All Forum Posts by: Jeff S.

Hi Miguel,

First I would come down strongly in favor getting a college degree.  It is the ticket to a decent W2 job, employer retirement plan, HEALTH CARE!!!, and if you take it seriously you will even learn a thing or two.

Second.  Not to be too harsh, but try to really understand what a catastrophe that car payment is.  Think of it as if you once owned 1, 2, or even 3 cash flowing properties and someone stole them from you.  And you let them!

Third.  What's one of the biggest assets you have right now?  You are young, single, and totally surrounded by people who need to rent a room; i.e., college students.  Your first "deal" could be signing a lease on a large house and renting out rooms. You'd get experience managing a property and live for cheap/free.  

Hi Brent,

My thinking is that if the HELOC were paid down, the lender could simply "reappraise" and lower my limit to reduce their risk. If I have cash stored elsewhere and continue to make timely payments on the HELOC, the lender has a performing loan - I'm assuming most lenders wouldn't shoot themselves in the foot by calling in a performing loan.

I'm working on my first deal to buy a duplex using HELOC for down payment. I'm wondering what to do with the cash flow: what is the best stategy for preserving my liquidity ?

My first idea is to just pay down the HELOC as cash comes in. Whenever I need cash for repairs, or when I'm ready for my next deal, my equity is there and I can just draw on the HELOC again.

But if the market turns south, that equity can rapidly disappear, and the lender can shut down the HELOC in a heartbeat. Goodbye liquidity.

So my second idea is to build up my cash reserves and only make minimum payments on the HELOC. As long as I have the liquidity to make all my payments, I'm fine. But where's a body to park their cash safely and earn anywhere close to the 4-5% I'm paying on the HELOC. ?

So let's hear it : what's your advice for a small-time buy-and-hold investor? Where do you park your cash? 

So I spoke with the seller today.  She said she should find out in 2-3 days about her latest refi attempt.  She promissed that this was her last try, and if "the universe didn't want her to keep the property" she would sell it to me.  We seem to have a pretty good personal connection so I trust her on that.  Assuming the universe is on my side, I'm hoping to get a (normal) contract signed this week.

Different Jeff S. here...

Keep in mind that the H in HELOC is for Home; i.e. your primary residence. Lenders are much less willing to lend against a house that isn't your primary residence: higher rates, lower LTVs.

If you do get a HELOC, keep in mind that you need to live in that house for a year after closing. I almost got tripped up by that one.

My understanding (as a newbie) was that the appraisal was for the benefit of the lender, the home inspection for the buyer.  When I've bought houses in the past, I selected and paid an inspector and received the report.  I don't recall it being sent to the lender.  

Anyway, my reason for saying as-is was to give the seller comfort that I'm not going to demand that she fix anything.  If I need to do an inspection to satisfy the lender, I'll do it. But hopefully that could be done late enough that it comes after the seller's refi deadline.

@Wayne Brooks, her balloon is due on 12/31. She's in denial and dragging her feet.  Part of my goal is to hurry the loan approval process along so I am not at a disadvantage comparrd to a cash buyer.

I have found an unlisted property that I really want to buy.  Seller wishes she could refi her balloon loan, but she can't - 3 rejections and counting. And the clock is ticking.  She promissed me verbally that if she can't refi she'll sell to me.  But now there's a cash buyer sniffing around....

I want to get this thing under contract ASAP.  My idea:  offer a contract to purchase, as-is, with my only contingency being that my loan comes through.  In the contract is a clause that if seller does succeed in getting financing in her own name by X date, she refunds earnest money and keeps the property.

Any comments or opinions?   The risk to me is that once the appraisal is done, I will have to eat that cost if seller gets funded.  I can live with that.

Would a lender have problems with this sort of a contract? 

Hi Dawn, 

I just found this thread and enjoyed it immensely.  I admire your energy - I'm exhausted just reading about it.  How amazing is it that you took a disaster area and turned it into a charming place where people want to live.  All the best to you !

Hi BP'ers, I'm in a bit of a pickle and need some advice/ideas.

I've been looking at buying a rental with a 15% down 30-year loan based on owner-occupancy.  After several real dogs, I found a deal that I really, really like.  Seller is trying very hard to refi her balloon loan due on 12/31.  She doesn't have much W2 income and has been turned down once already.  She is trying one last time, and should hear in the next few days.  If she doesn't get a loan, she promised she would sell to me.   The numbers on the deal are very good, and it is also a property I would feel fine living in for a year.

Anyway, my plan all along has been to take out a HELOC on my house and use that for the down payment. Anybody see the problem with that ? I certainly did not, and neither did the mortgage lender who pre-qualified me.

After closing on the HELOC this week, I was reading through the docs last night and stumbled upon the Occupancy clause :

"Borrower shall occupy, establish, and use the Property as Borrower's principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower's control"

So I'm not sure what to do. If I don't owner-occupy the rental, I will have to max out the HELOC and then some to come up with 25% down, and even then not sure if I could come up with the needed reserves. I'm looking into that route, but don't like it.

But I would like advice on the following. Would it be reasonable to approach the HELOC lender and ask them if they would consent to me renting out my house for one year while I live in the rental (as per the boldface above) ? The truth is that my current house is where I plan to live for at least the next 8 years; living in the rental would only be a one-year gig to qualify for the 15% down mortgage. 

In discussions with my mortgage lender I was very up front about this and she totally understood. Do you think the HELOC lender (bank) would also be understanding ?

Related question. When I went to close on the HELOC at the local bank branch, the person I signed papers with was the branch manager. He was a nice guy, and gave me a soft-sell of all the benefits of having a personal relationship with a full-service bank (currently I bank at a credit union). I would feel very comfortable approaching him regarding the Occupancy clause exception, but I don't know if he has the power to make it happen. Furthermore, he won't be at work for all of next week.

The only other option I know of is to dial a 1-800 number for the bank. And they have absolutely horrible customer service! Nobody picks up the phone - you just leave a message and someone calls you back several hours later. And every single time I spoke to anyone during the HELOC application process, I got differing, inconsistent answers and had to explain to them the answers the previous employee had given me.  So I shudder to wade into that mess unless I have to.

 Anyway, I'm feeling pretty anxious about this.  The seller is very likely to find out in the next few days about her loan request.  Just yesterday (before discovering this mess) I assured her that I felt confident I could close the deal with her if she didn't get the loan. We have a very good, open rapport and I want to continue to be as honest and straightforward with her as she has been with me.

So, let's hear it. 

1) Any chance the HELOC bank might grant me an exception ?

2) Is waiting a week and contacting the friendly branch manager the appropriate thing to do, or do I run the 1-800 gauntlet ?

3) Any words of encouragement/discouragement based on real-world experience ?

4) Is there some obvious alternative that I am missing ?