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All Forum Posts by: Lloyd Preece

Lloyd Preece has started 8 posts and replied 52 times.

Post: Velocity Banking / HELOC Checking Acct - It Works (Proof)

Lloyd PreecePosted
  • Rental Property Investor
  • New Jersey
  • Posts 54
  • Votes 49
Quote from @Joshua S.:

Hi, everyone. I wish everyone knew how great this strategy is, so I'm trying to spread the word. I'm not selling anything, just trying to let people know how it works. 

When you're paying your mortgage month in and month out, you are paying MOSTLY interest for many years. That's because you are paying interest on the whole loan - $200K @ 4%, let's say. In the first year you'll only bring the balance down about $4K, but you'll pay about $8.5K in interest - twice as much, obviously. To pay the balance down $10K it will take you 2.5 years and over $20K in interest. To me, that's a sickening waste. Check out from Sept to Sept on this pic. Only $4K in principal yet $8.5K in interest. Work it out on bankrate yourself (link at bottom) and you can see how long and how much interest is wasted to pay off $10K from your mortgage. And this should go without saying, but if you're further along in your mortgage then your savings will be less, because you are paying less in interest at that point. This strategy is more suited to someone who is in their first decade of a mortgage.

Now, follow me here. You can take all of your extra money and put it toward your mortgage which will shorten your mortgage and save you on interest. Most people know this. But most people also realize that money is usually tight and many people don't have $400 for an emergency let alone a bunch of extra money to put against their mortgage. Anyway, do that if you want, but there's also another better way to accomplish the same thing.

Here's how it works. You get a HELOC or a PLOC with a reasonable rate. It doesn't have to be 4%, but it also shouldn't be 18% like a credit card. You take a portion of your mortgage ($5-10K, for example) and put it on the HELOC. Then you put all of your income toward the HELOC and try to depress the balance as much as possible all month. When bills come you use HELOC funds to pay them, because you're not putting your income into a checking account anymore. You continue like this, putting all bills and income toward the HELOC balance. Since you make more than you spend, the balance will gradually come down. Then you put another portion of your mortgage on the HELOC and repeat the process.

Here's how and why it works (and works better than just paying extra principal when you have the money):

1. You are putting all of your available "checking" funds toward your mortgage at all times, yet you still have money to pay bills due to the revolving credit line.

2. Money that you DON'T end up using toward bills stays on the mortgage balance permanently, limiting the amount of interest you will pay.

3. Money that you DO end up using toward bills temporarily "leans" on the mortgage balance keeping it down and limiting the amount of interest you will pay. 

4. Here's the silver bullet, though, that most people can't fully grasp. On the above mentioned $200K / 4% loan you will pay $144K in interest over 30 years paying by the amortization schedule. For that amount, you might as well have purchased an extra smaller house. But here's the thing - the interest is SCHEDULED, but hasn't been CHARGED TO YOU YET. If you struggle with this idea, imagine that you won the lottery tomorrow and wanted to pay the house off. You'd pay off the balance of your mortgage, but not the balance and all the scheduled interest charges. In other words, the interest can be AVOIDED COMPLETELY by paying the principal back early, but time is of the essence. The more you pay and the faster you do it the better. So, remember above when I explained that it takes a person about $20K in interest to pay down $10K in principal? Well, when you put that $10K on the HELOC, you COMPLETELY AVOID the $20K in corresponding interest payments on the mortgage (like the lottery example, just a smaller amount) and it will cost you about $1000 in interest to pay off on the HELOC. This allows you to save TENS OR HUNDREDS OF THOUSANDS OF DOLLARS simply by adjusting the way you pay it. It's not a scam or a method of gaming the interest rates or anything like that, it's simply a way of paying more efficiently without having thousands of dollars lying around to throw at your mortgage.

5. When you pay these large chunks, your subsequent REGULAR PAYMENTS are also more effective, because your principal / interest ratio is improved by quite a lot. Normally, every month you will pay $1-$2 less toward interest than the previous month, but the month after you take $10K off of the mortgage your regular payment will charge about $30 less toward interest than the previous month - and every month thereafter. So, you are saving all the interest from #4 as explained, but every month you're also paying significantly less toward interest (and more toward principal) than you were before. Each time you take another "chunk" off of the mortgage your regular payments also become that much more efficient.

Hopefully, that covers the explanation, but I told you there was proof, so here you go. Here's my closing package where it says that this month I should be at a balance of about $290K.

And here's my actual loan balance of $236.5K. So, as you can see I've been able to put $53.5K extra toward my mortgage over the last two years (started the strategy May 2018) and I haven't been skipping lattes or doing any other financial voodoo. All I have done is started using the HELOC to pay off chunks of the mortgage like I explained and because of all the various mechanisms I described I've been able to put a ton of extra money toward the mortgage. When I look at the balances of $290K and $236K on my closing doc, I find that it is about 85 regular payments (7 years) shaved off the mortgage at an average of $825 interest per month (first payment in range $907 / last payment in range $743). 85 payments at an average of $825/month is $70K worth of interest savings in only two years. Obviously, I have a higher dollar mortgage, so your results may vary, but this isn't milk money, it's life changing money simply from rearranging the way you pay your number one expense. Let me know if you have any thoughts or questions. Thanks!

Bankrate Amortization Calculator


Josh do you (or anyone else doing thise) use any software to manage the process of when to transfer cash from HELOC to principal and timing effectively or you just an Excel? if anyone has a template i'd love to see it to play out scenarios

Post: Weehawken rent registration

Lloyd PreecePosted
  • Rental Property Investor
  • New Jersey
  • Posts 54
  • Votes 49

Going to reopen this one just to provide some information after going through some of this. The rules are pretty complicated and the only people who really know all the terms and rules thoroughly are the Rent Levelling Board.

Caveating that I’m not an attorney so go seek your own advice but I clarified a few things at a recent rent levelling hearing (which are open to the public and you can find the schedules with a simple Google).

Once you take over a property as an owner occupant, if it is a single family or condo you can live in it for 1 year and that automatically exempts your unit from rent control. You can then rent at market rate but have to register it with the town annually and abide by their annual inflation rules. That then registers the property at a new “base rate” and your future rent increases all be “base rate” + Inflation as guided by the town.

If it’s a multi, you have to live in it 5 years to fully exempt the units. After 2 years you can apply for a “Rent consideration” (I think that’s what they called it) as long as you still live there and that may allow you to increase rents by more than the annual allowance (probably designed for unit that are very low rents). Until then you are supposed to stay at the base rent levels that the units are registered at the time you purchase, and only increase by their guided annual inflation numbers.

Regardless you are supposed to always register your rental unit with the town annually, and be subject to their rent control inflation numbers. STRs are not allowed. Not sure about MTRs.

My general conclusion was that it is tough to do business in the town if your goal is to buy property as pure rentals out the gates and no intention to occupy. If you have offers out on properties, make sure you understand the rent control levels they are under before you buy. The town is encouraging home ownership, so buying a condo/single, living in it for a year plus and then renting out works fine here (what I did), whilst house hacking a multi is more complex.

Post: Don't Become a Property Hoarder or a Door Counter

Lloyd PreecePosted
  • Rental Property Investor
  • New Jersey
  • Posts 54
  • Votes 49

This is a great post. Curious though @Jonathan Greene , at what point in your property ownership cycle should one of your assets qualify to be evaluated/ranked like this? Point being that property you acquire 1-2 years ago is likely to be subject to deferred maintenance and capex, so their "long term" performance in rankings 1), 3) might skew poorly in year 1-2 but may pickup  after you've found and fixed all the hidden issues.
I know if i did this exercise across my portfolio, the recently acquired ones wouldn't be fairly "stacked" because of all the year 1-2 cost build up from what the seller deferred, but have good chances at being future performers in years 3-5.

Maybe that's why you have 2) and 5) but curious your general thoughts here are for evaluating this. 

Post: Scranton property management

Lloyd PreecePosted
  • Rental Property Investor
  • New Jersey
  • Posts 54
  • Votes 49

Thanks Kate, lets catch up next month. I may have a JV opp that requires mgmt

Post: Scranton property management

Lloyd PreecePosted
  • Rental Property Investor
  • New Jersey
  • Posts 54
  • Votes 49

Hi all, I was looking to speak to a few property managers in the Scranton area. Does anyone have experience in this market and can recommend good local managers?

Post: Sec 8 renting

Lloyd PreecePosted
  • Rental Property Investor
  • New Jersey
  • Posts 54
  • Votes 49

Would second the sec 8 piece. Guarenteed payments on the 1st, keeping up with market rates and mutual interest between the tenant and landlord to keep the property in good condition and to keep the tenant living there. 

Post: the best location for duplex/triplex/quadplex investing?

Lloyd PreecePosted
  • Rental Property Investor
  • New Jersey
  • Posts 54
  • Votes 49

Lehigh Valley is a great market, plenty of Multifam options in Allentown, Bethlehem and Easton. North/West Bethlehem and the historic areas of Easton are going to be the nicest (but also most expensive with least cashflow). Southside Bethlehem has a lot of redevelopment happening and Allentown is mixed, with west of 13th st as quite a nice area, a lot of redevelopment around the PPL centre but a lot of run down areas too. LV is huge and has a ton of jobs across manufacturing, education, health care with a few colleges, hospitals and warehouses driving employment, not to mention the proximity to NYC and Philly and potential Amtrak links in the future. Whilst theres a lot of options the problem at the moment is low inventory and prices that have remained high despite the huge increase in the cost of money. A couple of years ago you could easily pick up cashflowing properties out the gates, its still possible now, but is much rarer and typically involves value add to get you there. However @Shawn Mcenteer is right about not needing to cashflow out the gates, you should be thinking about your investments as a long term game. This blogpost on Mortgage rates and if they really matter to long term investors, might help giving you some context https://www.biggerpockets.com/member-blogs/15238/101444-do-m...

Post: Should I let the sellers agent represent me?

Lloyd PreecePosted
  • Rental Property Investor
  • New Jersey
  • Posts 54
  • Votes 49

Seller typically pays all agents commission both buy and sell side.

If you are a new investor i would highly recommend using a buyer agent who is investor friendly and knows the market, a good agent pays for themselves many times in ROI and is especially helpful for newbies. The only time i would consider using the seller agent for a transaction is if you are experienced in deals within that market, you know the market very well and have no need for someone to look out for your interests. Also, if you are sure that by using the seller agent to buy, that it shaves of part of the price or it assists you in getting a competitive deal.

That being said, the agent fees cost you nothing as the buyer, and even if the seller agent represents you in the deal, they still have a licensed duty to get their seller the best offer possible, so if you think it'll help you get a deal because youre persuading the agent, it's worth rethinking!

Post: Wholesalers in the Lehigh Valley Area in Pennyslyvania

Lloyd PreecePosted
  • Rental Property Investor
  • New Jersey
  • Posts 54
  • Votes 49

Also interested in this if there are any wholesalers in the area

Post: Hi from California! Looking for investment opportunities as a new investor.

Lloyd PreecePosted
  • Rental Property Investor
  • New Jersey
  • Posts 54
  • Votes 49

@Bob Stevens there’s a happy medium between undertaking education and moving forward with an investment. Yes you need to avoid analysis paralisis and be strict about having a time period set whereafter you begin making offers. But books and podcasts go a long way to gathering base knowledge, personally I found 6 months was right for me, but that will differ person to person