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All Forum Posts by: Alex Corral

Alex Corral has started 18 posts and replied 142 times.

Post: Pay off mortgage and snowball?

Alex CorralPosted
  • Denver, CO
  • Posts 142
  • Votes 104
This is a hot topic, and something I go back & forth on. Having a free & clear property has lots of benefits. The savings on interest alone are huge & why I'd like to pay the properties off asap. On the con, free & clear, you have more to lose in a lawsuit. Also, steering as much cash flow back into the property just to have dead money (aka equity) sitting in the property is not of much use either. One way is not better than the other. Simply what fits your style. I'm still not sure which I prefer.

Post: Structure a deal in personal name or LLC?

Alex CorralPosted
  • Denver, CO
  • Posts 142
  • Votes 104

@Tushar Shah I'm pretty surprised to hear that. I've read multiple threads & heard even on podcasts that you can deed it to your LC with no due on sale. 

Not sure about the trust tbh.

Post: Help for a newbie who can't commit to a market

Alex CorralPosted
  • Denver, CO
  • Posts 142
  • Votes 104
Natalie Coleman I'm in the same situation. I think whom ever you talk to, is going to tell you their marker is the best. I've probably talked to 10-15 providers. You can research all the markets, & look at Census bureaus. I think you either have to find the provider who just gives you the best feeling, or just pick one lol. As long as you're buying in the Midwest, you should be fine I think.

Post: Structure a deal in personal name or LLC?

Alex CorralPosted
  • Denver, CO
  • Posts 142
  • Votes 104
You buy the property in your name, then deed it to your LLC. It won't trigger the due on sale because it's still owned by you, although via your LLC. I'm also in the middle of deciding this. Hold in LLC, which is more paperwork... or hold in personal name & buy an umbrella policy.

Post: Using the HELOC strategy to buy rentals

Alex CorralPosted
  • Denver, CO
  • Posts 142
  • Votes 104
Originally posted by @Arlen Chou:

@Alex Corral as some have pointed out, there are still tax advantages to a HELOC, you just need to document things more clearly so that the trail of money is more obvious. The key to this strategy is to find a competitive HELOC. My current HELOC is for over $1M on a 10 year draw at prime MINUS 1%.  I pay down my loan at an accelerated pace by calculating what my monthly nut would be if I had a higher fixed rate mortgage and paying that amount vs what is actually due. The delta is applied to principle.  If I need money in a pinch I can access it easily with the HELOC.  With a traditional loan I would be behind the eight ball and potentially need to do a "cash out refi".  

But rates are creeping up very quickly, so I am currently refinancing my HELOC into a 5 year fixed rate HELOC at 3.5%. Using the HELOC strategy makes you look so much stronger in a tough market. Once the property was seasoned, I pulled a stand alone commercial loan and recharged the HELOC. Once my refi is in place I will be ready to go shopping again.

The HELOC strategy is really like a "self funded" short term bridge loan, that allows you to get into the property.

Thanks for the info. I will keep looking. So far, the best I have found is prime minus 1.26, but only for 12 months. Then it is prime + .03 - .28 (depending on LTV).

I also found a CU that has a 5/1 arm at 4.0% up to 90 LTV. Considering that as well, but I feel like I need another 1-2 year cushion.

Post: Using the HELOC strategy to buy rentals

Alex CorralPosted
  • Denver, CO
  • Posts 142
  • Votes 104

@Lana Lee

I would love to have that deal. I checked with the CU you told me, but they don't lend in that my State.

Post: Using the HELOC strategy to buy rentals

Alex CorralPosted
  • Denver, CO
  • Posts 142
  • Votes 104
Originally posted by @Joe Splitrock:
Originally posted by @Alex Corral:

@Joe Splitrock that is my plan A2 :)  I still prefer my original plan, because if I'm doing it right, I can save on the closing costs required for a mortgage. 

Here's my spread sheet. I have an extra $1700 a month left over in income. And if I buy 3 rentals that will net $2000 a month, I would pay $3700 into the $200k HELOC balance at a 5.5% rate. I won't have money going to savings, but that's ok because I should be saving a lot in interest, and still have access to cash via the HELOC.

I'm still learning, so let me know if I made a mistake.

I need to run a spreadsheet paying the extra $1700 + net rent from that property, to compare exactly. So, If I bought 3 rentals with 3 mortgages, I would have to pay their net rent after debt service, + $567. Again, the con is I'm basically broke trying to pay down those mortgages only to have the money sitting as equity.

I don't think there is a problem with your spreadsheet. I just went to a fixed rate mortgage calculator and punched in $200,000 at 5.5% and term of 63 months. The payment would be $3662.18 for 63 months and total repaid is $230,717.50. If you change the rate to 4.5%, it saves around $5000 worth of interest. 

Obviously there is no option for 63 month fixed rate mortgage, but even if you take out a 30 year mortgage, then pay $3662.18 per month, the loan will be paid off in 63 months with $230,717 paid back. On a 30 year fixed, the payment would be $1135.58, so you would be required to pay that minimum, which is well under your $2000 rent. When you pay the extra principal, you just accelerate the 30 year and turn it into a 63 month loan.

I hear what you are saying on closing costs, but I still think there is higher risk of rate fluctuation. Each percentage point of interest is going to cost you roughly $5000, so you have to decide what the risk is. 

As far as your last comment about being broke paying down the mortgages with money stuck as equity, that is not really the case. Since you still have the HELOC, you have access to even more money. You could even float the payment each month from your HELOC, so if your spending is higher one month, you just have a little balance on the HELOC until the next month.

Right right. I was thinking in case I did not take out the HELOC. Thanks for your help. I think getting a HELOC will be beneficial anyway, as some can be found as low as 1.99% for 6 mos. Can pay as much into it as possible to reduce the balance, then refi if rates start to climb. If rates do climb, can still use HELOC for cash offers and refi asap after. But, the access to that cash is invaluable.

Post: Using the HELOC strategy to buy rentals

Alex CorralPosted
  • Denver, CO
  • Posts 142
  • Votes 104

@Joe Splitrock that is my plan A2 :)  I still prefer my original plan, because if I'm doing it right, I can save on the closing costs required for a mortgage. 

Here's my spread sheet. I have an extra $1700 a month left over in income. And if I buy 3 rentals that will net $2000 a month, I would pay $3700 into the $200k HELOC balance at a 5.5% rate. I won't have money going to savings, but that's ok because I should be saving a lot in interest, and still have access to cash via the HELOC.

I'm still learning, so let me know if I made a mistake.

I need to run a spreadsheet paying the extra $1700 + net rent from that property, to compare exactly. So, If I bought 3 rentals with 3 mortgages, I would have to pay their net rent after debt service, + $567. Again, the con is I'm basically broke trying to pay down those mortgages only to have the money sitting as equity.

Post: Using the HELOC strategy to buy rentals

Alex CorralPosted
  • Denver, CO
  • Posts 142
  • Votes 104
Originally posted by @Joe Splitrock:

@Alex Corral there is lots of mis-informaiton about HELOC interest in the forums. I have participated in discussions around this and the split is between people who understand how interest works and people who don't.

Interest accrued on a HELOC and fixed rate mortgage is calculated the same and is based on the outstanding balance and interest rate. In other words, if I took out a HELOC for $100,000 at 4% and paid monthly even payments over 30 years, it would be the same as a 30 year fixed rate mortgage at 4%.

The only way to pay off the loan faster is by paying more principal. If you applied the same principal payments to a 30 year fixed rate mortgage as you did your HELOC, it would pay off just as fast. In the comparisons I have done, usually the HELOC takes longer and you pay more interest, because of the higher interest rate on the HELOC.

The advantage of the HELOC as a "savings account" is that all your capital goes immediately towards principal pay down. People find it easier than making extra principal payments on a mortgage. The other consideration is that once you make a principal payment to a mortgage, the cash is gone towards equity. With a HELOC you can just take the money back out if you need it.

I like your strategy of using the HELOC to make cash offers. In today's competitive environment, that gives you and advantage. I would refinance the properties into 30 year fixed rate mortgages to lock in low interest rates. Your HELOC is variable and the way the FED is raising rates, you will be stuck paying 1-2% more interest in a year or two. You are better off locking in the low fixed mortgage rates and making extra principal payments.

 Hi Joe, I totally agree with you. I've read many threads and am about 9 pages in on that crazy long discussion you were in :)

I have been trying to be real careful about the different in interest. Seems odd, but I've been told that it is like credit card interest. I made an excel spreadsheet, and my calculations were better on the HELOC, but again, I'm not 100% sure. The main benefit I see, is being able to re-use that HELOC for a sudden repair, if needed. The CON, is that the rates are finally starting to creep, and with how the economy has been, I think it will keep rising. Tough choice.

Post: Using the HELOC strategy to buy rentals

Alex CorralPosted
  • Denver, CO
  • Posts 142
  • Votes 104
Originally posted by @John Woodrich:
Originally posted by @Alex Corral:

@James W. That is odd. I've called about 15 banks & CU. All have 10 year draw & 20 year amortization.

The typical draw period for a HELOC is going to be half of the term. So a 15 year will generally have a 7-8 year draw period. If you can get a 20 year a 10 year period may be attainable. Haven't heard of them in my area but I don't call 15 banks looking for a single loan :)

Source - I have a 15 year HELOC, draw period is over, balance $80k, 3.25% interest, monthly payment $1140! Yes, going to refi soon.

 Haha.. Due diligence. :)

From US Bank site "A Home Equity Line of Credit has 2 different periods, a draw period and repayment period. The draw period is 10 years, where you have ongoing access to available funds and can use the funds how you'd like."

BOA, and a lot of CUs, have the same draw info online.

3.25% is a pretty good rate.