All Forum Posts by: Royce Talbo

@Alex D. congrats on buying your first place!  Honestly if you let this one go you will kick yourself later.  Being a condo isn't bad if you know how to value it and see the pros and cons.  With condos instead of budgeting for major expenses like roof, ext paint, landscaping etc the association takes care of those and you pay the maint fee instead.  

I would agree with the posters above if it was in the mainland, but this is hawaii.  Its totally different from anywhere else in the US.  Almost no properties in hawaii cashflow off the bat.  But for those that can hold, will eventually get cashflow and a bunch of appreciation.  There are 4 stages in a neighborhood, growth, stability, decline and gentrification.  Kapolei is in its growth phase which is where you make the money.  

Kapolei is the second city and there is a bunch of commercial money coming in.  They wouldnt be putting money in if they didnt think they would make money.  There is the new elementary school, a new mall, new theaters, 3 new hotels (embassy suites, hampton inn, and forgot the 3rd one) and a bunch more development.  Secondly Hawaii has a housing shortage and we have the lowest current properties for sale in hawaii's history.  So very low supply, high demand, and lots of commercial development, historical trend of proven appreciation, low to no vacancy, rental appreciation, etc. you do the math.  If you want to listen to people who dont know the market you are invested in go ahead, but I would highly recommend holding it, if you can afford the PM.  If not you will be losing a lot of money selling from closing cost and future money that you will be kicking yourself later in life when you look back at this deal.  

@Jason Chambers that is good news, thanks for all your help man!

@Roy Skaggs I was thinking about the fees too, but I'm sure it couldn't be more than a refi and with my calculations for $500k at my current mortgage rate vs the 1.75% HELOC rate I would save about $25,500 in 2 years paying the same amount. If I want to go the same route to put all my paycheck in and use it as a checking account, then it would be a lot more savings, so I think the fees would justify the risk. In 2 years if there is no good HELOC rate or if mortgage rates goes up to 5.15%, I can always refi and my monthly payments would be the same as I am paying now because of the lower principle with higher rate. If it goes above that, then I took the gamble and lost. I guess it all depends on your risk you are willing to take.

@Jason Chambers this is good to know.  Since BOH is now the only lien holder, can you keep doing this with other intro rates?  Say after the 2 year intro rate of 1.75% expires, can you go to another bank and do the same with a low intro rate, after that expires go on to the next and keep doing this cycle?

@Jason Chambers thanks for trying to explain it, but I think we are still missing here. Let me explain where I am coming from. I have never seen it done the way you do it, that is where I am confused. I have seen it done by my in-laws and supervisor, where they for example have a property worth $700k and have a mortgage with bank A for $500k. Bank B says we will only lend you the difference between the equity you have less the 20% you need to keep in and the mortgage balance. so $700k(appraised price)-$140k(required equity)-$500k(mortgage principle)= $60k(HELOC) is what bank B will give them a credit line for becoming second position lien. They then use the $60k HELOC to pay down their mortgage with bank A, bringing it down to $440k. They then put all of their money like you do into the HELOC using it as a checking like you do and paying bills mortgage etc. Lets say they make $6000/month, they put it all in and pay the mortgage of $2300, expenses of $1000, and bills of $1000, leaving them with $1700 to pay down the balance of the HELOC to about $58300 (didnt calculate for int.) When they pay down the balance on the HELOC, to a comfortable point where they freed up like $30k, they then put that $30k to paying down the mortgage with bank A again. The cycle goes on and on until the mortgage is paid off. This reduces the 30yr to a 10-15yr, saving hundreds of thousands. This is what I have seen or heard of, I have not seen someone taking out more equity than they have to pay off the loan in full and become a first lien, unless that person had more equity than principle to begin with. That is where my confusing lies, is that how can you borrow more equity than you actually have? You have about 25% equity but are borrowing 250% of it. Did they give you $600k or did they give $530k to Bank of America and give you $70k where you never seen it the $600k, but it is reflected on your HELOC account balance?

My second point was that you, like my example above are essentially paying way more out of pocket than what your originally paid for the mortgage. Paying down the HELOC which will eventually go toward the mortgage or in your case it is just paying down the HELOC that took over the mortgage. Still, its making additional payments to pay off the property.

@Jason Chambers Sorry still not getting it, you pretty much just restated what she said you said in the previous post.  My question is how are you taking out $600k if you only have access to $70k? From my understanding a home equity line of credit only lets you borrow against the equity you have in the home, not more like a refinance.  

Secondly, are you saying that you are putting all your income into the HELOC and using all of it to paying down the mortgage meaning way more than the initial mortgage amount of $3200, so that you can pay if off in 5-7 years? If so that makes more sense. I just need more explanation on what your are doing to understand it.

@Sharika L. Please explain in more detail it doesn't make sense to me. From my understanding HELOC with 85% LTV of $700K that leaves you with $600k less the principle you owe $530k leaves you with a line of $70k that you can access. How were you able to get more equity to pay off the Bank of America mortgage? Also how are you paying off your property in 5-7 years without putting additional money than the original mortgage payment of $3200? $3200 x 7 years x 12 months = $268,800 with no interest leaving you with a $261,200 balance. I haven't heard of someone doing what you did. I heard of many who have paid down big chunks of their principle at a time, putting their paychecks into the HELOC and then repeating the process for a quicker pay down of the mortgage principle, but not one that pays it all off and takes over as a 1st lien position without having enough equity to begin with.

@Christine Johnson-Sundby there is not enough info to go on here, but assuming you never refi before and your int rate is somewhere in the 6% range and you have a bunch of equity.  I would refi for a lower rate so that you can cashflow a little like $100 or so and take out some equity.  Use the equity from the refi to reinvest in another property.  My reasoning is that Hawaii will always appreciate, sure there are some bumps in the road but it never takes a hit like the mainland and has a nice upward trend because our land is limited. Lots of people go after cashflow, but that is the beginners game where you have to own lots of properties and deal with all the head aches of have many.  Hawaii is the end game where it is more passive, you have a few properties, less head aches, better tenants, and they keep appreciating.  

@David Dachtera Please explain how you got your numbers.  I am with @Andrey Y. as I live a similar lifestyle with less than he does.  Also there is no such thing as perfect health or no natural disasters but thats why you have insurance.  FYI none of those things are common in Hawaii.   Last hurricane to do damage to Oahu was Iwa in 1982.  Volcanic eruptions only happen on the Big Island and only affect one part of the island.  Wild fires that damages homes are also rare.  

I agree with the above that it would be great for vacation rentals, but not to sure about regular rentals where tenants pay their own utilities.  On another note just a story I remembered about wifi thermostats http://www.amazon.com/review/R3IMEYJFO6YWHD enjoy :)  Another thing about a regular rental what if the previous tenant wants to mess with new tenant?

@John Dirgo Deweese thanks, my thinking was that its a simple layout thats functional besides the small rooms why wouldnt people want to rent.  I can see if you are purchasing it for a home maybe you would want a little more character.  Maybe my view of things are clouded because of the 0 vacancy here on Oahu where people will rent pretty much anything and line up for it, at the right price.