All Forum Posts by: Moshe H.

@Evelyn Roper, consider taking the difference between what you would have been willing to pay monthly for a 15-year amortization and the 30-year you're paying now, and put that in a bank account to contribute toward your investment goals. Think about it this way: You can now put that money to work for you, rather than for the bank! :) If you invest the right way in real estate, you can surely realize better than a 3.6% return, which is what you would be saving on it by paying down your principal.

I am actually planning to do just that, assuming the capital aggregators can raise the rest of the funds needed for the project. God willing I will post some details a little later. Wouldn't mind public feedback on my venture, either :) 

Oh, last quick thing, a home equity line of credit will often allow you to put a higher amount of your actual equity in it.  A refinance will  lend you up to 75 or 80% of the home's value, whereas you might find a  home equity line of credit that will  go up to 90 or maybe even 95%.

Hi Roland, I have recently done the exact thing you're asking about. I have also not yet deployed my cash while I look into which investments to do.

Here are the results of my looking into it. Take it as one man's opinion 😀

I went the "cash-out refi" route.

Pros: Lower interest rate. I simultaneously refinanced my entire primary mortgage at a better rate, but only 0.25% lower than before, so it would not be worth doing that on its own, but for the cash out to reinvest, this is a little added bonus. My refinance rate is about 1% less than the rate I was quoted for a home equity line of credit (HELOC).

Cons (actually take these as pros for HELOC): I am taking the money all at once. That means that as long as I'm sitting here analyzing my options, I'm paying interest on my money sitting in the bank. So even though I put it in a savings account that pays me 1%, I am still paying net 2.75% for the privilege of having a lot of cash to pounce on a deal when it comes up. On the other hand it makes me motivated to actually go out and do something rather than analyzing forever.

I have to make principal payments every month on my refinance. A HELOC will allow you to pull out money as needed, only pay interest on the money that you pull out of your line of credit, and then for the entire draw period of the line of credit, you can choose to make interest-only payments, typically for ten years. Since it is a revolving line of credit, you can also pay principal down and then take the money out again as you wish. If you are making short or medium term investments, then you may never have to make a principal installment payment, because when you exit the deal, you can just pay back all the principal before the end of the draw period. So this could potentially increase your cash flow. I also remember hearing somewhere, probably here on BiggerPockets, that if your lender likes you, then you can renegotiate at the end of the term and extend it so that you don't have to begin repayment of the principal for an additional 10 years or whatever agreement you come to.

At the end of the day, it may have actually worked out better for me to do a line of credit instead of a refinance, but I was attracted by the thought of refinancing my entire mortgage at a lower interest rate. After I went through the whole closing process and I saw how much money I was paying for it (esp. in NY!), I realize that the lower quarter percent in and of itself was definitely not worth refinancing. That said, don't actually regret it and now I do have the money sitting right in my bank account to just write a check the moment that I need it.

OK, I have to run but there's probably more to be said on this!

Welcome, I'm pretty new too, looking forward to learning along with everyone!

Just do your homework because the buyers' mortgage lender might not approve the loan if they feel their borrowers are going to be carrying too much debt.

 I will!!!

I have to admit it's hard to envision some of those things, like to think now that I should be deducting $8.33 a month from my cash flow because in 50 years it will need a new driveway... Well, that's why I'm here, to learn from other people's wisdom and mistakes and hopefully make fewer of my own.

Thanks for answering, @Ben Leybovich! So are you saying that if I discount CapEx from my cash flow calculations, à la this article: https://www.biggerpockets.com/renewsblog/2015/10/1...

then I'm "ok" without the more sophisticated analysis? (ok, I know that I'm about to start Googling "internal rate of return" and whatever MIRR stands for now...:)

I'm still hunting for my first deal and trying to learn as much as possible from you great folks first!

Would someone mind expanding on the concept of "equity pulling its weight"? ( @Ben Leybovich  ? ;) Making up numbers here, not claiming they're realistic, but if I put $10k down on a $50k house and it cash flows $200/mo. after debt service, then my cash on cash return is 24%. Additionally, not to be too precise here but let's say the equity pay-down the first year is $400. So why do I care if the property never goes up in value? I still have an extra $400 in equity for the same $10k cash in. 

I'm just guessing here b/c I've never heard of this: Is @Thomas S. saying that I should assume that the $400 should be earning at least a rate of return equal to the rate I could finance the property at (7% in my model) - because he said that you should assume the property is 100% financed. So the $400 in cash paid to equity should appreciate to $428 after one year, and if it doesn't I actually have to subtract $28 from my rate of return?

Thanks Tyler, I have moved past that property for the time being but may revisit in a few months if they are more willing to go down on the price. Will definitely keep Angel Oak bookmarked!