All Forum Posts by: J. Mitchell Bernier

From my understanding, there are banks that will provide "in-house mortgages" that will offer rehab loans. These loans will roll the costs of the rehab into the loan, allowing you to cover the entire cost of the rehab through the loan, with a down payment based on the full amount.

**I am not referring to hard money, as I know they offer this type of financing as well

Also, not sure if this matters for reference, but I am based out of Atlanta

Thanks BP!

Yes Steven, this is very common in South GA and we do them all the time. Wish I could help ya in Atlanta.

Good Luck!

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Hey Crystal, really easy to do this as long as the tenant cooperates with viewing the property. You can sell it to another investor who may want to buy it with the current tenant, or because there is a change in ownership, they should be able to file a motion to vacate with a 60-day notice after closing. We have done this multiple times so just something you have consider. I will also so you will have some buyer's agents say the home has to be delivered vacant. Don't ever accept that! There is no guarantee they will close and then you could be out a renter. Always let the new owners decide on if to keep the tenant or not.

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Birmingham, Alabama

Quote from @Ben Zimmerman:

Quote from @Thomas Rutkowski:

Technically that would translate into an 8.7% return, but beyond that your overly simplified calculations leave out numerous very important facts, namely the policy fees and how the loan repayments negatively effect your ability to scale your real estate holdings.

I'm going to rearrange the percentages slightly because I don't know of many people who are wealthy that are going to put their money into active income investments like hard money and get taxed at 40% when a passive stock market only pays 20%, plus stock investing is much more familiar and likely to actually happen for readers of the post as opposed to hard money which is a niche industry. Now you are no longer paying 2% and netting 3%, instead you are now paying 1% of that to the IRS, and netting 4%.

You can generally only borrow up to 90% of the cash value, so you aren't leveraging your entire amount. On a hypothetical 100k investment and 10% annual stock growth your returns are (.4* 90k) + (.06*100k) = $9,600. (which is a 9.6% total return)

If I don't do anything fancy and just straight invest the 100k, I get .08 * 100k = $8,000 after tax

Rates may vary from brokerage accounts, but I was able to get a 50% margin loan from M1 Finance for several years at 2% rate. In that case my numbers now become (.08*150k)-(.02 *50k) = $11,000 easily beating the infinite banking concept.

But these calculations are still very much oversimplified because we STILL haven't factored in one of the most important aspects which is the random fees that you incurred in setting up and maintaining this policy. A sample policy for a 35 male can be found here https://www.investopedia.com/a... In that sample policy after 5 years you have paid in $5890 in premiums, but your cash value is only $3738, so only about 64% of your premium payments are going towards cash value. Because of these fees, it takes several years of you earning interest on the cash value just to break even with the amount you have paid into the policy. The sample policy broke even after 10 years. So a more accurate calculation wouldn't have us both starting with the same 100k, because I should always start with more money than you because you will always need to pay fees. In this thread people have claimed that you can break even after 7 years, but most websites list 10 years as the break even point. Regardless, we'll be nice and assume it only takes 7 years to break even and we'll assume I don't even attempt to leverage my account and just go with vanilla stock investing at 8% after tax

So by the time you have 100k in your policy, I'll have 150k thanks to a 7 year head start on investing because I didn't need to pay those fees. At that rate even if you earn 9.6% per year and I only earn a vanilla 8%, it would take you 36 years to catch up to me. And I'll smoke you if I do any sort of leveraging myself such as that margin loan from M1 Finance because I start with more, and also earn a higher interest % each year.

Now it is true that I only have a full 7 year head start if you don't overfund your account. The more you overfund your account, the less of a head start I get since the overfunding portion of your payment is going straight to cash value and not eaten by fees. I will always get a head start of some sort since no matter how much you overfund, you're still paying those base fees. Even if you overfund by $1m the first month, you will still have to pay fees on month 2, 3, 4 etc, so I still get an advantage it just becomes harder to calculate.

But the numbers become MUCH worse if we factor in an investment like real estate where the total returns are significantly higher than 10% of the stock market because I can utilize my entire account balance where you can only effectively utilize 90% of it. If long term inflation is roughly 3% per year, then a 20% down payment mortgage translates into a 15% ROI just from appreciation alone. With equity paydown and cashflow we'll assume a relatively modest 20% total ROI which puts your final investment numbers at (.15*90k) + (.06*100k) = 19.5k and puts my numbers at (.2*150k) = 30k If I get the 7 year head start. Even if we magically erase 100% of your fees and don't give myself any head start at all I still earn more at (.2*100k)=20k.

Finally, I will be able to scale my real estate holdings faster than you, in part because your monthly cash flow is automatically reduced because you need to make payments on your policy loan each month and because part of your next months policy premium is being eaten by fees instead of increasing cash value making it harder to save for the next down payment. Meanwhile all of my earnings can immediately be redeployed towards the down payment of my next property.

In short, infinite banking is NOT going to amplify the rate at which you build wealth, especially if you plan on investing in real estate.

This has been said multiple times so i need to correct it, but you don't have to pay back the loan with monthly payments. As long as you keep paying the monthly premium payments to keep the policy in force you don't have to make loan payments. The reason why is if you borrow 50K from your policy with a $1M death benefit and you never make a payment and you drop dead the loan will be paid back with the proceeds from your death benefit plus the interest. So its all about flexibility of use with stable returns. Yes you are not going to make 10%, but you also are not going to be down -15%, which is exactly what the S&P is right now.

So if you believe that the stock market is a better investment and are more comfortable with it then go for it, but me I think it is a casino and the fundamentals are dead so I stay away. I would rather have my family protected and earn a guaranteed rate on my money, plus my policy is customized for me to use exactly for this purpose. It is not your standard Whole life policy, I met with my NYL agent multiple times and we built this for me. So comparing it to an online quote is off base as well.

1 Vote

The multifamily space will feel the most pain over the next 12-18 months and maybe longer. I looked this up recently and in the 5 years prior to the pandemic, 2015-2020, only 7 times were there more than 500K construction permits on 5+ units. That is 7 months out of 60....

Since January 2020-October 2022, 22 months, every month but 1 has had over 500K in construction permits for 5+ units. The 3-5 million in inventory that everyone has been saying is need is coming. Just going to be apartments and not houses.

New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Units in Buildings with 5 Units or More (PERMIT5) | FRED | St. Louis Fed (stlouisfed.org)

2 Votes

I agree that anyone who thinks we are heading for a crash, 20% or more loss in home value, is just fearful from what happened before.

However, 5-10% is certainly on the table over the next 6-12 months. Last time I said this was 3 months ago and I was saying 12-18 months. Here are my reasons.

Step 1: Affordability is not going to get better anytime soon. Rates will stay above 6% for most if not all of 2023 and they should. Yes, I know many on here remember paying 11% or 18% for their first mortgage back in the day, but you were paying these prices. People buy on what the bank says they can pay monthly, so if rates remain high and wage growth slows, which it should, affordability will remain an issue. But wait that will just create more renters???

Step 2: Yes there will be more renters, but there will be more supply of rentals. We have all followed the construction industry abandoning the starter home and just not building that inventory, but they have been building apartments. Since January of 2021 building permits for 5+ units has been over 500K in every month but, 1. so that is 21 months of over 500K in permits. In the 5 years prior to the pandemic, January 2015-January of 2020, that only happened 7 times. So only 7 months out of 60 previously. So for all these newly created renters that can't afford to buy, there will be inventory.

Step 3: So now homeowners who are wanting to sell or have to sell due to life change, are going to face the reality that there are less buyers who can afford their home and there are less people who are willing to pay rent for your home when they can get a brand new apt with all the amenities. So what do you do? You lower your price. Will you put it on fire sale, absolutely not, but you will lower it by 5-10% from peak.

Now here is the counter argument, well they will just hang on to that extra house and keep the 3% mortgage even without renting it, because they will not give that up. How many people do you know can afford two mortgages? Heck how many of us could afford their rentals without rental income? 3 months, 6 months, 9 months? So again NO crash, but a slight drop.

New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Units in Buildings with 5 Units or More (PERMIT5) | FRED | St. Louis Fed (stlouisfed.org)

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Quote from @Jack Tulloch:

After a positive November 10th CPI print, the upcoming December 13th CPI print (followed by FED day) will have a significant impact on the outlook of the real estate market and the rate environment.

What do you all expect from the upcoming CPI print and FED meeting next week?

https://www.mortgagenewsdaily....

Personally, I think it will come in exactly the same as the October report. I don't think prices have come down much faster across the board, except for used cars. So that would be a sign that the FED still has work to do, unfortunately.

1 Vote

Quote from @Sami Gren:

Quote from @J. Mitchell Bernier:

Quote from @Kenny Simpson:

The FED is slowing pace on rate hikes, the consumer is slowing and the economy is headed into a recession? These are all guesses at this point and some believe this will happen or is happening. If the FED eases with less rate hikes, that is signaling they need to slow down because the rate hikes are working and inflation is coming down. We have had recent reports that inflation is slowing 9% + to 7.7% and that has already had an affect on long term rates. The 30 year fixed mortgage as I type this sits around 6.125%, conventional NO POINTs and VA 5.5% NO POINTs. Those rates just weeks ago were .5%+ higher.

Do you see VA/FHA rates in the 4's and conventional in the mid to low 5's is possible by Q2 of next year? If that is the case we are talking new buyers saving $800 + a month here in San Diego on entry level homes. Home prices lower, rates lower, seems like the perfect storm for first time home buyer or to pick up your first investment property?

Sounds like patience is the strategy at this time.

Don't think we will see rates below 5% for a long time, but even at 5.5% that makes many investments way more attractive. I think if rates fall to around 5.5% the buyers will come back in droves and the market will rebound. Think that won't happen till 2024, but hopefully sooner.

hi, don't you think that buying will earn you more money than letting the money lose more worth by sitting in the bank account?

I believe that these days nothing makes sense, and rather buy something that could potentially make some sense as long as you don't lose, what do you think?

I am not saying you have to hold your money in a checking account, but some savings accounts are now earning 2%, a 3 month TBill is over 4%. So if that house you buy now for 200K is worth 180k six months from now, wouldn't you wish you would have waited. I will give you a real-world example: Down in Port Saint Joe, Florida, where we go to vacation. DR horton is building hundreds of homes and selling them. In September of this year, they were selling 1800 sqft brand new built homes for $465K, now those same homes on the same street are listed for $399K-$409K.

So yes, if you are saying over the next three years of holding cash, sure you are losing money, but I am talking about waiting 3-12 months.

below is the link to the two houses

What's for sale now:

788 Backwater Rd LOT 35, Pt Saint Joe, FL 32456 | MLS #734954 | Zillow

What's was sold in September:

864 Backwater Rd, Pt Saint Joe, FL 32456 | MLS #311786 | Zillow

0 Votes

San Diego, California

Quote from @Kurtis R.:

I currently own a 4plex with an estimated 150K+ in equity and I would like to access the equity in order to purchase some more properties.

I have never used a line of credit before and naively assumed it would be a straight forward process. However, after calling multiple banks and credit unions I have come to realize that no one seems to offer such a product for investment properties. Unfortunately I do not have enough equity in my primary residence to pull from there.

Does anyone know of any lenders that will allow a line of credit on an investment property? I have read of other people that were able to accomplish this, however those threads are a few years old. I am located in Tallahassee, FL if that helps.

Any assistance or advice is greatly appreciated!

Hey Kurtis,

They are plenty of lenders that will do this including the bank I work for, but there could be some underlying problems.

Problem 1) Even if we the Equity of $150K what is the LTV position? 150k equity does sound like a good cushion but if the property is worth $600K, that means you are at a 75% LTV already, which for a revolving line of credit is pretty tight. If you your property is worth, say $400K and you have that much equity, then you may have something.

Problem 2) Banks are good with this but are less open to it when they are in the second position. So, I assuming you have a mortgage on the property already with another company. This means they are in the driver seat in regard to collateral and means even more risk in regard to a revolving line of credit. For example, the bank I work for HATES 2nd lien positions. Now I have plenty of customers that have loans with us and then have a line of credit secured by that same property up to the 75% LTV.

So, my advice, call the company that has the first and see if they are open to a line of credit. If not, you may be running into some issues when it comes to traditional capital sources. Banks and Credit Unions are all becoming a little tighter these days.

0 Votes

Tallahassee, Florida

LVP all the way for the rental.

The old saying, "People won't take care of things like you would" is absolutely true, so go for durability. If it is your own home that you will take care of, I am all for natural hardwoods.

0 Votes

Philadelphia, Pennsylvania

Quote from @Kenny Simpson:

Sounds like patience is the strategy at this time.

2 Votes

San Diego, California

All Forum Posts by: J. Mitchell Bernier

J. Mitchell Bernier has started 29 posts and replied 279 times.

Post: How do I go about finding a "portfolio lender" bank in my area?

Post: Trying to sell rental property with tenant

Post: Infinite Banking Concept

Post: Is a 20-25% Crash in Multifamily Asset Values Realistic?

Post: ....WHERE'S THE BEEF?

Post: 8 days until December CPI Print

Post: Mortgage rates in the 4's and 5's in 2023?

Post: Line of Credit on Multifamily Property?

Post: Hardwood or Luxury Vinyl Plank

Post: Mortgage rates in the 4's and 5's in 2023?