All Forum Posts by: Scott L.

I guess you just have to decide whether to treat it as a business problem or if it is important enough to you, be more aggressive. I'm a small SFR landlord who manages my own properties. All are local to me in two counties in Texas. When rehabbing one of my vacant properties I was a little worried about squatters. I usually went over 2 times a week or more.

While there are legal provisions for squatters to gain possession, and they vary from state to state, you certainly have a better case for possession than the squatter. Of course the cops are going to take the path of least resistance and say "it's a civil matter". Well then I guess it's also a "civil matter" when you wait until YOUR property is unoccupied and change the locks and move in. Let's see...Mr. Squatter is going to call the cops and report that you changed the locks on YOUR house and moved in yourself. When (if) they show up, are they going to arrest you (with title in hand) for burglary and breaking and entering and hand the keys to the squatter? Or will they tell him its a civil matter and go down to JP court and file an eviction claim to try to get YOU out... ;-)

I know people are saying don't do "do it yourself eviction" and they are mostly right. But the majority of the horror stories are with previously legitimate tenants that defaulted or broke terms of lease or it expired, etc. Their case for legal possession is much stronger than that of someone who just broke in.

Some of the scenarios previously suggested may have success if you are a little aggressive.

- Wait till they leave for the day to check on your vacant property and when you find that your locks are broken (i.e. your keys don't work), you hire a locksmith to change them or do it yourself.

- Gain entry to YOUR house, through whatever means, and immediately temporarily rent it with a written lease to your very large, muscular, aggressive, friend...  :-) .

In Texas I have registered electronically with the Justice Courts in the counties where I have property and filing an eviction is relatively painless, even more so for squatters. Armed county constables accompany the landlord or his agent on final eviction. My guess is you could do it in about 2 weeks for less than $400 in Texas....elsewhere, I don't know.

As for confronting squatters, I am almost always armed (sometimes visibly) when I visit my properties, even though they are all in what I consider class B areas. I'm generally better armed than the local police, but this is Texas... and I have lengthy experience with firearms. The chances of being outgunned by a squatter are probably low. It's a consideration, but like any other situation I measure the risk before deciding on a course of action.

At the end of the day I'd probably recommend making the PM deal with it and then if they don't come up with a plan to prevent issues in the future, fire them. I also would aggressively pursue all civil and criminal remedies against the offenders, even if it cost extra for reasons of deterrence (and revenge...). Sure you probably won't collect, but you might feel better.  :-)

Originally posted by @Jack Inman:

I’ve had good luck with C and K heating and air. I put a Goodman unit in my last property. Not too expensive but good enough for a rental.   

I put a Goodman coil & furnace in my property in Lewisville, TX. Being here in Texas, I've talked with a lot of HVAC contractors and tradesmen. I also worked for Lennox in 1990's. Anyway for rental homes, I have understood that some of the "2nd Tier Brands" like Goodman, American Standard, Rheem, etc. are very good values for rental units. For my personal home I am more willing to pay for the high SEER tricked out units from the big companies (some of whom actually manufacture the budget brands). But I have two 4 ton splits in a high cubic foot house in Texas and house is occupied during the day. I have a 3 ton and the 2.5 ton Goodmans in my 1600 and 1100 square foot units respectively and they are operating well per my inspection and per tenants. If the tenants pay utilities in a smaller house the 18-21 seer premium units are really not going to benefit you or the tenants much.

If you and your friend trust each other, then FedEx him the check. Have him endorse it to you and FedEx it back. Deposit it in your bank account, wait till it clears, then wire it to him, Or keep it and write the check for his next property purchase. Or have him spend a couple hundred and help him open a US LLC with you as a signatory and responsible manager, then you go open the LLC a bank account and have him endorse the check to the LLC and deposit it in the new account.

Originally posted by @Gary Floring:

Originally posted by @Scott L.:

" You can only pay less interest on a given principal balance, for a given period of time, by getting a lower rate."

If you pay off my car loan early, do you not pay less interest on the principle balance? If you paid off my mortgage early, did you not pay less interest on the principle balance?  Explain your statement, please....

 If you pay principal earlier than required by the note, then you pay less interest. Great, if you had the extra money for paying principal early, why did you borrow the money in the first place? Or where did you get the principal sooner?

This strategy is the Real Estate version of the perpetual motion machine in Physics, or perhaps a better analogy the "urban con game", 3 cups and a ping pong ball. You realize that the guy is actually palming the ping pong ball when shuffling the cups , right? Every once in a while he lets some little kid or old lady pick the right cup and doesn't palm the ball and pays off $3 to $1. Once the crowd is hooked, he goes back to palming the ball. :-)

After reading several hundred posts about the Velocity Banking and other mortgage payoff strategies, I find that they all depend on a few misconceptions that are then buried in an explosion of numbers and straw man examples. Here are the mathematical facts:

- You can only pay less interest on a given principal balance, for a given period of time, by getting a lower rate.

- You can only pay off a given principal debt faster by paying more cash towards the principal. You have to pay the entire amount of the debt somehow in order to satisfy the obligation.

All these purported strategies rely on you paying more principal, sooner than required by the 30 amortization schedule. If you do that, you will save interest. But this begs the question. Where does the additional early principal money come from? A HELOC you say....so now you moved the principal balance from a mortgage to a HELOC. This accelerates the amortization of the mortgage, thereby saving interest...but you now owe interest on the HELOC. Where does the money to pay the LOC principal come from? Why don't you just use it to pay the original mortgage faster?

Now another common misconception. 30 year FNMA mortgages calculate interest monthly, while HELOCs calculate interest daily, so you can rapidly advance the amortization by "chunking" your mortgage payments with a HELOC.

WRONG. Interest is calculated based on the daily principal balance from the last payment to the current payment. At the beginning of the loan you are given an amortization schedule of 360 even payments and a listing of how much will go to principal and how much to interest for each even payment. This schedule is only valid if the bank receives and applies the mortgage payment on the EXACT DUE date for all 360 payments. Otherwise the schedule is recalculated every month based on the DAILY principal balance. This is the way standard mortgages have worked for over 30 years.

There may be some psychological benefit to using a rolling LOC in helping budget your monthly inflow and outflow so as to pay off a mortgage early, but there is very little if any mathematical interest advantage unless you pay more CASH to principal faster...Again, the question, where does the cash come from?

Originally posted by @Brian Cardwell:

There is no question about the fact that you have to pay the principle down. Again the question is how it is done. Some want to use their extra cash and throw it on the primary mortgage and not have easy access to it. Others like to use OPM, HELOC, to accomplish the same thing and still have access to there extra monthly cash.

Absolutely correct. This is the best case for the "Velocity" strategy. You just have to remember that the OPM (LOC) has a cost as well. Sometimes it's lower for an initial period than a mortgage, but many times it is higher.

You pay off big chunks of the primary mortgage with what? A HELOC which immediately begins accruing interest also? Your whole paycheck at the beginning of the month, then you draw on your LOC to pay bills until the next paycheck? The only way to pay off a given amount faster and with less interest is to pay more principal sooner than it is due per the amortization schedule. You can play hide the ping pong ball under the cups, but at the and of the day, you have to come up with more principal sooner. There are psychological advantages perhaps, and maybe transaction timing buys you a few dollars, once. But the strategy does not get around the laws of math.

It’s calculated on the day the next payment is due, but based on the daily principal balance throughout the previous month. You don’t think they spot you the extra interest if you pay later in the grace period? :-) . The amortization schedule that the bank gives you at beginning of the loan is valid only if you pay exactly on the due date for all 360 payments. If you have a web portal for your mortgage, you can validate that they use daily balances. I have 3 FNMA mortgages and have validated this many times. The monthly interest is calculated on the DAILY balance since the previous payment. If you make additional principal payments during the month it lowers the daily balance and hence interest. You don’t need a heloc to do this.

Originally posted by @Costin I.:

@Scott L. There is a difference between a standard mortgage and HELOC - The standard mortgage in the US accrues interest monthly, meaning that the amount due the lender is calculated a month at a time. There are some rare mortgages, however, on which interest accrues daily.

Interest on a HELOC is calculated daily rather than monthly, and that can make a substantial difference if used properly (you place all your incoming deposits in the HELOC).

This is a common misunderstanding. If you send additional payment to a standard mortgage the balance for calculating interest is updated the day the payment is cleared.

Originally posted by @Cliff T.:

Originally posted by @Scott L.:

Let's say your mortgages are calculated monthly and HELOCS are compounded daily. Fine, its really a small point with daily or monthly compounding. If you run a calculator as if you're the bank, you'll find it makes a couple percent difference in the total interest paid (received by the bank) over the course of the loan. If you pay $3000 on your first lien HELOC on the first, then borrow back $1500 of it to pay your bills on the 15th. You save 15 days of interest on $1500 at say 5%...So you save $3.12. If you do it every month for 30 years it saves you $1125 over the 30 years. Not even a full payment. So this helps you pay it off in 7 years how?

The only difference with a regular mortgage is you can't "borrow back" an advance payment of principal to pay your bills later in the month. And on the "monthly" vs. daily calculation, ask your bank when they credit an early principal payment for the calculation of interest...On the date it's received....or at the end of the month it's received? Even if they waited it's still only a difference of the interest on that payment for one month. So a couple dollars. There was a long thread on this method a couple years ago. Someone finally did a "daily cash flow" spreadsheet with assumptions described in these plans for a 30 year mortgage payoff.  The result was it paid off a month or two early assuming no additional early principal payments. The monthly/daily interest calculation and amortization differences are negligible. There are two ways to pay off a loan faster. Get a lower interest rate. Pay more principal sooner. 

I paid of my 200,000 7% mortgage originated in 1998 in two years. How? By paying extra principal instead of investing it in Internet stocks like my colleagues. They laughed at my 7% return, until they didn't...

Hey Scott,

One important point that your math omitted: you need to compound the interest on the "savings " that you noted in your first paragraph. In your example, the savings would be much greater than $3.12 bc that would be compounded over the life of the loan (e.g. 10, 20, or even 30 more years).

A simple way to think about it: if I have a 10 year loan for $1000 that I take out today and tomorrow, pay it off completely while it only accrues $1 in interest, my "savings" is much more than that $1. I've effectively "saved" on all interest payments on the $1000 principal for the next 10 years.

My mistake was saying compounded instead of calculated. All standard mortgages are simple interest and they apply principal payments the day they are received. They calculate interest daily on the outstanding balance same as a HELOC. They just have required fixed payments, and you can't borrow back the money that you paid in early.

The difference between a HELOC and a mortgage at the same interest rate is negligible. There is ONE way to pay off a loan faster. Pay the principal sooner. That's it. Which begs the question of where you get the money to pay the principal faster. Perhaps the HELOC strategy helps you psychologically to manage your money better. So you spend less money and pay more towards principal every month. Great but that isn't magic, just math. :-)