Noncollateral loan - too good to be true ?
St. Louis, MO · Member since 2017 · 32 posts · 5 votes
Noncollateral loan - too good to be true ?
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes@Mian Rizwan
Actually people in certain professions and people above certain thresholds of income or credit score do get these solicitations all the time
Often, but not always, the rates quoted are introductory rates and may be good for 6 months - 18 months.
Years ago I received an offer for ‘up to $200,000’ signature line of credit at a very attractive rate. I applied, did indeed receive the $200,000, and invested it in a high yield mortgage loan, earning about a 8% spread ($16,000 per year) over a 4 year period. When interest rates came down, and the spread was no longer attractive, I had heard the lender was having some loss issues. I offered an immediate payoff for a $50,000 discount, and was able to negotiate a $32,500 discount, with the provision of no negative report to the credit bureau. About two months after the payoff, I received another offer from the same lender, offering $200,000 at a reduced rate of interest since I was a ‘preferred’ customer. People with bad credit are penalized by the availability, amount, and cost of capital. People with good credit are rewarded with same.
76 Replies
- 5yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Steve Morris:
I'd pay 3 times the interest (minimum loan would need to be at least $500k though), as long as it was uncollateralized.
I don't know. You could get a bunch of credit cards and get cash advances then if collateral is an issue :)
NO. Not in this or any other lifetime. It's NOT the same thing. Credit cards the same thing as a HELOC...just with a 12-18 month reprieve. What I'm talking about is infinite.
- Investor · Memphis, TN · Member since 2019 · 24 posts · 2 votes5y
@Joe Villeneuve
Will do. I believe max Loan is $250k.
- Residential Real Estate Broker · Penn Valley, CA · Member since 2014 · 14 posts · 2 votes5y
Yes different languages. Your example of covering a payment plus with an investment property. Means you would get a mortgage on that after using part of the first loan for a down? In today's market I question very strongly how easy it is to then generate cash flow. But Ok let's assume you can and then move on as you described. You made money via really good deals on real estate and really good outcomes on flips. And therefore you have made money. And therefore you have achieved some equity. The aggregate cost of of your loans is still just that, what the money you borrowed and used cost. Intimating that it is free money is like saying I got paid $50,000 last year for nothing ... oh except for the year of 40 hour work weeks I put in. I am more concerned about a newbie thinking that in this current market that is a good plan. I have profited quite well on property that was foreclosed upon because people made highly leveraged deals on investment property .
- 5yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Gene Cook:
Yes different languages. Your example of covering a payment plus with an investment property. Means you would get a mortgage on that after using part of the first loan for a down? In today's market I question very strongly how easy it is to then generate cash flow. But Ok let's assume you can and then move on as you described. You made money via really good deals on real estate and really good outcomes on flips. And therefore you have made money. And therefore you have achieved some equity. The aggregate cost of of your loans is still just that, what the money you borrowed and used cost. Intimating that it is free money is like saying I got paid $50,000 last year for nothing ... oh except for the year of 40 hour work weeks I put in. I am more concerned about a newbie thinking that in this current market that is a good plan. I have profited quite well on property that was foreclosed upon because people made highly leveraged deals on investment property .
This works, the logic behind it is obviously escaping you, that happens, and the market works fine. I see you're in CA. It still works, just using a little bit different strategy...such as not buying the rental properties in CA.
- Los Angeles, CA · Member since 2018 · 86 posts · 86 votes5y
Originally posted by @Gene Cook:
Yes different languages. Your example of covering a payment plus with an investment property. Means you would get a mortgage on that after using part of the first loan for a down? In today's market I question very strongly how easy it is to then generate cash flow. But Ok let's assume you can and then move on as you described. You made money via really good deals on real estate and really good outcomes on flips. And therefore you have made money. And therefore you have achieved some equity. The aggregate cost of of your loans is still just that, what the money you borrowed and used cost. Intimating that it is free money is like saying I got paid $50,000 last year for nothing ... oh except for the year of 40 hour work weeks I put in. I am more concerned about a newbie thinking that in this current market that is a good plan. I have profited quite well on property that was foreclosed upon because people made highly leveraged deals on investment property .
Don't get into a back and forth with Joe V, you won't get anywhere. His reality is different than the one you and I live in. If you argue long enough he will start talking about the "left-hand side and right-hand side of the equal sign", "lying percentages", and other nonsensical gibberish. I'll save you the trouble, it ain't worth it.
- 5yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Matthew M.:
Originally posted by @Gene Cook:
Yes different languages. Your example of covering a payment plus with an investment property. Means you would get a mortgage on that after using part of the first loan for a down? In today's market I question very strongly how easy it is to then generate cash flow. But Ok let's assume you can and then move on as you described. You made money via really good deals on real estate and really good outcomes on flips. And therefore you have made money. And therefore you have achieved some equity. The aggregate cost of of your loans is still just that, what the money you borrowed and used cost. Intimating that it is free money is like saying I got paid $50,000 last year for nothing ... oh except for the year of 40 hour work weeks I put in. I am more concerned about a newbie thinking that in this current market that is a good plan. I have profited quite well on property that was foreclosed upon because people made highly leveraged deals on investment property .
Don't get into a back and forth with Joe V, you won't get anywhere. His reality is different than the one you and I live in. If you argue long enough he will start talking about the "left-hand side and right-hand side of the equal sign", "lying percentages", and other nonsensical gibberish. I'll save you the trouble, it ain't worth it.
LOL. If you don't understand it, just say so.
- Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes5y
Originally posted by @Joe Villeneuve:
Originally posted by @Gene Cook:
I know this is an old thread but I have to ask Joe Villeneuve what the heck he is talking about . With a loan you pay a fee and interest on an ongoing basis. A HELOC you pay no fee and ongoing interest only while you are using the money. Assuming the interest rates were the same you save with a HELOC because their is no fee and you don't pay interest on the money during those times it is not used e.g. between closing on a flip and acquiring another one .
Am I missing something here?
Missing a lot. First, throw out the idea of comparing interest since the interest is applied differently...and not just because the loan is amortized over 30 years. Percentages lie to you.
Now, as far as the cost of the loans are concerned:
1 - They both have upfront fees that are paid once.
2 - The cost of use for a HELOC is applied every time you use it. This is a repeat cost then. In a way, every use of the HELOC becomes a new loan that you don't need to apply for. Example: If you used the HELOC for a DP, then paid it back with the rent money. Then accessed it again for the next DP, and kept repeating this. Each time you accessed it for a different DP, you got charged interest...again.
3 - The cost of the use of the loan is applied once. If this was collateralized, you would get one use out of it. Example: A mortgage. One use, one cost.
4 - This isn't collateralized, so you can use it as often as you want, but you don't get charged for every use. Example: If you used the loan to buy/rehab a flip, sold the property and got the original cash from the loan back (plus), then used it again on the next property. REpeated this over and over. You wouldn't get charged again for the use of the same money on each property. You're only getting charged once...the original loan. This means that the cost of this loan is reduced per use with every subsequent use of the same money. This I refer to as a "cash like substance".
Another way of looking at this is if the initial use of the uncollateralized loan has enough cash flow to make the monthly payments on that loan, then every time you use the same money, over and over, that use of it is free.
Couldn't you just draw once from the HELOC, put it to use in the same way you are describing the non-collateralized loan and not draw again? If the cash flow is high enough to cover debt costs and then some, wouldn't it be the same thing?
- Residential Real Estate Broker · Penn Valley, CA · Member since 2014 · 14 posts · 2 votes5y
Yes you could . It really is about which one has better features for your use . The features are; interest rate, whether you have to use the money all the time and the repayment terms. A Standard loan whether non collateral or not has an amortization up to 30 years therefore higher payments. A heloc is interest only so lower payments and none when not using the money but typically it is line of credit commitment for a 10 year period before changing to an amortized loan and the interest rate is variable (during the non amortization period). For a long term buy and hold a regular mortgage whether collateral on not vs a heloc probably makes. For flips a heloc or any line of credit that can be used, paid off and reused is a great option.
- 5yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Tony Kim:
Originally posted by @Joe Villeneuve:
Originally posted by @Gene Cook:
I know this is an old thread but I have to ask Joe Villeneuve what the heck he is talking about . With a loan you pay a fee and interest on an ongoing basis. A HELOC you pay no fee and ongoing interest only while you are using the money. Assuming the interest rates were the same you save with a HELOC because their is no fee and you don't pay interest on the money during those times it is not used e.g. between closing on a flip and acquiring another one .
Am I missing something here?
Missing a lot. First, throw out the idea of comparing interest since the interest is applied differently...and not just because the loan is amortized over 30 years. Percentages lie to you.
Now, as far as the cost of the loans are concerned:
1 - They both have upfront fees that are paid once.
2 - The cost of use for a HELOC is applied every time you use it. This is a repeat cost then. In a way, every use of the HELOC becomes a new loan that you don't need to apply for. Example: If you used the HELOC for a DP, then paid it back with the rent money. Then accessed it again for the next DP, and kept repeating this. Each time you accessed it for a different DP, you got charged interest...again.
3 - The cost of the use of the loan is applied once. If this was collateralized, you would get one use out of it. Example: A mortgage. One use, one cost.
4 - This isn't collateralized, so you can use it as often as you want, but you don't get charged for every use. Example: If you used the loan to buy/rehab a flip, sold the property and got the original cash from the loan back (plus), then used it again on the next property. REpeated this over and over. You wouldn't get charged again for the use of the same money on each property. You're only getting charged once...the original loan. This means that the cost of this loan is reduced per use with every subsequent use of the same money. This I refer to as a "cash like substance".
Another way of looking at this is if the initial use of the uncollateralized loan has enough cash flow to make the monthly payments on that loan, then every time you use the same money, over and over, that use of it is free.
Couldn't you just draw once from the HELOC, put it to use in the same way you are describing the non-collateralized loan and not draw again? If the cash flow is high enough to cover debt costs and then some, wouldn't it be the same thing?
More of less. The difference is the HELOC is tied to a property. If you sold that property, you would lose the HELOC and have to pay back whatever was outstanding. The non-collateralized loan isn't tied to any property (no lien).
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Gene Cook:
Yes different languages. Your example of covering a payment plus with an investment property. Means you would get a mortgage on that after using part of the first loan for a down? In today's market I question very strongly how easy it is to then generate cash flow. But Ok let's assume you can and then move on as you described. You made money via really good deals on real estate and really good outcomes on flips. And therefore you have made money. And therefore you have achieved some equity. The aggregate cost of of your loans is still just that, what the money you borrowed and used cost. Intimating that it is free money is like saying I got paid $50,000 last year for nothing ... oh except for the year of 40 hour work weeks I put in. I am more concerned about a newbie thinking that in this current market that is a good plan. I have profited quite well on property that was foreclosed upon because people made highly leveraged deals on investment property .
Only free money right now for those of us with Employees is the PPP loans that are said to be forgiven.. we will see if that is the case here shortly.
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Gene Cook:
Also if you are selling your property hopefully you making enough to pay off your heloc, since it typically require 70% max loan to value
Totally 1000 miles away from the subject at hand.
However you brought back memories for me when I see your in Penn Valley.
I worked for the developer who put in the last phase of Wildwood estates ( its the phase that is farthest to the north) and he owned the shopping center there in Penn Valley and the MHP behind it.. of course he went out in flames.. :( and I lost all my equity in Wildwood project.. that last phase was originally 540 lots.. we built the first 125 of them about 1989 .. and of course the war etc.. and we sold NOT one lot after that phase was built the county would not allow any more lots.. The reason the guy hired me is I had done a few bond issues in other counties.. So I brokered the first Mello Roos in Nevada county and of course it turned out as a disaster.. But I was up there a few years ago and my project is all built out so they go it going finally.. We also did the project on Hammiton Smartville road between Beale and Hwy 20.. I put that one through Yuba county.. If Wildwood would have gone as planned I would have Penn Valley as my location not Oregon and Vegas :) Anyway carry on.. Maybe you know of the developer I worked for.
- Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes5y
Originally posted by @Joe Villeneuve:
Originally posted by @Tony Kim:
Originally posted by @Joe Villeneuve:
Originally posted by @Gene Cook:
I know this is an old thread but I have to ask Joe Villeneuve what the heck he is talking about . With a loan you pay a fee and interest on an ongoing basis. A HELOC you pay no fee and ongoing interest only while you are using the money. Assuming the interest rates were the same you save with a HELOC because their is no fee and you don't pay interest on the money during those times it is not used e.g. between closing on a flip and acquiring another one .
Am I missing something here?
Missing a lot. First, throw out the idea of comparing interest since the interest is applied differently...and not just because the loan is amortized over 30 years. Percentages lie to you.
Now, as far as the cost of the loans are concerned:
1 - They both have upfront fees that are paid once.
2 - The cost of use for a HELOC is applied every time you use it. This is a repeat cost then. In a way, every use of the HELOC becomes a new loan that you don't need to apply for. Example: If you used the HELOC for a DP, then paid it back with the rent money. Then accessed it again for the next DP, and kept repeating this. Each time you accessed it for a different DP, you got charged interest...again.
3 - The cost of the use of the loan is applied once. If this was collateralized, you would get one use out of it. Example: A mortgage. One use, one cost.
4 - This isn't collateralized, so you can use it as often as you want, but you don't get charged for every use. Example: If you used the loan to buy/rehab a flip, sold the property and got the original cash from the loan back (plus), then used it again on the next property. REpeated this over and over. You wouldn't get charged again for the use of the same money on each property. You're only getting charged once...the original loan. This means that the cost of this loan is reduced per use with every subsequent use of the same money. This I refer to as a "cash like substance".
Another way of looking at this is if the initial use of the uncollateralized loan has enough cash flow to make the monthly payments on that loan, then every time you use the same money, over and over, that use of it is free.
Couldn't you just draw once from the HELOC, put it to use in the same way you are describing the non-collateralized loan and not draw again? If the cash flow is high enough to cover debt costs and then some, wouldn't it be the same thing?
More of less. The difference is the HELOC is tied to a property. If you sold that property, you would lose the HELOC and have to pay back whatever was outstanding. The non-collateralized loan isn't tied to any property (no lien).
Hmm, I guess I'm confused by what you consider "free" or "you don't get charged for each use". All loans have interest rates (except for certain automobile loans). To draw on your primary home's HELOC costs nothing, nor does it cost anything to obtain that line of credit. There is no unused fee (with some exceptions...like if you don't use it for a very long time). Admittedly, there is a big difference between a collateralized vs. non-collateralized debt, but I consider it a stretch to say that this difference is akin to one being free and the other being not free. There will always be debt servicing costs which each type of funding.
In using the drawn funds from a HELOC, you can follow the exact same procedure as your example #4..couldn't you? ...i.e., use the loan to buy/rehab a flip, sold the property and got the original cash from the loan back (plus), then used it again on the next property. Repeated this over and over. Isn't that the exact same dynamic?
The great thing about a HELOC is that it's immediate and interest is calculated daily instead of monthly. So you can draw as needed and as often as you want, and pay back as soon as you flip or receive rent payments.
- 5yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Tony Kim:
Originally posted by @Joe Villeneuve:
Originally posted by @Tony Kim:
Originally posted by @Joe Villeneuve:
Originally posted by @Gene Cook:
I know this is an old thread but I have to ask Joe Villeneuve what the heck he is talking about . With a loan you pay a fee and interest on an ongoing basis. A HELOC you pay no fee and ongoing interest only while you are using the money. Assuming the interest rates were the same you save with a HELOC because their is no fee and you don't pay interest on the money during those times it is not used e.g. between closing on a flip and acquiring another one .
Am I missing something here?
Missing a lot. First, throw out the idea of comparing interest since the interest is applied differently...and not just because the loan is amortized over 30 years. Percentages lie to you.
Now, as far as the cost of the loans are concerned:
1 - They both have upfront fees that are paid once.
2 - The cost of use for a HELOC is applied every time you use it. This is a repeat cost then. In a way, every use of the HELOC becomes a new loan that you don't need to apply for. Example: If you used the HELOC for a DP, then paid it back with the rent money. Then accessed it again for the next DP, and kept repeating this. Each time you accessed it for a different DP, you got charged interest...again.
3 - The cost of the use of the loan is applied once. If this was collateralized, you would get one use out of it. Example: A mortgage. One use, one cost.
4 - This isn't collateralized, so you can use it as often as you want, but you don't get charged for every use. Example: If you used the loan to buy/rehab a flip, sold the property and got the original cash from the loan back (plus), then used it again on the next property. REpeated this over and over. You wouldn't get charged again for the use of the same money on each property. You're only getting charged once...the original loan. This means that the cost of this loan is reduced per use with every subsequent use of the same money. This I refer to as a "cash like substance".
Another way of looking at this is if the initial use of the uncollateralized loan has enough cash flow to make the monthly payments on that loan, then every time you use the same money, over and over, that use of it is free.
Couldn't you just draw once from the HELOC, put it to use in the same way you are describing the non-collateralized loan and not draw again? If the cash flow is high enough to cover debt costs and then some, wouldn't it be the same thing?
More of less. The difference is the HELOC is tied to a property. If you sold that property, you would lose the HELOC and have to pay back whatever was outstanding. The non-collateralized loan isn't tied to any property (no lien).
Hmm, I guess I'm confused by what you consider "free" or "you don't get charged for each use". All loans have interest rates (except for certain automobile loans). To draw on your primary home's HELOC costs nothing, nor does it cost anything to obtain that line of credit. There is no unused fee (with some exceptions...like if you don't use it for a very long time). Admittedly, there is a big difference between a collateralized vs. non-collateralized debt, but I consider it a stretch to say that this difference is akin to one being free and the other being not free. There will always be debt servicing costs which each type of funding.
In using the drawn funds from a HELOC, you can follow the exact same procedure as your example #4..couldn't you? ...i.e., use the loan to buy/rehab a flip, sold the property and got the original cash from the loan back (plus), then used it again on the next property. Repeated this over and over. Isn't that the exact same dynamic?
The great thing about a HELOC is that it's immediate and interest is calculated daily instead of monthly. So you can draw as needed and as often as you want, and pay back as soon as you flip or receive rent payments.
I'm not saying the mortgages on the rental properties are free. I'm saying the use of the original loan money is free with each time it is used since the cost of THAT money is being paid for by the first investment. Go back and read my original explanation. You'll see there are two strings of properties. One is a series of flips using the original loan money over and over. Since this is the same cash being used for each flip, this money has no cost to it when it is re-used...as in free use. The source of this cash was the original loan...and the first rental property has enough cash flow to cover the monthly payments on this original loan.
- Rental Property Investor · Member since 2020 · 215 posts · 137 votes5y
@Joe Villeneuve
Joe, in my Heloc i pay interest on the usage. Its a %rate per year and py only in days used.
I dont see how pay for the line plus interest will be any better.
Lets see: i buy a house in 2 months regab and 3 months later i sell it:
I take heloc use 3 months pay back. Will pay 90/360 * interest. ( 90 is the 3 months i used)
LOC. I pay fees, then i pay 150 /360 * interest. ( i will pay 5 months and after that will continue paying interest till it matures).
In your example j get a sense i will pay more Heloc. Are tou assuming Heloc have a bigger interest?
- 5yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Alexandre Marques dos Santos:
@Joe Villeneuve
Joe, in my Heloc i pay interest on the usage. Its a %rate per year and py only in days used.
I dont see how pay for the line plus interest will be any better.
Lets see: i buy a house in 2 months regab and 3 months later i sell it:
I take heloc use 3 months pay back. Will pay 90/360 * interest. ( 90 is the 3 months i used)
LOC. I pay fees, then i pay 150 /360 * interest. ( i will pay 5 months and after that will continue paying interest till it matures).
In your example j get a sense i will pay more Heloc. Are tou assuming Heloc have a bigger interest?
My example doesn't use a HELOC. It compares to using a HELOC
- Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes5y
Originally posted by @Joe Villeneuve:
If you plan correctly, this money can be free...yes, you read that correctly...FREE.
Remember, the first taste is always free :)
Kinda like stimulus checks.
- 5yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Steve Morris:
Originally posted by @Joe Villeneuve:
If you plan correctly, this money can be free...yes, you read that correctly...FREE.
Remember, the first taste is always free :)
Kinda like stimulus checks.
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- Residential Real Estate Broker · Penn Valley, CA · Member since 2014 · 14 posts · 2 votes5y
Hi Jay Hinrichs interesting to hear about your history here in Penn Valley. And lets face it I think the subject at hand is a horse if not beaten dead ... then close to it. I have lived in the Lake wildwood community since 1994. The Wildwood Estates estates was in freefall and I believe that the original Developer Michal Montross was a federal fugitive. That original phase now called Wildwood ridge had infrastructure already done. It was eventually split from the whole project and allowed to be sold off to developers/builders. The increase in market price has allowed that to happen and it is partially built out. My understanding is that the original plan was for the whole property to become part of the Lake Wildwood HOA . That of course never happened but Wildwood did get a nice set of 4 tennis mostly paid for by Michael Montross.We still are not at the point where there is not a lot of spec building and the development nearby - Via Villaggio (right across the road from the Lake Wildwood dam/spillway is still undone with one house built. So hard to say what the eventual fate of the rest of your project will be.
If you are ever back this way give me a call, love to chat with you.
- Contractor · Mickleton, NJ · Member since 2020 · 114 posts · 112 votes5y
@Mian Rizwan I've worked in banking for over 20 years. This is not an uncommon product especially as offered to you in your current profession. Prob legit... good luck
- Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes5y
Originally posted by @Alexandre Marques dos Santos:
@Joe Villeneuve
Joe, in my Heloc i pay interest on the usage. Its a %rate per year and py only in days used.
I dont see how pay for the line plus interest will be any better.
Lets see: i buy a house in 2 months regab and 3 months later i sell it:
I take heloc use 3 months pay back. Will pay 90/360 * interest. ( 90 is the 3 months i used)
LOC. I pay fees, then i pay 150 /360 * interest. ( i will pay 5 months and after that will continue paying interest till it matures).
In your example j get a sense i will pay more Heloc. Are tou assuming Heloc have a bigger interest?
Aahh, don't bother. I think we all have our answer, lol.
- St. Louis, MO · Member since 2017 · 32 posts · 5 votes5y
Sorry guys have been away for a while .... no i never used their offer. They still keep sending me offers
Would prefer to use HELOC and 401 K if I need
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