All Forum Posts by: Lance Thibault

But is HELOC interest tax deductible if used to purchase a new property? I'm at the point now where I believe it is and I've applied for and been approved for fixed rate HELOC.

Regarding my question about HELOCs; I've read that the cash for the loan must be invested into the property securing the loan for it to be tax deductible. I've also read that this is not the case and as long as the HELOC funds do not touch my personal account I can use a HELOC to purchase another investment property and it would still be tax deductible. Can someone clarify this? Have you used a HELOC since 2018 to purchase a an investment property and then deducted the interest paid on that HELOC on your taxes? At 70% loan to value I could have about $210k available to me in my rental property and about $250k available in my personal home.

Melody,

I bet you know what you actually want to do.  My guess based on your post is that you are very safe with your money and any leverage goes against your will.  It's slower, but there is nothing wrong with being debt free.  Especially if you enjoy your job.  If you hate your job, and it's killing you a little every day...then maybe the priority to leverage more comes into play to get out of the 9-5 a little faster.  I paid off a house a couple years ago and I'm 5 payments from paying my next home.  I have no regrets.  There is lots of advice out there opposed to this, (mostly from people who have not done it).  But there's freedom in knowing you're free in clear.   

I've had retired military and non-military in my rental (I'm also active duty) that requested month to month.  In both instances they paid the higher month to month rent for a few months then renewed their contract for 6 months.  No problem going month to month.  

JD, I do understand the rate of return argument.  It makes perfect sense though like you said it does not take into account some of the intangibles.  I just didn't understand "The property now ownes you" comment and didn't know if or how it was trying to help since he didn't explain and it didn't seem connected to answering my question about HELOCs or home equity loans.  

I'm definitely lean more toward the Dave Ramsey approach then the Robert Kiyosaki approach to property investing, though the Rich Dad books have some things in them that make tons of sense, I just don't want to be that leveraged even if it limits my speed.  I'm willing to leverage, but not long.  BTW, my daughter will be attending Law School in Knoxville, so maybe if we come visit her we'll make a trip to see the Rockstar Extraordinaire play somewhere!  Besides we think long term retirement in the Kingsport, Johnson City, Bristol area would be nice.

Joe, no I don't understand.  Please explain how the property owns me?  When I retire from the service a couple years from now, I have no stress to find a job to make sure I can pay my mortgage(s)...as I won't have any.  This is freedom to me, so I don't see how I'm now owned by my property.  

Katie,

I started investing in a Roth when I was 21 or 22.  After 10 years of maxing out that Roth and the market going through two recessions in those 10 years, my Roth was worth what I contributed to it.  It made me mad, in that I thought starting young and staying the course was the smart thing to do, but instead felt like I wasted that decade of investing.  Despite the advice I was given at the time we decided to cash out my Roth and focus on paying off our rental home and the house we still live in today.  I keep track of what would have been given a couple different scenarios.  I update the post on Morningstar.com annually every January as we cashed on Jan 11th, 2010.  I won't tell you what to do, but I can show you how our situation played out.  Here's the verbiage from my 2021 update to that post.

2021 update

Here's where we are at another year down the road. The projected primary home payoff is still this Jun 2021. No major changes to the home pay off plan, but I did transfer from AD USAF to the US Space Force. With that transfer, I incurred a two year service commitment. Which doesn’t change things too much for me. Instead of probably retiring 1 Feb 2022, I’ll now probably retire 1 Oct 2022.

By the numbers;

Jan 2010 when we started the plan.

$150k approx value of rental

$111k approx balance of rental mortgage

=$39k approx equity in rental

$284k approx value of primary home

$273k approx balance of primary home

=$11k approx equity in primary home

$34k approx value of Roth IRA

Today

$305k approx value of rental. (This value seems high to me, but I used the same method as past years, so it shouldn’t be far off) $0 balance of rental mortgage

=$305k approx equity in rental

= positive $266k in equity since plan implementation

$389k approx value of primary home (This does not assume any added value from the updated kitchen nor will future updates. It's simply a number based on comps from the county assessors web page...not to be confused with the assessed value.)

$25k approx balance of primary mortgage

= $364k approx equity in primary home

= positive $353k since plan implementation

$214k approx value of what the Roth IRA would be worth if I would have stayed the course

or

$846k if I would have invested 100% of the extra money I have put towards paying down the mortgages.

= what could have been a positive $180k or $812k in value from 2010.

Bottom line 11 years into the plan.

Gained $619k in home equity; while I could have gained $180k or $812k in Roth value

I mention in one of the discussions after my update 2 years ago that I would try to take into account the fact that home equity could still occur without extra payments on the mortgage(s) and I should try to account for that. So here is how I see those numbers.

If I would have stayed the course investing and making our regular home payments, I would have $214k in my Roth for a positive $180k (both values previously mentioned). However, we would owe $39k on the rental; now worth the previously mentioned $305k. We would also owe $216k on our primary home; now worth $389k. This would equal a positive $266k in equity on the rental and a positive $173k on our primary home. This makes for a positive $439k in home equity plus the positive $214k from the Roth for a total gained equity of $653k vs the positive $619k solely in home equity I have today…but this is not quite a fair comparison as I became more aggressive in paying off the property

If a person was as committed to investing in market as we are in paying down our mortgages (>35% of our net pay or 360% mortgage payment) they could potentially have $846k for a positive $812k in equity through some type of market investment (this investing is more than the values allowed for Roth and traditional IRA limits) that would make for $812k in investment equity and $439k in property equity for a total of $1.25M.

From what I was told last year by a fellow forum user “BB” a majority of this potential aggressive investing would have to be through a taxable brokage account since the additional mortgage payments we are making are over the annual Roth and traditional IRA limits.

Recently found BiggerPockets.  First post.  I have not yet intentionally bought an investment property.   

13 Years ago we moved from our house of 6 years into another home. We kept the first home as a rental and paid it off a few years ago. I will be paying off my home in June. I have no other debt. I probably have less then 2 yrs until I retire from active duty. My wife invests in TSP. I don't invest in the market at all anymore. The plan in my head is to continue buying 1 property (not opposed to it being multifamily) as long term rentals and pay them off as quickly as possible (every 4 years or so). I'm not entirely opposed to saving the cash to buy in full...however, that cannot be the case for next property as I'm looking to buy this summer. It would be a condo out of state for my daughter to rent from me while she attends law school and then hold that condo as a near campus rental. I do not have an exact property in mind yet. I have a feeling I'll be buying this property at market rate, so not a great initial investment property purchase. Looking for thoughts.

Also, on a bit of a side note. I read that starting in 2018 HELOC and home equity loan interest is not tax deductible if used for property purchasing. But then I also read that people are still using these methods for investment home purchasing. Is this just to get the property quickly and then the buyer refinances to a conventional loan?