All Forum Posts by: Nate R.

Isn't the purpose of a securities exemption (eg. 506(c)) intended to get around licensing requirements?

Basically in order to raise money without the same requirements as a public company you need to follow some rules about who you can invite into deals. If it's publicly traded, that's a different matter.

I think it's a relatively safe bet, given the current market value, expected population growth, etc. You could avoid negative cash flow by putting more down. 

Whether it's right for you and it fits your goals/risk tolerance is for you alone to decide.

Crime can happen anywhere. I don't mean to frighten you, but there have been at least a couple of high-profile murder cases of women killed while walking alone in and around the area where you currently live (Hyde Park, campus). If you want safe, buying a house in the quiet suburbs would be the best option. You could deal with the risks in other constructive ways like getting a dog, learning to use a concealed firearm, avoiding situations that put you at risk (walking alone late at night - use an Uber/Lyft instead), etc.

As an investment, I like the area you mentioned. But, be aware there is more property crime in gentrifying areas like East Austin. I lived in this area and had to deal with a couple of break-ins (2012-2014) before I decided to leave.

https://spotcrime.com/tx/austin#78741

Did I miss something? I see the major indexes were down just under 2%. That's not a significant move, even for a single day. The panic in December over several weeks registers as more significant.

In short, I am not worried about yesterday or the market in general. I've witnessed multiple corrections and crashes since I started investing nearly 20 years ago. Ups and downs are normal. I'd say we are due for a major correction, but predicting the extent of and timing of which is impossible.

Further, I don't invest in "the market" but individual properties and businesses. 

@Caleb Heimsoth Thanks, care to elaborate?

This was probably the most helpful article I could find:

https://www.housingwire.com/blogs/1-rewired/post/47503-op-ed-how-to-decide-between-a-heloc-and-a-cash-out-refinance

Excerpt:

I think it is safer to use 30-year fixed-rate loan to cash out up to 80% while rates are low and open a HELOC up to 100% CLTV for more of an emergency reserve fund, or temporary-use fund after.

When you get all that equity, do yourself a favor and create a compounding liquid reserve with years of payments in waiting, because things will change. Your income could go up, you could lose a job, or you could be faced with a life-changing medical event. If and when those things occur, a reserve will allow you time to make the best decision possible and avoid default.

Ultimately, even if you disagree here and take out a large HELOC, I have seen what happens on the back end of high-balance HELOC debt. It gets paid off with the sale of the property, consolidated into a first mortgage, and even sometimes paid-off with large unexpected earnings.

Whatever happens, make sure you know how you are going to pay it off. If the most likely way you will get rid of a high-balance HELOC is a consolidation into a first mortgage, why not do it while the interest rates are better? 

The gist of the article is that the purpose of the debt should dictate the decision. If it's short-term, then a HELOC makes sense. If the plan is to carry the debt and eventually refinance into a new first mortgage, go ahead and take the long term fixed interest debt while interest rates are low.

I guess I'm already leaning towards refinancing and the article is confirmation. 

This is very much my line of thinking as well. I'm currently looking into HELOC vs. refinance and putting money into syndication deals with 5+ year timeframes. HELOC's can be frozen or called, and interest rates can go up substantially (all the way to 18%). I know duration mismatch -- borrowing short to invest in assets of long duration -- is one of the factors behind credit crises, bank panics and market crashes. It feels safer to refinance out, although the decision is painful since interest rates have risen and many people (like myself) are sitting in sub-4% long term fixed interest rate debt.

I crunched lots of numbers in different scenarios (varying holds, different interest rates) and the refinance always has a lower payment (assuming a 75 max LTV, 28.5 year amortization schedule on the HELOC, prime +1.25 vs. 4.5% at 80% LTV, 30 year fixed), and the total equity + cash out is higher after 5+ years for the refinance vs. the HELOC. The longer the timeframe, the greater the advantage goes to refinancing.

I started a refinance application on my residence and I'm kind of having some second thoughts about it. It appraised at $370k, with about $189 left on the first mortgage balance. I also have a HELOC with a limit of $62,000 (based on an old appraisal).

I got a rate of 4.5% on a 30-year fixed, with closing costs coming in around 2% (not including prepaids). I was in a bit of a hurry due to other commitments like work and didn't spend more time shopping around, but I know I could probably beat this today. That's not the main issue, but I felt pressured on a couple of occasions by the lender. I think he was lying when he said interest rates have gone up since the application. I follow the Treasury market and I've seen rates come down in the past few weeks. Maybe it's not a significant difference but that bothers me.

The main issue is whether it's even a good idea to blow up my first mortgage, at 3.875%, and replace it with a new first mortgage for $296k at 4.5%. My HELOC is prime + 1.25, which today comes in at 6.75%.

My goal is to get more capital for syndication deals with holds anywhere from 5 - 10 years, or possibly for other investments like stocks. My thinking is that interest rates could go up, so a floating rate loan could turn painful in a rising rate scenario. 

I created a spreadsheet to analyze various scenarios. First, using a HELOC. Here are my payments on a 75% LTV HELOC max draw (based on the new appraisal) plus first mortgage for various interest rates:

In the refinance scenario, my payment would be $2182/mo. In any scenario, the payment would be lower to refinance, unless I can find a HELOC with a lower rate. I've seen some promo rates, but I assume that they go up after some period of time.

Also, I looked at the expected equity plus cash-out amount after 5 years, assuming 3% annual appreciation:

For refinance:

I assumed a 5 year hold since that seemed likely, based on the fact most Americans don't own their homes for longer than this. I think that sounds about right for us. 

I assumed that the refinance would cost me a lot more, but it's clear that it's about the same as a HELOC for 5 years, and if interest rates go up, refinancing comes out ahead.

The advantage to the HELOC seems to be that you can pay it off and then you have the lower payments on the first mortgage vs. the higher payments when you refinance. But if you plan on carrying the debt for longer periods of time, I don't think there is any advantage to using a HELOC. Plus, there are the following disadvantages:

- Bank loans can be called

- Lines of credit can be frozen so if you don't use them, you risk not having access to the funds

- Interest rates and payments can go up

I guess I'm trying to avoid black swans and blowing up of using short-term credit to invest in long-duration assets like real estate.

But, perhaps the fear of rising interest rates is overblown? Right now, it looks like we might have a recession in a year or so.

Does my reasoning and analysis make sense?

 Sure,  throwing enough money at it will solve any problem including lack of cash flow. ;)

Round Rock is a solid area to find quality SFH's. I recommend finding a realtor to help find good locations.

Just don't expect to make a lot in cash flow in SFH's in the Austin metro area.

No, I would imagine the cash flow would be higher in the lower income areas. Most Austin SFH's are so expensive you'd need a big down payment (>50%) to make it cash flow. The returns are better in areas where you can find single family homes for less than $300k ("working class" neighborhoods). Not "no-go" areas, maybe more crime than average but still relatively safe.

If you feel uncomfortable as a noob you might consider finding a property manager who knows how to manage properties in such an area.

Investing in suburbs like Round Rock or Pflugerville would be safer for someone's first deal, but it's the gentrifying neighborhoods where the hipsters are moving in that offer the best appreciation potential - I think.

I bought a residence in such an area, just east of downtown a few years ago. I hated living in that neighborhood, but I exited with a nice gain, which provided seed capital for other investments.

It is a great feeling to buy in a neighborhood that is growing and multiplies your capital. If you don't have much capital, then cash flow doesn't do much for you. Go for cash flow, of course, but if you buy in the right location, appreciation will follow. If you make mistakes as a newbie, or problems come up, appreciation will help offset them.