rate loan or ARM with an embedded HELOC. Except the entire loan could be a HELOC. But there was only one loan balance and one monthly payment.

-The idea was that you parked all of your cash at the bank and the bank only accrued interest on the net balance.  So in theory your w-2 income was deposited into the account reducing your mortgage principal and over the month you would pay your bills and the balance would rise back up. 

-The win for you was the reduced interest paid over the month on a somewhat smaller balance.  The win for the bank was additional cheap deposits that they could redirect to more profitable, short-term commercial loans.

-Where we really made our money was gaming the system so to speak.

-Mortgage rates were 6-7% depending on your desired term and index. Other banks and credit unions would offer prime + HELOCs with a two year teaser rate of 1-2%. You would move your 7% first lien money to your 1% HELOC and rake in the cash in the form of reduced borrowing costs. Once the HELOC term ran out you would rinse and repeat.

-If you had lots of properties you could essentially bring your cost of funds down by 50%.  Scale it up and you were basically printing money.

-The arbitrage is now gone. You can still work it but your yield is basically zero. Your better strategy is to just pay down your debt. The secret of the good ole days was having the 1st lien double as the HELOC. Those days are over for now.

-The game will come back when mortgage rates go back to 7-8% and the teaser HELOCs return.  But I'm guessing we are a ways from that.  

We're going back to the hyperinflation, high growth days of the 1970s and 80s.  Many of you don't know what that's like.  Long-term interest rates will rise rapidly, stock market will soar over a long period, real estate will decline in inflation-adjusted real dollars, rents will rise with wages, and cash flow will become king again.  Stay away from speculative real estate, especially in areas where foreign nationals can easily cash out and put their U.S. dollars in more lucrative asset classes.  Expect homebuyers to finance their purchases with 7, 8, and 9% mortgages again.

Remember we haven't exited the quantitative easing pains of the early part of this decade yet.  The Fed's balance sheet will have to be unwound somehow.  What will that do to the demand for mortgage debt?  

The plan should be to emphasize cash flow and deemphasize appreciation.