Truth in Equity - HELOCs
Does anyone have experience using a HELOC to pay off a mortgage early? I just bought my first property and had never heard of such a concept until I was recently listening to the Real Estate Guys Podcast. I've been listening to them for years and have a decent amount of trust/respect for them. This company and the concept seems legit. Any thoughts?
http://www.truthinequity.com/
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- Financial Advisor
- Boynton Beach, FL
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#4 Personal Finance Contributor
- Financial Advisor
- Boynton Beach, FL
You'll have more cash flow on that ONE property. The amount of money you used to pay off the house should have been able to purchase more properties generating even more cash flow. That's bigger cash flow.
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Financial Advisor
- Innovative Retirement Strategies, Inc.
Good point, assuming your houses don't need major fixes.
Also since HELOC is open ended, I could still buy houses and withdraw cash out of it ... if draw period is over then get another HELOC. This way I'm skipping on paying bank all the horrendous interest they charge up front.
I just had a thought that came to mind that would use similar principles without obtaining a HELOC, but a separate bank account instead. I agree per my amortization calculator that paying $2400 each year mark is slightly better than a $200 payment every month.
Here's my question about the need for a HELOC; let me throw a few numbers at this post for comment. Let's say for example I track all my income and expenses each month and want to start accelerating my mortgage payments. Lets also say that I average a monthly net income of $2,000. This excess money would work well if you follow the strategy mentioned above.
In lieu of the HELOC though, If I were to conservatively set aside half of that excess into a separate bank account, I would eventually build up $12,000 ($1,000/month x 12). At this point, I would make an interest only payment of 12,000 against my mortgage - rinse and repeat. This is similar to the HELOC by taking large chunks out at a time, but not putting all your residual income after expenses into early payments. Of course if I wanted to change that $1,000 to be more/less conservative/aggressive, I'd simply change the amount I put away (not to exceed my cashflow).
I feel this method would give you more control, less to qualify for, and you would be gaining minimal interest vs paying the simple interest on the HELOC. Also, if any deal were to come along that gave you a better opportunity cost/cashflow, you could put that money towards that?
Thoughts? Thank you!
@Account Closed You mention in point 3 of your comment that you could "buy more rental homes using [your] HELOC idea." are you saying that you used the HELOC to build sufficient equity in your home to buy rental properties. I am trying to build sufficient funds to purchase rentals and I am considering the idea of using $10k increments from a HELOC 3-4 times to increase equity in my home to a point where I can refinance to get sufficient cash out for buying a rental. For me the variable rate and loss of tax benefits don't make it worth doing for the life of the mortgage but I wondered what you thought about using it to get started acquiring cash flow rentals in this way. Also, has your position/experience changed in the years since your original comment on this thread?
I'd love to hear what others have to say regarding the pros and cons of this approach.
@Randy Walters I am very new here and you will have to excuse my complete lack of knowledge on the subject but why would you make a $12,000 interest only payment? Would it not be better to play into your principle? Also, why hold your money and make a lump payment vs paying monthly?
Originally posted by @Nicholas Aguirre:
@Randy Walters I am very new here and you will have to excuse my complete lack of knowledge on the subject but why would you make a $12,000 interest only payment? Would it not be better to play into your principle? Also, why hold your money and make a lump payment vs paying monthly?
My guess is, Randy's main reason for accumulating his cash for as long as practicable before making additional interest-only payments, is just in case "any deal were to come along that gave a better opportunity cost/cashflow". It's the same reason why HELOCs can be highly recommended for disciplined investors, albeit at a higher interest rate for monies withdrawn.
I agree that it's counter-intuitive to pay interest ahead of schedule instead of principal. The only reason that makes sense to me is if Randy was scared that his income might dry up for a period of time, and it would be handy if he could stop making payments without getting into any trouble with the bank (until he was no longer ahead of schedule). Welcome to BP. Cheers...
Been a long time since I originally posted this, and the “interest only” payment even threw me for a loop haha. I’m sure I meant to pay towards principal of course.
So, what is the general consensus on TnE? Anyone tried it? Pluses and minuses? I know that Clayton Morris also put out a book on the subject (not that I am a huge fan of him or his business model).
I have used a PLOC to “cash” purchase rental property for 50 cents on the dollar in Baton Rouge. Paid the PLOC back with nearly all my additional income in 2 months. A few notes:
1. Must have financial discipline.
2. Must have extra cashflow each month to velocity bank.
3. Really should have a plan B if something falls through. Hiccups in life WILL occur. Leaning too heavily on any form of credit is dangerous.
4. Leverage is powerful when in balance.
5. Know your risk/reward and risk tolerance.
Seems like you could almost mimic this with borrowing from your 401K, paying a lump sum to mortgage, then paying your self back from your paycheck every month.
I'm sure some will say that is lost opportunity cost by reducing the balance on your 401K, but you are paying yourself interest back and its a fixed rate over 5 years.
I really like borrowing from my 401K at the moment. I have a good job, for now, of course, no guarantees, worse case I have to pay taxes on the amount withdrawn and a 10% penalty if I lose my job and did not pay it back, so there is some risk but seems lower than the HELOC risk.
I have personally hired "Truth in Equity" during a difficult financial time in my life. I first heard of them through Youtube (on an extremely dated video) and did some research like you guys are doing. This was back in 2016.
I read all the reviews of people saying it was dangerous and almost didn't look into it further. However, I couldn't find one person that actually hired the company or used the process that was saying all the negative things.
Y'all! We were so broke that I knew in another year we were probably going to either sell our house or file bankruptcy so I thought, what do we have to lose? Now, since this was such a new concept to me and everyone else I knew, I didn't tell a soul that we hired this company to help us in case we ended up getting really screwed.
To make a long story short, I am happy to report that we have had a really positive experience. We hit our $100,000 milestone in February of this year (2019) and I decided to start a blog to talk about how we are doing it. We used Truth in Equity but also studied the pillars of FI (financial independence.)
When we first signed up with Truth in Equity we had an estimated payoff date of 10 years - we had 27 years left on our mortgage. Well, since then we really started learning about money (thanks to Bigger Pockets and other blogs) and have cut that pay off in half and in half again. We got back over 20 years of mortgage payments. As it stands right now, God willing, we will be completely debt free in less than 2 years.
Of course, debt-free means my personal debt :). We do not have any rentals yet but once my husband finishes school we plan on buying some rentals in an LLC.
But anyway, I recommend Truth in Equity. I wrote more about my personal experience on this post: https://www.familyandfi.com/from-food-banks-to-pay...
(I of course want to be transparent also. When you are a client of theirs, you can get a referral bonus when people hire them if the new client mentions your name or uses your link, so I am filling out the disclosure form below this post. I do not get paid to promote them on threads like this, but if you click on their link inside my blog post and actually sign up with them, I will get a referral bonus. BUT even if you don't click through my link, I still think everyone should hire them if they can help you. They have helped us tremendously and continue to do so.)
I can't give you personal financial advice, but I am open to talking about my personal finances in regards to this to anyone who has questions.