Has anyone ever used the Velocity Banking Strategy?

[Don Spafford]

I searched for Velocity Banking but did not get anything to return except for some lenders using that name. I just was introduced to this strategy this week and was curious if anyone has done it and what their experience with it was.

If yuo don't know, the basic concept is to use a line of credit from the bank and use it like a checking account so you put yout income into it but get a LOC for like $10k, add in your income for that month, and use the $10k to pay the principal, and then pay your other expenses from that account and as long as you are spending less than what is going in, you build that LOC back up again so you are able to pay back the $10k LOC and then use it again to pay toward the principal. So if you save $1k each month, then every 10 months you can use it again or get an increased LOC and use a larger amount. Doing this strategy gets a 30 yr loan paid off in about 7 years and saved tons of interest. The LOC calculates interest on an average daily balance, so as you have money going into it each month, you are creating less of an amount to charge interest for. So over the course of a year, for that $10k LOC, assuming $4k income and $3k expenses, for a $250k mortgage at 5.25%, you pay about $13k in interest on the mortgage payments (first year of mortgage) vs only a few hundred dollars on the LOC.

The only down-side I can see is opportunity cost. That money that you are saving each month could be deployed to purchase other properties rather than helping to pay off any specific loan. But if you have enough other sources of income and strictly use the rental income for any given property to put back into its own LOC, then theoretically, you can have full 100% cash flowing properties in 7-8 years, depending on how much you are saving each month. You could even use it for your primary residence.

I just bought my first 4 plex this week, literally closed the same day I was shown this strategy, and it blew my mind. I want to use it with this property since it will be cash flowing about $700/mo and if I can get it paid off much sooner and save a lot of money in interest, that would be awesome.

[Albert Bui]

Quote from @Jordan Northrup:

I just came across the Velocity Banking concept a few days ago. For context, I have a high net worth, high W2 income, and a diversified investment portfolio in real estate, e-commerce, and another sector of industry. 

My home is worth $650k and I owe $300,000 on it. If I take an 80% LTV 1st lien HELOC, that's a loan of $520k, which will be reduced by $300k to pay off my first mortgage.

So now I have a "mortgage" of $300k. Then I switch my lifestyle in that all my monthly expenses (around $5k) go against the HELOC. All my W2 and business revenue go against the HELOC as well....I'm estimating it to be somewhere in the $18,000 - $22,0000 a month. Less expenses, that's a net of $13k-$18k principle reduction each month. And that doesn't take into account by using the available $300k in equity to buy more investments which produce more income which goes to more principal pay down.

So again, I'm trying to see the downside here. What am I missing?

Yes it’s high efficient for all that inflow you have and it utilizes it all daily to provide you any over all best use of your money system.

The only downside is the higher variable rate but its important to compare all the pros and cons to reach your own decision. 

For me, I use this strategy on all properties I have available equity on just to prepare for future deal acquisitions Or emergency need.