All Forum Posts by: Eric Schultz

Dean Attali I was able to pull a sizable HELOC from my primary residence last year and may use a portion of the funds to invest in a syndication deal on 200+ unit apartments. I’m considering this approach over using life insurance cash or other means because of a few reasons: 1.) The return on equity sitting in a property is zero. These are lazy dollars. A dollar is not a dollar is not a dollar. 2.) It is a risk to leave much for than 25% equity in a positive cash flowing property because the equity could disappear in a market correction and never have been effectively used to the owner’s benefit. 3.) The syndication opportunity with this particular operator I’ve met with is unique. They use an “infinite returns” model. Your original invested capital is returned to you in 25% increments over a 4 - 5 year span, while you continue to cashflow and remain in the deal until the property is sold in year 5, 6, 7 or 8. They have exceeded 30% IRRs with this model in several deals and have successfully done 55+ deals to-date. So, if you are going to borrow short to invest longer term you may want to consider a syndication deal that uses supplemental financing with strong value add to refinance and return investor capital over the shorter term as described in #3. This will allow you to pay the LOC back and increase your % ROI arbitrage as the years progress. Since there is always risk in losing money in an investment, you may want to have a plan for paying of the LOC with other means.

Tyler H. I’m an LP in some syndication deals and can tell you which metros these larger sophisticated operators are still making it happen on value add 200+ unit properties in 2019: Phoenix, Dallas, Houston, Atlanta

Tom Cotter I like your thinking on doing an equity transfer to leverage more cash flow; there is zero return on the equity value in a property. Keep in mind the LTV requirements of lenders when you are starting to think about how much equity you can redeploy. With a 760+ credit score, you should be able to get a 4.75% (or better) 30-year fixed cash out refinance loan on your rental property. Closing costs + 3rd party service fees could range from $2,500 - $4,000 depending on the lender. Keep in mind lenders will usually want at least 75% LTV on a rental property. The simple calculation may look like this: Appraised Property Value x 0.75 = X – Existing Mortgage = Available Equity For Cash Out Refi With your primary residence, you could do a HELOC (variable rate = prime rate + X%). Depending on your credit score and overall financial position, you could go up to 90% LTV with some lenders on a primary residence. Staying at 80% LTV is probably best. Don’t over leverage into a situation that you don’t have cashflow or cash reserves to handle. The simple HELOC calculation may look like this: Appraised Property Value x 0.80 = X – First Mortgage = Available Equity For A HELOC

This post is on track for a 1,000 comments. Someone needs to counsel Mr. Morris and his business partners on what it means to have integrity. Sink that ship.

Doug Phillips When do you want to retire? If you are ok with waiting until you are 59 1/2 years or older to have full access to the 401k contributions and gains (penalty free) than your path might look different than someone who wants to have a monthly passive cashflow that meets or exceeds their monthly expenses by age 40. Trying to amass a large nest egg in financial products such as a 401k, IRA, etc will require you to save & invest 50% of your income to gain 1 year of paid expenses in retirement, which assumes similar health status and lifestyle choices once you get there. If you are interested in economic independence earlier rather than later, invest only the 5% to get the full employer 401k match and then focus on positive cashflow investments to start replacing your active income (your job).

Rahul Handa Focusing on passive or semi-passive income to cover your monthly expenses, which are paid for by after-tax dollars, is the much safer approach. This concept doesn’t necessarily mean invest only in real estate. The timing of your early years of retirement will define your later years of retirement, which may be dependent on the markets and overall economy. Whether or not the 4% rule will actually work is largely dependent on a concept called Sequence of Returns. Simply put, this is the difference between actual returns and average returns over the course of time. If down (loss) years strike early, than your nest egg takes a hit that may be unrecoverable. Here’s a Down Market Analysis: If you lose 5% you must gain back 5% to break even. If you lose 25% you must gain back 33% to break even. If you lose 50% you must gain back 100% to break even. If you lose 75% you must gain back 300% to break even. You can be the judge on whether the stock market can ‘gain back’ these percentages during your time horizon for retirement.

Glad to see you are taking action with the built up equity. There is zero return on equity sitting in your properties. Compare the numbers between a cash out refinance (longer term) and a HELOC (shorter term). An investor with 760+ credit score can do a little better than 4.75% 30-year fixed on an investment property right now.

Lee Perry Rates are fairly low right now with the Fed only planning on one rate hike later in 2019 as of a couple weeks ago. You might run the numbers on a cash out refinance (fixed rate) and compare to the HELOC (variable rate). With a credit score of 760+ you can get a cash out refinance rate on an investment property around 4.75% and lower than that for a primary residence (3/2019). Closing costs + 3rd party service fees on a cash out refinance may run about $2,500 - $3,200 depending on the lender you go with.

Indianapolis or Northwest Indiana are solid markets.

Rahul Handa Remember....there is no return from equity in the property you own. The equity is dead dollars until leveraged back out or the property is sold. Using leverage as an asset protection strategy is a great by product of using other people’s money (the bank in this case). You have 100% control of the property, but if ever sued, you are essentially leveraging the bank’s attorney as they have a high interest in the property.