Deal 2, 3, & 4, in El Paso, TX

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Deal 2, 3, & 4, in El Paso, TX

Sharika L.
El Paso, TX · Member since 2016 · 20 posts · 7 votes

If you read my background my husband and I started seriously looking into investing back in March, and since then things have taken off. I'm overly excited & nervous about the entire process, but after listening to the first 102 podcast I thought I should write about my experience:

#Deal 1: Owner financed 5 unit buy and hold, 100% occupied

#Deal 2: Duplex (I thought it was a foreclosure due to outdated zillow and proceeded with knocking on the door only to find out the owner was indeed selling). Renters moved out in June and I proceeded to find contractors to upgrade the entire 1920's stone building. Currently being rehabbed with plans to "house hack" and rent out our current house.  We got a commercial loan, expecting a construction loan to be implemented once we got to that part, but low and behold things happen and now we are funding the rehab 100%.

#Deal 3: Put an offer on a 7 unit buy and hold, and was told a cash-buyer put in an offer as well. I told the agent to call me if it doesn't work out, because I was sticking to my numbers. Agent called the next day and we got it for exactly what we wanted to pay for it. Commercial loan again with the same bank as #2, but he went on vacation and we need to close this Friday (I think he was uncomfortable with the fact we use or HELOC & PLOC as bank accounts due to the very low interest from Bank of Hawaii and Hawaii State Fed). So went to 2 different hard money lenders who are ping-ponging some decent rates, but both are very interested in the property. Like I often hear, "good deals will find money". Hopefully all goes well and the place will be ours on Friday. 6/7 units are currently rented.

#Deal 4: I have been dying to do a fix and flip to get the experience and start building that portfolio as well as make some cash to pay our HELOC, since we have been putting in 20-30% down on our properties. I put in another offer to a HUD home I had placed a bid on a month before and didn't win. Well I won this time around. Currently in the paper phase, waiting on the seller to accept the contract. I originally went to the hard money lender for this deal since we have depleted our liquid cash for now, and again they were interested with 11% and no down payment or prepayment penalties.

The plan is once the contractor starts the rehab on the HUD if the inspection doesn't come back to crazy, than we will start the process for looking for another fix and flip.

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Jason Chambers
El Paso, TX · Member since 2016 · 71 posts · 22 votes
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@Royce Talbo@Royce Talbo

If I remember correctly, it cost us about $1500 to get into the HELOC. It was really affordable and you make it back right away. If you have any other questions, please don't hesitate to ask. By no means am I an expert but I'm always willing to share what has worked for us.

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  • Noel Walton
    Rental Property Investor · Temple, TX · Member since 2014 · 21 posts · 6 votes
    10y
    That's awesome Sharika. Sounds like you guys are off to a great start! My wife and I are also looking into real estate investing full time when I'm done with my military obligation. It's motivating to read stories like this!
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  • Lee Greene
    Rental Property Investor · El Paso, TX · Member since 2016 · 11 posts · 1 vote
    10y

    It's great to hear about success stories here in El Paso!  Keep it up and let us know how the flip goes.

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  • Sharika L.
    OP
    El Paso, TX · Member since 2016 · 20 posts · 7 votes
    10y

    @Noel Walton we lived in Ewa Beach and bought a house there in 2011. Actually, that is how we are able to put down payments on the other investments because getting a Home Equity Line of Credit is so easy in Hawaii and of course the homes appreciate like crazy. To give folks an idea, we got a HELOC for 600,000 paid off our compound mortgage of 3000 a month to now paying the 1.8% simple interest HELOC 800 dollars a month and we get 3600 for rent. So Noel if you haven't done so already, look into a HELOC. We attended a "sweep" class in Hawaii that helped open our eyes. If you have any questions please let me know.

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  • Sharika L.
    OP
    El Paso, TX · Member since 2016 · 20 posts · 7 votes
    10y

    @Lee Greene good luck on your real estate in EP. We are building up to apartment buildings, so if you ever interested in that arena lets work something out!

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  • Nathan Hood
    Rental Property Investor · Glastonbury, CT · Member since 2016 · 13 posts · 0 votes
    10y

    @Sharika L. sounds like yall are killing it!  i'm on Maui and really trying to get into real estate investing but i'm having a hard time finding hard money lenders out this way... any advice? also if you hear about any seminars out our way I would love to attend!

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  • Sharika L.
    OP
    El Paso, TX · Member since 2016 · 20 posts · 7 votes
    10y

    @Nathan Hood, I've had 2 good deals and the hard money lenders wanted my business. That's probably the most challenging part in Hawaii is finding really good deals, because I'm sure even a place with only 4 walls a hole to pee in would be a over 400,000! Network, network, network, and it also helps if you have income to back you up as well. I wish I had better advice, but Hawaii is a great market if you have cash or a partner.

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  • Shan Shan Stevens
    Honolulu, HI · Member since 2016 · 4 posts · 0 votes
    10y
    Originally posted by @Sharika L.:

    @Nathan Hood, I've had 2 good deals and the hard money lenders wanted my business. That's probably the most challenging part in Hawaii is finding really good deals, because I'm sure even a place with only 4 walls a hole to pee in would be a over 400,000! Network, network, network, and it also helps if you have income to back you up as well. I wish I had better advice, but Hawaii is a great market if you have cash or a partner.

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  • Shan Shan Stevens
    Honolulu, HI · Member since 2016 · 4 posts · 0 votes
    10y
    Originally posted by @Sharika L.:

    @Noel Walton we lived in Ewa Beach and bought a house there in 2011. Actually, that is how we are able to put down payments on the other investments because getting a Home Equity Line of Credit is so easy in Hawaii and of course the homes appreciate like crazy. To give folks an idea, we got a HELOC for 600,000 paid off our compound mortgage of 3000 a month to now paying the 1.8% simple interest HELOC 800 dollars a month and we get 3600 for rent. So Noel if you haven't done so already, look into a HELOC. We attended a "sweep" class in Hawaii that helped open our eyes. If you have any questions please let me know.

    I attended a Sweep introduction, but didn't get to an 1-1 consultation yet. I don't quite understand how it lowers the monthly payment yet, because I still have to pay my mortgage every month, right? I'm getting my HELOC soon, but want to make sure I know how to operate. Thanks!

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  • Lacey N.
    Investor · Bellevue, WA · Member since 2016 · 15 posts · 6 votes
    10y
    Originally posted by @Shan Shan Stevens:
    Originally posted by @Sharika L.:

    @Noel Walton we lived in Ewa Beach and bought a house there in 2011. Actually, that is how we are able to put down payments on the other investments because getting a Home Equity Line of Credit is so easy in Hawaii and of course the homes appreciate like crazy. To give folks an idea, we got a HELOC for 600,000 paid off our compound mortgage of 3000 a month to now paying the 1.8% simple interest HELOC 800 dollars a month and we get 3600 for rent. So Noel if you haven't done so already, look into a HELOC. We attended a "sweep" class in Hawaii that helped open our eyes. If you have any questions please let me know.

    I attended a Sweep introduction, but didn't get to an 1-1 consultation yet. I don't quite understand how it lowers the monthly payment yet, because I still have to pay my mortgage every month, right? I'm getting my HELOC soon, but want to make sure I know how to operate. Thanks!

     Hi, so first, @Sharika L. (sorry, not sure why it is not tagging you), it sounds like you're doing amazing!  Congratulations!

    Second, can you explain your HELOC deal/ "sweep" deal in a little more detail? You got a HELOC that was worth $600k? Was it on a primary that was completely paid off? How does a "sweep" work?

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  • Roy Skaggs
    Honolulu, HI · Member since 2016 · 16 posts · 4 votes
    10y
    Originally posted by @Lacey N.:

    Second, can you explain your HELOC deal/ "sweep" deal in a little more detail? You got a HELOC that was worth $600k? Was it on a primary that was completely paid off? How does a "sweep" work?

    I too would like to hear a little more about this. I should have a decent amount of equity and I have good reserves for a down. 

    Congrats on your investments so far Sharika! I would love to chat with you about how you got going as it seems like you're on the path I would like to see myself on eventually. Of course, I understand not competing for the same properties so I'm more just looking to talk and learn some basics. 

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  • Sharika L.
    OP
    El Paso, TX · Member since 2016 · 20 posts · 7 votes
    10y

    My husband does a better job of explaining the use of a home equity line of credit and personal line of credit which I will copy and paste below. As far as the sweep system in Hawaii, we paid 5000 for consolation for 2 years. They are a middle man between the banks and provide us training on using the calculator to stay on track of our goals. However, if you are good a money management and figuring out calculators, I don't think paying a company is necessary. Below is my husbands explanation of PLOC and HELOC.

    We took out a HELOC on our home in Hawaii and paid that same home off with it. We got our HELOC through Bank of Hawaii. Their customer service and closing time is a little slow but with an introductory rate of 1.75% at 85% LTV you can't beat it. We initially got a PLOC through Hawaii State Federal Credit union to pay down some principal to have enough equity to be able to get the HELOC. Once we pulled the trigger on the HELOC we actually ended up paying off the home, the PLOC, and our car. We use our HELOC like a checking account and deposit all our income into it and since we pay next to nothing in interest we're seriously impacting our principal. And remember, since it's a line of credit, as you pay it down that money becomes available again to invest in other properties. Back to your original question, our home in Hawaii used to be our primary residence but we moved to Texas a couple years ago. We closed our HELOC about 6 months ago and the banks in Hawaii are ok with opening HELOC's on investment properties.

    It's the difference between simple and compound interest. We'll use my home as an example. Our mortgage was $3200 a month. Of that, more than $1700 of it was going towards interest. That was at a 3.75% interest rate. Looking at real numbers, 3.75% interest is actually more like 80% interest after 30 years and is front loaded (WHAT A SCAM!) We got a HELOC at 85% LTV and our home appraised for a bit over $700,000 which left us with a $600,000 HELOC. We had a bit over 25% equity in the home (we owed about $530,000). With our introductory, simple interest rate of 1.75% for two years, that left us with a $700 a month, interest only payment. We paid off the mortgage and told Bank of America to take a hike. We now use the HELOC like our checking account and deposit all of our income into it. Having to pay exponentially less interest and depositing all our income into the HELOC allows us to attack principal in large chunks. At this rate we can have the remaining balance paid off in 5-7 years. Remember also that as you pay down your line you still have access to it. So we've been using the available balance to finance some buy and hold properties that are bringing in good cash flows.

    I've been asked, "well if it's that easy, why doesn't everyone do it". That's a reasonable question. The simple answer is the numbers have to be right. There needs to be enough equity and monthly cash flow (whether from real estate or from your full time job) to qualify for this type of financing. And not every bank offers fixed rates. We did this with Bank of Hawaii. We initially used a personal line of credit to pay down enough principal for our numbers to work for the HELOC. Keep in mind that even the worst variable rate HELOC beats the best rates on a mortgage (simple vs compound interest). Compound interest is a killer!

    Hawaii is a high dollar market but the idea is that same anywhere. Reduce or eliminate the compound interest or the amount of time you have to pay it and attack principal in large chunks.

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  • Rodriguez VictorPro Member
    Eagle Pass, TX · Member since 2016 · 17 posts · 5 votes
    10y

    sweet. Congrats I your venture 

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  • Shital Thakkar
    Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes
    10y

    @Sharika L., i heard some podcast on this and read some articles but still not clear with whole process.

    Is there any good link or document that can explain me more details.

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  • Royce Talbo
    Investor · Kaneohe, HI · Member since 2012 · 218 posts · 104 votes
    10y

    @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.

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  • Jason Chambers
    El Paso, TX · Member since 2016 · 71 posts · 22 votes
    10y

    @Royce Talbo I'm Sharika's husband. Your description above is accurate. 85% LTV left us with a HELOC of $600,000. We owed BofA $530,000 so we used the HELOC to pay off the house and told BofA to take a hike. Initially that left us with $70,000 left over. We estimate 5-7 years to pay off the HELOC based on the fact that we deposit all our income into it. We essentially use it like a checking account. Our cash flows are pretty high and our W2 incomes with the miltary are pretty solid so we are able to affect principle in fairly large chunks every month. Paying the HELOC down quickly has left us enough room to use it for down payments on several other properties we've purchased recently. At 1.75% interest on the HELOC it costs us very little to use this kind of financing. I'll admit, this isn't for everyone. The numbers have to be right to make all of this work and it takes some discipline to manage.

    Did I mention that @Sharika L. is the best business partner ever! She's also my wife! I'm a lucky man. 

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  • Royce Talbo
    Investor · Kaneohe, HI · Member since 2012 · 218 posts · 104 votes
    10y

    @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.

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  • Jason Chambers
    El Paso, TX · Member since 2016 · 71 posts · 22 votes
    10y

    @Royce Talbo I think the part you're missing is that the mortgage no longer exists. You use the HELOC to pay off the mortgage outright. You are only left with the HELOC using the home as collateral. The HELOC is simple interest, a mortgage is compound interest. That's where the huge savings comes into play. Yes we deposit everything into the HELOC every month. The HELOC is like a huge, low interest credit card. You pay it down but the funds are still available.

    Another way to think about it...Bank A gives  you a mortgage for your house. Bank B gives you a large line of credit equal to 85% of the appraised value of your house. You take the line of credit from Bank B and pay off the mortgage from Bank A. Mortgage is now gone. You are only left with the line of credit that has a simple interest rate and is WAY cheaper. The cheaper simple interest allows you to pay down the debt much faster. We just take it a step further and deposit everything into it allowing for us to pay down exponentially faster.

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  • Arianne L.
    Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes
    10y

    @Jason Chambers @Sharika L. Awesome job you guys! Love seeing people take action and achieve their goals quickly! 

    From my understanding of the HELOC. You pretty much took the 600k HELOC, paid the 530k prinicipal mortgage with it. And initially you had 70k of the 600k available to draw as you wish. But, you may be putting in 6-15k from your W-2s and rental properties per month and assuming you put 15k+interest in each month, after month 1 you have access to 85k draw, after month 2 you have access to 100k, month 3 115k, and so on. Is that correct?

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  • Andrew K.
    Rental Property Investor · San Antonio, TX · Member since 2011 · 266 posts · 158 votes
    10y

    I've heard about this strategy from other sources as well. 

    I'd love to see how this works using a calculator that shows you the amortization. Essentially compare the original loan ammoritization to the HELOC's. I think that would make things clear for people to understand and clearly see the difference between compound and simple interest.

    I'm interested in more details related to the mechanics of making this happen. How did you set up your bank accounts to pay down the HELOC? Did you set up an allotment? How do you pay your recurring bills/living expenses from the HELOC? (I'm guessing you don't have a debit card or CC tied directly to your HELOC...).

    Also, once you paid off the mortgage balance with your HELOC--did the bank send you the deed? Or does the deed now belong to the HELOC originator?

    Sounds like you guys are rocking it! Accessing the equity in one of my rentals would give me the boost I need to add to my portfolio.  Thanks in advance.

    -Andrew

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  • Jason Chambers
    El Paso, TX · Member since 2016 · 71 posts · 22 votes
    10y

    @Arianne L. you are exactly correct. That's how we do it. 

    @Andrew K. there really isn't much comparison between a mortgage and a HELOC because a mortgage charges compound interest and a line of credit is simple interest. They are two very different financial products. Mathematically, mortgages are way more expensive. If you were to pay off a mortgage after 30 years you have paid for the house two times over almost. So even the best mortgage rates, in simple terms, equate to around 75% to 90% interest or more over time. Also remember that the majority of the interest you pay on your mortgage is front loaded and you don't affect much principle until around year 10 or later. I wish I had a chart to share. There are a bunch of online calculators you can run. Run a mortgage calculator along side a HELOC calculator for the same dollar amount. You'll see simple interest is exponentially cheaper. In our case, we'll save over $300,000 in interest payments and pay off the debt in 5-7 years as opposed to 30.

    Our HELOC is linked to a checking account with checks and debit cards. Some banks offer automatic overdraft without any fees so you don't have to worry about moving money around all the time. We try to align our bills so they all get paid on the 1st to avoid as much interest as possible. We pay everything we can with our credit cards to rack up points and use the checking account attached to the HELOC to pay them off in full every month. We also have an allotment from out W2 income into the checking account and on payday I move the money over to the HELOC. The bank views it as a payment.

    When you pay off your mortgage with a HELOC the bank that gives your the line of credit becomes the new lien holder. They would execute a deed transfer from the bank that previously held the mortgage.

    This strategy has been very beneficial for us. Especially considering that interest rates are still really low. It just doesn't make sense for us to stock pile cash in a savings account that isn't accruing much interest. In our case, it makes more sense for us to use our cash flows to pay down debt quickly, debt that has now become significantly cheaper at 1.75% simple interest. The only issue we've run into is the banks want to see large cash reserves when applying for a mortgage especially larger multi family properties like the ones we've been getting into. The VP at the bank we go to for our commercial lending was kinda scratching his head wondering why we don't keep cash. A banker's motto is Cash is King. My motto is I Hate Paying Compound Interest. Our strategy is an effective way to avoid it.

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  • Andrew K.
    Rental Property Investor · San Antonio, TX · Member since 2011 · 266 posts · 158 votes
    10y

    @Jason Chambers and @Sharika L. thanks for the replies. I'm certainly very intrigued by this strategy and you've provided a lot of food for thought.  I too am not a fan of having cash sitting around not working for me, but I'm even less of a fan of paying 2-3X the price of a house! 

    I'll check out the website you recommended.  If I start down this path I'll keep you posted on my results!

    A couple more questions for you both: Do you have any bank recommendations for getting a HELOC? So far I've found a number of banks that explicitly say they will NOT do a HELOC on a non-owner occupied house.

    Thanks again!

    -Andrew

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  • Elijah F.
    Investor · Kaneohe, HI · Member since 2015 · 91 posts · 36 votes
    10y

    @Jason Chambers @Sharika L. in what way is a traditional mortgage a compound interest loan? if you pay your monthly mortgage payment in full you are not paying interest on interest. According to Investopedia, "Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Compound interest can be thought of as 'interest on interest'".

    If you look at an amortization schedule you will see that the interest portion of the mortgage payment is the calculated on the outstanding principal for that period of time.

    Please clarify what you mean when you state that a mortgage is a compound loan and not a simple interest loan. Thank you.

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  • Royce Talbo
    Investor · Kaneohe, HI · Member since 2012 · 218 posts · 104 votes
    10y

    @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.

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  • Jason Chambers
    El Paso, TX · Member since 2016 · 71 posts · 22 votes
    10y

    @Andrew K. you bring up a great point and one I should have mentioned before. Most banks do require that you reside in the home to be eligible for a HELOC. Shop around though. We went with Bank of Hawaii and they didn't require us to live in the house.

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  • Jason Chambers
    El Paso, TX · Member since 2016 · 71 posts · 22 votes
    10y

    @Elijah F. compound interest is a basic component of an amortized mortgage. Interest is calculated on a monthly basis and the amortization is set in a way that the interest is paid at a much higher rate than the principle during the beginning of the life of the amortization. What you are describing above is the way compound interest works with savings. Simple interest on the other hand is calculated daily based on the remaining balance. I mentioned before that in real numbers a 3-4% interest rate mortgage actually ends up costing you around 80% interest by the time you pay it off (you pay for your house almost 2 times over even at the best mortgage rate). We literally went from a $3200 a month mortgage payment to a $770 monthly, interest only payment on our HELOC. Same house, same remaining principle but significantly cheaper at 1.75% simple interest. Almost $1800 of the $3200 a month mortgage went toward interest. We still charge the tenants $3650. As you can see, our ability to affect principle has grown significantly.

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