All Forum Posts by: Tae C.

@Steven Lee

You were asking about the main differences between the two. I have experience with multiple cashout refi's as well as obtaining a HELOC. Several have already detailed very well the way the HELOC works. What I haven't seen really is how the payment terms work, so here's some food for thought:

On a HELOC, TYPICALLY what I have seen is a promotional fixed rate for the first year that is very low. Afterward, the rate jumps up to prime/prime +, all depending on your qualifications. It adjusts with the market after the first year. My current HELOC is at 85% LTV, but there are a couple local banks that offer 90% and even 100% LTV (the latter is prime + 2). Now I wish I had gone with one of those other banks as I am already about to max out my limit on my two current flip projects. As others stated, you pay back interest only typically, and it is only on the amount that is drawn - also there is usually a 10 year or so interest-only draw period. After that, you start paying back principal + interest for the next 10 or so years. Some are structured to have a balloon payment due after the 10 year interst only draw period, like mine. These time periods all vary of course based on the Bank. One random note - remember the interest is deductible just like any mortgage interest.

For a cashout refi, typically they'll max out your primary residence at 80% LTV, so you just get access to less cash more often than not compared to HELOCs which are easy to find at 85% LTV and higher. Your closing costs are usually considerably greater too, which has a negative impact on cash received. Also, of course depending on the numbers, you may very well end up with a higher monthly mortgage payment, higher interest rate, higher loan amount, or all of the above scenarios simultaneously. The biggest benefit in my opinion to the cashout refi ultimately is that it's simply YOUR cash - you don't have to pay it back, there's no interest on it, etc.

For quick investment purposes, say a wholesale/wholetail situation or a fix and flip, or even a brrr, I would say HELOC is a great option bc you can be in and out and quickly pay back the loan. For longer term buy and hold type scenario, I think personally a cash out refi makes sense bc you don't have to worry about making sure the rent covers the HELOC interest payments plus still cash flowing, don't have to worry about how you're going to pay back the balloon payment at the end of the term, etc.

Disclaimer: I am not an accountant or tax advisor, nor even involved in any type of mortgage profession. The above is just general observations from my own experience and self educating, so take it with a grain of salt - but I do hope it is at least somewhat helpful!

It seems quite clear to me that most are not concerned specifically regarding possibility of a negative impact on the housing market even if we were to engage in a large scale war - or the other opinion is simply that we have consistently been at war in general for quite some time already.  It puts me at a bit more ease with my current projects still ongoing and most likely not exiting from said projects for another several months yet. Again, if in fact we locked into a large scale war, this is really the least of anyone’s concerns, but still needed to get some opinions.  Appreciate all the input thus far, and open to any more insight if more are inclined to share from their experience. 

Naina, get in touch with @Scott Steffek and/or @Elbert D.  They have a lot of experience in that area. 

Only on my first two flips right now - couple items are fresh that I’m experiencing myself, but nothing revolutionary. 

• have more reserves on hand than you think you need for inevitable overages. 

• make sure scope of work is extra detailed and all documented and agreed upon. Hopefully saves headaches down the road. 

• signed agreement on contract of a clear completion date - otherwise enforce some sort of penalty for work that isn’t completed by the deadline. 

Valid responses all - and maybe that’s the kind of response I was looking for. For some reason this one feels like it has the potential for a lot more actual back and forth, and more specifically within each other’s country borders than we’ve dealt with in the last few wars that you all listed. So in that kind of scenario is partly what my mind was focused on when asking this question - maybe even then it doesn’t change much either way is what I am gathering. 

Hello all,

Unless I am just not putting in the right search parameters, I am not finding any posts regarding the possible implications on the housing market in the very possible scenario of our country entering into war.  I have my first two flips going right now - and I have to be honest, I’m getting a bit nervous with what seems to be a daily intensifying of global tension for the U.S. and how that hurts my end point.  Of course my fairly uneducated assumption is that if we were indeed finding ourselves in that awful scenario, the housing market along with the rest of our economy would be negatively impacted. 

Let me be clear - at the end of the day, if we did find ourselves in this situation, the status of my personal two projects are of smallest concern in the big picture of course. But in the same breath, I do have to ask the question so I can learn what to expect and maybe even how to prepare if there is anything I can do. 

Would love to hear what you all are thinking and how you are approaching this. 

Thank you. 

Hi @Patrick Goswitz,

If I am understanding it correctly, you guys are getting the 7.5% commission as the buyer's agent side (which btw I have never heard of one portion of a sales commission being that large!).  I'm not a realtor, but it would seem to me that it just depends on how much you want the immediate cash on hand vs. paying a little bit more on a monthly mortgage.  I would take the higher commission to get more cash, as the mortgage payment increase is very minimal at that point.

Secondly, did you say you were planning on renting out a house that you are purchasing for $390,000??  If so, it may be very difficult to actually produce any kind of income on a monthly basis when all said and done.  There are many posts and blogs about this here on Bigger Pockets, but search "1% rule", and you'll see what I mean.  It's not a hard and set rule always, but it is a solid guideline - in your case, you would more than likely be way off of this guideline.  Basically, you will be hard pressed to be able to rent it for the amount you need for it to be considered profitable at this price point.  

Hope this helps!  

@Ben C.

I know this is a few months old and you've probably figured it out, but just in case - I did a lot of due diligence on many HML's leading up to the two lenders I settled on for my current two (and first two I might add) fix and flips. My observation is that majority of HMLs do in fact operate in the way you mentioned - typically you will have to front cash for the first draw if your specific contractor requires that for materials, drawings, dumpster etc. Then you will submit draw requests as your contractor requests them of you. The lender sends the inspector out - lender determines how much is disbursed based on inspection report. One of my lenders has a 2-4 business day turnaround, the other is 5 business days.

I’ve been asking the same exact question as you - does it make sense to use more of my own cash, whether it’s on the purchase side or the rehab side?  Still debating that as I think ahead to my future projects. 

@Roy N.

Understood, I apologize for the inconvenience. 

Hello all,

As we continue to see potential instability in global political news and hear continual reports and projections of another impending market correction (and digression in this case) in the next couple years, I'm curious to hear from you all how you approach your investing strategy. Especially for those that were actively investing through '08 and managed to come out on the other side okay, would love to hear your experience and advice...but any input welcome. 

• as a flipper, do you slow down on acquisition?

• as a wholesaler, are you still confident that you'll have a reliable list of buyers even during a recession-like environment?

• as a brrrr, are you still confident in being able to get the appraisal you need to refinance out?

I understand the general concept that when the market is down, it's a great time to buy up as an investor. However, I think where I get stuck in that philosophy is wondering how that all plays out with ARV's when comps are going bad left and right.

Thanks all.