All Forum Posts by: Jim Macedon

Some debt is inevitable, but I'm just a little skeptical of this whole pitch of "Here's this magical system of BRRRR. You can scale endlessly. All you have to do is go millions into debt for a couple thousand in monthly cash flow!" You're basically trying to push your debt to income as far toward debt as you can because "there's opportunity cost to not being in debt." The thing that is never analyzed or discussed is the risk of having such a huge portfolio that is based entirely on debt and really doesn't generate that much income in proportion to the debt. It could work out where nothing ever goes wrong, and congratulations, you scaled massively. Or a couple of unexpected things could happen and the whole house of cards could come down.

This strategy can work, but it's not the magic formula it is often presented as.  It's basically just loading yourself up with as much debt as you possibly can.  If it all works out, great.  But no one ever talks about the risks associated with debt on this website.

I spoke to him on the phone yesterday. So there's a couple issues going on here with Fannie Mae's rules. The first is the cash out thing. The second is the conforming loan limit. He says that per Fannie Mae, if I go over $484k I'm into a jumbo loan, which drops the LTV from 75% to 60%. So to stick with residential lending, that seems to be a pretty hard limit. Since I only owe $450k, the $484k would include cash out, which tacks on 1/4 of a point. Right now he could give me 4.85% if I stay conforming and don't cash out. So a $450k loan. Problem with that is I don't get my money out to go on to the next deal.

I'm guessing to go over to commercial and get my money out, I'm probably looking at--what?--6.5% as a best case scenario?  Plus probably a balloon or re-rate at 5 or 7 years or something like that?  

Is it worth it?  I'm thinking with the economy as uncertain as it now seems to be, maybe this is the time to hold tight and maybe reduce some debt anyway.

Or the other option is to stay conforming, go right up to the $484k limit, pay the 1/4 point for cash out, and at least get $34k back out.  Won't be everything I put in, but something.  Is a 1/4 point on a pretty large balance worth a measly $34k?  I guess I could do some math, but what are your thoughts?

 Texas is a community property state, so that's my only option. Not occupying. I will check out other lenders, but I want to stay in residential lending so it will all be the same rules.

Built my first 4plex. Currently shopping for the permanent financing. I mentioned to the loan officer that I believe the building will be worth $700,000 and I want a loan for $500,000. He asked what I owe on the construction loan. I said $450,000. He says, well if you're trying to get cash out, then it's 70% LTV instead of 75%, and your rate might be higher. Like a lot of things in banking, this makes no sense to me. What does he care if I got a steal on the land or my cousin is a general contractor or I GC'd it myself? He wants a lien on a property for 75% of its market value, and that's what he's getting. Please explain the reasoning here. I mean, what if I built it for cash and now I was trying to put a mortgage on it? How would that work?

A lot of arrogance, hubris, immaturity, and elitism in this thread.  

I would do it, but I wouldn't brag about it on the internet.  It's a necessary evil, not something to be proud of.

Well, you could take out a second mortgage to pay off the credit card.

What if instead of paying the HELOC bill every month, you pay off the whole thing with a credit card?

Same boat.  My wife was taught by her parents that the only responsible thing is to work your *** off for someone else.  No matter how successful I am in real estate, she will always view it as an irresponsible activity that is going to cause us to lose everything.  I might as well be in Vegas blowing my money on hookers and the tables.  It's a serious problem in the marriage.