All Forum Posts by: Ben Zimmerman

Bidding $101,900 might win you the house, of course you might have overbid and thus overpaid by $16,900 assuming you know of at least one bid of 85k.  

As Wayne mentioned you can make your offer stronger by increasing your EM money, and making the process as streamlined as possible.  Waive contingencies, buy as is, fast close etc.  

As far as bidding goes, I like to put in a bid escalation clause into my offer.  For example something like, "I will offer to purchase at 85k.  If I am not the highest bidder, my bid may be automatically increased to $500 above the highest verifiable bid placed from a neutral party up to a maximum bid amount of $101,900."

This way you won't be at risk of overpaying by multiple thousands of dollars.  

Penfed, 80% LTV 4.75% investment properties as of today.

https://www.penfed.org/home-eq...

Penfed, 80% LTV @4.75% interest for investment properties as of today.

https://www.penfed.org/home-eq...

@Mikhailangelo L.  Have you bought OOS TK properties before?  Do you have a reputable company that you have made multiple purchases with or PM company that you use and trust explicitly?  

If the answer is no, then don't jump head first into something that you have never done.  Just look around the forums at all of the people that have been burned by OOS investing.  OOS investing can be risky, regardless of what people tell you.  Buying a B class property for 100k because your TK company said it was a fantastic deal can turn ugly real fast when the reality is that its a C- property that is only worth at best 90k after a few repairs.  

However if your company isn't matching, then you probably shouldn't be doing a 401k either. Do a Roth IRA, backdoor IRA, or mega backdoor Roth IRA.

I understand the concept, and even wrote a masters level research paper on this subject (which sounds silly for a method that doesn't work, but this idea just refuses to die).  Paying your loan down rapidly will certainly save you interest as opposed to just letting your 30 yr mortgage plod along for the next few decades.  

However, the entire issue with this method is why involve a heloc and put these big chunk balances on it in the first place?  A heloc charges a higher interest rate than a mortgage, so by doing this method you are willingly choosing to have a higher interest rate loan than is necessary.  Instead of rapidly paying down your heloc to chunk again, why not just rapidly pay down your mortgage?  

If you chunk for lets just say 50k, and your mortgage is at 2.5% and heloc at 3.75 which I believe is the lowest many places will go, (including penfed which has been brought up many times in this thread).  In this case you will pay over $50/month MORE in interest by having that 50k balance on your heloc, as opposed to on your mortgage.  If you are going to apply your cashflow, or income, or profits, or whatever these YouTubers decide to call it, then why apply it to the heloc and pay 50/month extra interest for no reason?  You could have skipped getting a heloc entirely, made the same payment directly towards your mortgage, and saved yourself 50/month which would further increase how fast you are able to repay your loan since you are paying less in interest that means more money is available to go towards the loan principle.  

If that YouTuber mentions that the reason this 'method' works is because a heloc is simple interest than that should be your first clue that you should unsubscribe because a mortgage is simple interest too.  

If they mention it works because you get to skip ahead on amortized interest schedules then you should unsubscribe because interest is calculated based off your loan balance.  So if you have a 200k mortgage, and decide to do this method and chunk for a 150k balance on your mortgage, and 50k balance on your heloc, then you still have a 200k total loan balance.  Therefore your total balance between the two loans has stayed the same.  The only difference is now you are paying a higher interest rate on the 50k that is on your heloc.

YouTubers that advocate this method ultimately do one of two things.  They say a bunch of gibberish and hype, yet never show an actual payment schedule showing you that this method does in fact save you money as opposed to putting it towards your mortgage, or they make simple, fatal math errors in their calculations.  Post a link to your favorite tutorial video and I will point out the problems for you so that you can see for yourself.

There is no realistic way that carrying a high balance on a heloc, will save you money as opposed to simply putting any extra payments directly towards your mortgage and skipping the heloc entirely.  If liquidity is an issue then there are plenty of cheaper ways to go about obtaining liquidity than to consistently pay $50/month in extra interest.

At any point you are more than welcome to actually correct me and prove me wrong.  Its kinda funny how you can keep promoting this idea, yet provide no information whatsoever.  You keep saying I don't know what's going on, yet fail to actually mention what key aspect I am missing.  

Fact:  Putting large amounts of money onto a heloc and carrying that balance for several months, will cost you more money than keeping that money on a lower interest rate mortgage.  The 200k heloc as opposed to the 200k mortgage is a terrible idea.

If you don't want the money, I'll donate the 1k to the charity of your choice and screenshot the receipt if you can actually prove me wrong.  Until you at least make an attempt at proving your claims I'm done with this thread.

I couldn't agree more Jay.  As long as the home is in a stable, or growing market then the homes price should at minimum match the rate of inflation which is targeted at 2% annually by the Fed.  At even a modest 2% annually, that comes out to a 10% return on your money on a leveraged home with 20% down payment.  A 2% gain on a 200k home is 4k, or $333 per month.  If investors found a home that cash flowed $333 per month they would be excited, and yet they scoff at the idea of a home that increases in value by that same amount.  

The only time starting cash flow is better than growth rate is if you are looking to retire immediately, or are someone who has an incredible deal flow system set up and is able to suddenly and rapidly scale from 0 units to 100+ units in only a few short years.  And while those rapid burners do exist, I would say they are an extreme minority when compared to the total BP population.

I would rather have a home that is net neutral in cash flow on the day that I purchase it, but is in a desirable area with 3-5% annual growth, than a $200 per month cash flowing home in a different area that isn't likely to get any appreciation or worse yet will depreciate.  Because with the 200/month home, that is likely all you will ever get, 5-10 years from now that cashflow will still be sitting at 200/month or very close to it since prices aren't going up.  However that net neutral home will likely cashflow 100+/month after 2 years due to regular rent increases, and in 8 years I will have been able to raise that net neutral homes rent by about $5700 annually (assuming a 1500/month starting point for rent and 4% annual rent raises).  This means that at year 8, my TOTAL cash flow over that 8 yr period from that 'net neutral' home actually surpases the total cashflow from that home that is still clunking along at $200/month.  

This means I need to own less total rentals to achieve my financial independence number, managing an army of 200/month rentals quickly turns into a job of its own.  The alternative is to hire it out to a property management company that eats 100 of your profits meaning you need to now double your number of properties to achieve the same results.

I doubt that many people will turn over their buy and hold portfolio faster than every 8 years, in which case your total cash flow is going to be BETTER from those appreciating homes, than you would have gotten in a different area with no appreciation but steady initial cash flow.

In addition to having more total cash flow, the value of your appreciating home will likely be roughly 37% higher after 8 years assuming the 4% annual gain, while your stable 200/month home is still worth essentially the same amount as it was 8 years ago.  This means that I can sell my home for a profit if I want, where as with the 200/month home I will at best only break even, or worse yet I will need to eat several of those years worth of cash flow to cover closing costs plus recapture.  

An 8 year outlook is very short when we consider that real estate is a truely long term investment.  If we extend these numbers out past 8 years towards 20yrs, 30yrs, or 50yrs, then the numbers get ridiculous.  I think most people are familiar with the fictional story of a person who asks to be paid 1 penny per day at his job, and double that amount each day for a month?  While he earns only 1 penny that first day, on day 31 he makes over $10m on that day alone.  The same rules apply to real estate, it's not how much money you earn today, its the growth rate of that money that matters.  Growth rate is the ONLY thing that matters.  

Appreciation isn't icing on the cake, appreciation is the cake, and its also the 7 course meal.  Starting cash flow is the teaser appetizer that doesn't fill you up and instead just makes you hungrier for more.

Unless you think that national inflation will suddenly turn negative for some reason then appreciation in growing neighborhoods is a simple fact of life.  If anything inflation in the coming years will likely be higher thanks to our swelling national debt which further helps those appreciating homes.  

Betting on appreciation isn't gambling.  The Casino House in vegas doesn't gamble, the individual at the craps table is gambling but the House isn't gambling.  The House is using facts and basic math to guarantee it will make money in the long run.  Sure the House may lose any one particular game, but play that game often enough and the House always wins.  Likewise a home may temporarily go down in value due to a sudden economic shift, but in the long run the facts and basic math always win.  Play the long game.

Incorrect:  

† Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary if $99 in interest was not paid during the preceding 12-month period.  https://www.penfed.org/home-eq...

The additional closing costs that range in cost from $500-8500 are waived if you hold the loan for at least 36 months and it isn't paid off during that time, no other fees are, including the multiple hundreds for the appraisal and notary which are paid for before the heloc is even approved.  If you slip up and repay the full balance then you could easily be on the hook for thousands of additional dollars.

The $99 annual fee is significant because the only saving grace for helocs is the daily calculation for interest, so if you set it up where your bills get paid on the 28th of the month then you could in theory be holding the heloc balance for only ~3-4 days until the first when your paycheck repays the loan.  However in this case you aren't being charged nearly enough interest and the $99 fee would kick in.  

The 36 months is important since in this scenario you would only hold a much smaller balance on your heloc.  But since your paycheck gets direct deposited into your account, you need to make sure that you always have a higher balance on your heloc than your paycheck will be for.  If that Christmas bonus kicks in, or if that IRS tax refund comes in, or any number of scenarios happen since your heloc is your checking account, and more money than expected comes in and actually brings the heloc down to 0, then you could easily owe up to 8500 in fees.

Nice try though.

The OP asked about a product so that he could attempt a methodology.  If the methodology is fundamentally flawed, then the product suddenly becomes irrelevant.  You can apologize for this thread if you want, but I will not.  If I can save someone a lot of money by dispelling the hype surrounding these methods, then I have done something productive with my day.

I have read those previous threads, and hundreds of similar threads.  And ultimately none of them provide any meaningful explanation of how a large heloc like this 200k example helps you repay a loan faster than using a different technique that is also much simpler in nature.  If this method is able to save you tens of thousands of dollars as opposed to just keeping your mortgage and applying the over payments directly to the mortgage then your method should be incredibly easy to prove mathematically.  And yet, nobody is able to actually prove it....instead they simply give up and walk away like you are doing now. 

The only debate comes in when the amount being taken out on a heloc becomes significantly less, so instead of a 200k heloc, now we are talking about maybe 5-10k depending on how much income you generate each month, then the numbers obviously become closer between the two methods, partially because the total balance is lower, and partially because now we are able to fully repay the heloc each month where the difference between daily and monthly interest can actually be somewhat meaningful of a concept and the debt is no longer revolving debt carried forward from month to month.  

However even when all of the previous threads debate these smaller heloc amounts, they still aren't factoring in any of the random fees that your heloc will be charging such as origination fees for the heloc, yearly account maintenance fees, or early repayment fees etc etc. Penfed as you mentioned charges notary fees and appraisal fees, it charges a $99 yearly maintenance fee if you paid less than $99 in interest through the year, and if you repay or close the loan within 36 months you are on the hook for the entirety of their closing costs. Not to mention that its a variable APR that is already at its minimum amount and therefore has only one direction to go; -up. Once those additional fees get refactored in, even the smaller heloc balances don't make sense financially speaking.

However with large sums like a 200k balance there isn't even a debate to be had because one method is so inferior as to not even put up a fight.  

My suggesting using a heloc and carrying a constant 0 balance for liquidity reasons, is night and day different than what you are describing of using a heloc and putting your entire 200k+ mortgage onto your heloc. Nobody said that helocs are universally terrible, they are only universally terrible if people are using them in the way that you are advocating. My suggesting carrying a 0 balance heloc was just one example of me giving options for liquidity, but there are dozens of other options rather than simply constantly carry a high heloc balance. You could use a zero APR credit card for 18 months, you could use an unsecured loan, you could do just about anything and come out financially ahead as opposed to paying an extra 1.5% on a 200k balance for no reason. Heck, you could just use a regular credit card at 20% interest to buy that 10k HVAC that unexpectedly needed replacing and you would still be better off.

If immediately after putting 10k towards your heloc you suddenly needed 10k for an HVAC unit that unexpectedly went out, then you would be paying 200k * .045 * 30.4/365 = $749 in interest for that month,

I would pay (190k * .03/12) + (10k*.2/12) = 475 + 166 = $641 in interest for the month. So during a worst case scenario where I suddenly have an unexpected expense and am paying heavily for that expense at a massive 20% interest rate, I STILL PAY LESS than you do by over $100 per month.  And in another month or two when that HVAC unit gets repaid and I'm no longer paying that 20% interest rate, then I will be paying SUBSTANTIALLY less than you in interest per month.  

Your second comment of me not understanding how it works, and that you aren't carrying a high balance.... Yet you don't even attempt to explain what I am supposedly not understanding.  In the end it all boils down to average daily balance as I have said multiple times.  You fail to show any relevant proof that your method actually works well.  When challenged on the topic, you simply state that nobody understands but you.  Please enlighten us all.

QUOTE: "We will just have to agree to disagree. My 30yr. 200k+ mortgage was paid off using this method in a little over 6.5 years. So I say the proof is in the pudding. It worked for me. It has worked for many others. It was easy and comfortable for me. If you dont like it, dont use it."

I do not doubt for a moment that you paid your mortgage off in 6.5 years. But that had nothing to do with the fact that you were utilizing a HELOC, and everything to do with making significant overpayments beyond the minimum towards your balance. You could have made those same overpayments towards your mortgage instead of your heloc, and had your home paid off in 6 years, as opposed to 6.5 years.  

The Heloc was not the reason why you were able to pay your home off faster, the heloc slowed down your progress as opposed to simply doing a different method.  ANY loan can be paid off rapidly if you throw enough money at it, I could buy a house with a credit card at 20% interest and have the house paid for in under a year if I made 100k monthly payments towards that house.  But just because I paid the house off in under a year doesn't mean that it was a smart idea, or that buying a home with a credit card should ever be done.  Likewise the fact that you paid your home off in 6.5 years doesn't mean much, the only thing that matters is was this the best way to go about things?  And that answer is a resounding No, because with the same amount of monthly payments you would have paid your home off even faster and with less effort, had you done something else.  Why would you put so much effort into setting up this system, obtaining the heloc, changing your banking setup, moving the due date for your bills etc etc, just to have this process be financially inefficient and slow down your overall progress??  There are 10x better ways to obtain liquidity if that was your only goal.

If I went around advocating that people buy homes on credit cards at 20% interest when they could have instead been approved for a mortgage at 3%, then people would call me an idiot because it is a super expensive way to buy a home.  But technically you CAN buy a home with a credit card, and technically the process does work.  It just works extremely poorly and inefficiently.  That is the same thing that is happening with your heloc.  It can work, and it does work, its just horribly inefficient and almost any alternative you can imagine beats it.  Literally any loan 'works' if you throw enough money at it.  Even outlawed predatory lending loans technically work, you just have to throw enough money at it.  Likewise the heloc method 'works', but only if we use that previously defined definition that any loan technically 'works' if you throw enough money at it, because just like the credit card example, or the predatory lending example, your heloc WILL cost more money.

The heloc process is a scam because people claim that it works better than other methods, which it certainly does not.  There are NO realistic circumstances where a 200k heloc at 4.5% will ever be financially superior to a 200k 30 yr mortgage at 3%.  You going around linking and telling people to refi at penfed is a horrible idea that WILL cost people more money.  People like you saying this heloc method is a good thing, when its clearly not a good thing is what makes this a scam.  This heloc method will cost more money, and as I've mentioned if all you wanted was liquidity there are better, cheaper ways to go about it.