All Forum Posts by: Allen Fletcher

@Angie Briggs

The first thing I would say is not to tap the equity in your primary residence. Typically a primary residence is more of a liability than a cash producing asset. Keep debt related to investments attached to investments and not to your personal residence. If things go sideways you may lose the rental, which would hurt, but not as much as losing your home.

As for your acquiring more properties, have you thought about approaching the seller with a owner financing proposal? Getting the owner to carry the note on "the down payment" may be a way to acquire properties without tapping equity in your current property for the down payment, but you could tap it for rehabbing the property.

Good luck,

Allen Fletcher

@Keri Middaugh

The thing to remember about Lending Club is that all of the loans are personal loans that are not secured by any asset. Everyone that posted above has shown that defaults are a huge part of the game even in the class A loans. Unless you are going to dabble with pocket change like @Jade S. and @David Hurt so defaults will not hurt you much you will have to put in a large amount of cash and get a very diverse set of loans. This will increase your chances of having the overall portfolio provide a profit even with defaults.

Good luck,

Allen Fletcher

@Keli A.

I sat down with an investor and he shared this bit of wisdom with me. This investor holds hundreds of properties and has been in the RE industry for 30+ years.

He pays of the mortgages on his rentals completely and then picks a certain number each year that get refinanced at half of their value. In other words a property worth $100k is refinanced or a HELOC is pulled for $50k. He then lives off of the cash pulled out of the property and throws 100% of rents at the loan until it is paid off. As he says the cash pulled out is tax-free and the rental income is used to pay-off the debt so he is able to live at a lower tax bracket while still "making" $100k per year. I have not looked into this strategy much as I am in the accumulation phase and he is well into the retirement phase of the RE game, but you may want to look into this type of strategy as it could be beneficial to you.

Regards,

Allen Fletcher

If I can add to @Paul Allen's post above, never touch money in special accounts without talking to a CPA/tax specialist first. This may seem like a hassle, but if you are going to move or use money in retirement accounts, HSAs, FSAs, 529s, etc. it is always better to ensure that you are doing something that is allowed and that you are doing it the right way so you do not get kicked in the checkbook by the IRS.

Always be cautious,

Allen Fletcher

@James Petry

Do be careful when deeding properties from yourself to an LLC. Sometimes lenders will see this and call the loan. Make sure that your mortgages/lenders are not going to do that or you may be finding yourself in a bit of a rush to get another source of financing.

Good luck,

Allen Fletcher

@Scott Ellis

"Final Advice: Just make sure you have a contingency plan. Our worst case scenario would be that we'd need to sell the triplex to pay off the HELOC. If some temporary negative event happened, we have Roth IRA principle funds that we could pull out to make payments on the HELOC in the short term. The "risk" of a HELOC is that you're leveraging your primary house to make investments. So. . .just make sure you understand that risk and take steps to mitigate it"

You said in a response earlier that you had a third party loan to complete the rehab on this property. Have you looked into getting a loan to pay off the HELOC from that source? This would keep your LOC and HELOC both at $0 and give your investor a note that they could use to make money. Also having those credit lines at $0 will help you be approved for a better rate on your next mortgage.

Regards,

Allen Fletcher

@Daniel Massicotte

In the US, where I live, there are ways that a business owner can take a reasonable income from his business (which is taxed as income) and have the business pay more to him as a dividend (which is taxed at a much lower rate). It takes some time with lawyers and accountants to set up your business in this way, but it may be worth it to you to see if this is possible in Canada.

Good luck,

Allen Fletcher

@Jonathan Watson

It really depends on your future plans. Do you plan on spending the rest of your life in your current home? If so, keep the 15yr and pay the minimums putting all the rest of your cash in other places. Use the HELOC to pull equity out (remembering to give yourself a margin so that even if your investments do not work out you do not lose your home) and invest. If you are probably going to move refinance to a 30 yr and use the monthly savings. There is no right answer, there is only the answer that best fits your situation.

Just make sure that whatever you decide you leave yourself as many exit strategies and margins as you can in case the worst happens. It would be a tragedy to have the markets cool, housing crash, etc. destroy your financial life because you stretched too much.

Respectfully,

Allen Fletcher

@Eric James

You have multiple 403(b)s? Look into the old ones held by past employers. The 403(b) you have with your current employer is most likely untouchable except in the form of loans. The older accounts on the other hand are yours and you can (usually) do with them as you please. The balances in the old accounts are prime candidates for an SD IRA. An SD IRA will allow you to both invest in real estate and equity markets as you see fit. Even if you decide to not put your retirement money into real estate an SD IRA will allow you more control over your money.

Regards,

Allen Fletcher

@Meghan Chomut

Paying off debt not only removes stressors from life it also frees up income for use in other ways. If you are paying $1,000/month on the mortgage and you pay off the mortgage you have now unlocked that $1,000/month for use in other areas. I am going to give you a third option that has not been mentioned yet, have you thought about using a portion of the cash to pay off a little of the mortgage so that you can refinance and unlock more of the monthly income?

@Thomas S., in my opinion, is a little off when he says that equity is dead. Equity in a property is not dead, it is just securely locked up. There are tools out there that will let you access that equity and at decent rates. Have you accounted for this in your calculations? Often equity loans can be used to capitalize on deals that will increase wealth and income and they also have the added bonus of being available quickly if necessary.

As everyone has stated above, there is no one size fits all answer it all depends on you, your needs, your fears, etc.

Good luck,

Allen Fletcher