All Forum Posts by: Paul Rumsey

I'm currently using that strategy and it's saving me TONs of interest... in fact I've recently refinanced my primary residence into a HELOC for the same reason.

I'm using the Rental Property Calculator to configure my parameters for a 'good deal' (i.e. minimum requirements for Monthly Cashflow, Purchase Cap Rate, etc.)

In the bottom below the Analysis Over Time section, there is a graph with a Total Profit if Sold calculation. Can anyone explain how that is calculated and what it actually tells me?

Basically I use the HELOC as my checking account to get the full effect of the interest deduction. So ALL of my income is directed into the HELOC, and then I pay my monthly expenses out of the HELOC. What this does is greatly decreases the Average Daily Balance of the loan, thus decreasing the amount of interest charged.

E.G. Let's say you have $10k month net income, and $8k month expenses (NOT including the current mortgage on the property you are refinancing). You'll put all $10k into the HELOC, and then as the bills come due you pay them out of the HELOC account. This has a better effect than simply putting $2k into the HELOC payment each month because of the daily interest calculation. You should be able to find a simple interest calculators online that will show you the result of doing it this way.

Not all lenders provide this; some attach a checking account and you would then manually/electronically transfer your income into the HELOC and the monthly expenses out of the HELOC into the checking account in order to pay expenses (this is referred to as a 'sweep account' to use their banking terms). Still others don't offer any automated arrangements so you'd have to use your current bank account to move funds in/out of your HELOC.

Any of those options work... it's just the more automated the easier it is.

P.S. I do caution this strategy is an excellent tool if you stay disciplined! I have seen people buy new cars, take vacations, etc. with the credit in the HELOC and end up paying more than they would have in a traditional mortgage!

Have you considered a HELOC in first position? refinancing all the debt into one HELOC loan will provide several advantages. We often times pay more attention to the % symbol than the $ symbol, and you'll find in many cases that the simple interest structure of a HELOC- even at a higher/variable % rate- will result in less $ expense in interest. I put ALL my income in and then pull out what is required for bills once a month (the daily interest rate reduction is greatly accelerated). Google a Simple Interest calculator and plug your numbers in to see specific results.

It provides quick access to your equity (for your next purchase, but also providing a 'emergency fund' for any future events such as you contractor issue). 

Also, there are lenders that will provide HELOC loans with no/little closing costs.

Ensure it's structured properly and a 1st position HELOC seems to be a win/win/win for your three (3) goals.