All Forum Posts by: Jason Chambers

@Jacob Firnekas welcome! My wife and I are military at Ft. Bliss. Be sure to check out the local REI meetings. El Paso has two of them El Paso REIA and EPIC. You can find El Paso REIA on Meetup and you can google EPIC for their website. Both have been a great way to network and occasionally EPIC will have deal nights where people come ready to buy and sell. Check them out. If there's anything I can help you with let me know.

@Michael Dunn it makes sense. If you go into the new property with enough existing equity to cover the closing costs between the two properties AND make positive cash flow then it could be a good buy. If you run the numbers and it's a property that works for you, you could always come back later with a HELOC and eliminate most of the compound interest on both properties while continuing to invest.

I don't know if you've done any VA financing but remember to take into account the VA funding fees and any other VA origination fees your agent, bank, or title company might tack on. VA funding requires a ton of paperwork and extra time. Be aware of additional fees.

What you said earlier is the key to all of this discussion...don't max out your borrowing/leverage ability. Spread yourself too thin and things could unravel quickly. I try to keep the emotion of buying out of it and run the numbers. If they make sense, they make sense. If not, there's always another one.

@Michael Dunn if I'm reading your numbers right, you are correct. At 80% LTV and after having paid off your primary home, you would be left with around 19,000 of available credit. Decisions, decisions.

On the one hand, your primary residence would be paid off by the HELOC but then you wouldn't have the funds readily available to buy the other property. On the other hand, you could refi your primary and purchase the other place. Have you run the numbers on how much the refi would cost (closing fees, interest costs, potential cash flow from the new property) vs potential savings from paying off your primary with a HELOC and waiting a while to pay down enough of it to invest in another property later?

@Brent Coombs

"HELOC'S are not magically cheaper over time. The key word is: DISCIPLINE!"

Sir, you are absolutely correct. They are not magically cheaper over time, they are mathematically cheaper over much less time.

Simple interest line of credit, cheap. Amortized mortgage, expensive. I even gave an example. We saved $300,000 in interest and approximately 25 years in mortgage payments. I'm not sure where I lost you.

I just wanted to share my experience. Maybe it will help someone. I'd prefer not to argue.

@Brent Coombs you would need the equity necessary based on the LTV the respective bank is offering in addition to various other qualifiers. HELOCs are significantly cheaper (simple interest) for the consumer making it less risk for both the consumer and the bank (assuming the consumer is well qualified, not everyone can do this) and the bank still backs up the line using the house as collateral. Also, you WOULD NOT go to the bank that you currently have the mortgage with to apply for a HELOC. The idea is to pay off the existing mortgage with it. The incentive to the bank is being able to take business away from their competition. The incentive to the consumer is the debt becomes, in my case, exponentially cheaper. Unless of course you enjoy paying compound interest then be my guest.

I've had a few discussions about using HELOC's where it seems people get their feathers ruffled. Using HELOC's to pay off mortgages is just a different (MUCH cheaper) way of doing things. I think the general public has been conditioned to consider expensive 30 year mortgages as the only option. Amortization screws the consumer and makes the banks huge profits. This is just one way that you can use products the bank already offers to save a ton of money while reducing debt at a high rate, at a greatly reduced cost.

Michael Dunn check with some of the larger banks and credit unions. They offer up to around 90% loan to value (LTV) meaning you would only need 10% equity in the home to qualify. Shop around but interest rates are still pretty low and remember, a simple interest HELOC will always cost you less than a compound interest mortgage. Many banks are also offering very low introductory rates. A HELOC would allow you to make use of your equity and the interest would be considerably less. And if you really want to attack the principal and free up more funds, deposit your income into it and use it like a checking account. We deposit all our W2 income and cash flow from our properties into our HELOC. The bank views it as a payment. At 1.75% fixed interest, it's costing us very little to use this strategy and the home we took the HELOC on is now paid off with it. We got a fixed rate HELOC at 85% LTV on a $720,000 home. We're about to do it again on a $350,000 home we currently live in with BofA and expect to get an introductory rate of around 2.4% simple interest.

Brent Coombs That's a good point. There's nothing stopping anyone from knocking large chunks out of a refi if you have the ability to do so. Why I'm so "lovey dovey" with our HELOC is because I've eliminated a large amount of interest giving me more leverage to attack principle. It's simple vs compound interest over a period of time. But like I mentioned before, the numbers have to be right for it to work and there's more than one way to skin this cat. A HELOC provides really low simple interest that you can continue to reuse vs a refi that starts the clock over, based on compound interest paid up front, that you no longer have access to after you make that payment. Unless of course you refi again or pay off the debt. In real numbers, given our current cash flow, it was the difference between paying $360,000 in interest over 30 years vs $64,000 and having the HELOC paid off in 5 to 7 years. It also opened to door to buying 3 more properties which increased our cash flow even further.

And PS...refinancing starts the debt clock all over again. Considering a refi sticks you back into the hole of compound interest, it's probably not going to be worth it because you'll be paying for that debt multiple times.

We went the HELOC route and it's been great for us. You really can't beat simple interest especially when you can get locked in to a great introductory rate. Even if you can't negotiate a fixed rate HELOC (we were able to) the variable interest rate is peanuts compared to the compound interest you would otherwise pay on a mortgage. Of course, the numbers have be right to be eligible for a HELOC (equity vs LTV) but it's been one the best financial decisions we've made. A HELOC on one house has allowed us to buy 3 others. Another way we've managed our HELOC is to deposit all of our income back into it every month and aligning all our bills to be paid at the beginning of the month. The idea is to avoid as much interest as possible while paying down large chunks of the debt. At 1.75% simple interest we managed to get, we're killing it! And as you pay it down you still have access to it to continue to invest. Just be careful not to spread yourself too thin or max it out and you're golden!

Prince Chijioke Welcome to BP! We're also in El Paso. We've been here for a couple years and have been building our portfolio. EP has been good to us. There's a great network of investors, contractors, and lenders through the local REIA and EPIC meetings. If you have any questions feel free to message me.