All Forum Posts by: Ryan Lam

@John Grinston

Also don’t forget there are closing costs. 

 Most HELOCs have a 10 year draw period and 20 year repayment period. The draw period is when the line of credit is available to be used. After the draw period, the balance outstanding is calculated over the repayment period, think of it like another mortgage payment (which it pretty much is as a second).

Most HELOCs also charge interest only during the draw period, although I would read the fine print because there are some that are not interest only during the draw period. 

Most HELOCs are also variable rates during the draw period. There are some that allow you to have a fixed rate or switch back and forth, although I wouldn’t say that is common.

If you don’t use the funds, then there is no balance outstanding. Just be mindful in case there are maintenance fees or something along those lines. 

@Stephen Daniel Pace

HELOCs are great getting access to funds quickly and without having to liquidate other assets you may have. I always like to be more cautious and not spend too much of the HELOC balance. I have seen people open up HELOCs and get a little carried away with using it, then eventually finding themselves in a position where paying it down is a struggle. Ideally, like others have noted, probably safer to keep it short term when used.

 I haven’t looked into this much but have noticed this topic come up more often. Any idea if this is an issue throughout the entire state? Or specific to more hurricane prone areas?

@Lance Mundo

Everyone has made some very good points here. Definitely something that tends to be oversold, so due diligence is important. I see a lot of insurance agents selling the idea that this is the solution to everything. I would say there are plenty of agents out there pushing these without fully understanding them.

If you’re talking Infinite Banking specifically, keep in mind things such as direct recognition versus non direct recognition as it applies to how values are credited when loans are outstanding. By default, one would think non direct recognition is the better of the two. To make things more confusing, I have seen direct recognition insurance carriers have better results over their counterparts. 

In terms of cash value life insurance generally, there could be a variety of other ways it can fit your overall strategy (protection, diversification, estate planning, etc) outside of real estate. I think it is important to identify all of the ways incorporating a policy like this would suit your specific situation. I often hear the discussion about investing elsewhere instead of these types of policies, but to be fair, these policies really shouldn’t be viewed as “investments” that are expected to keep up with stock market returns over the long term (as one example).

@Kushaal Malde

SFH in FL. Ideally the goal would be to add another one or two in that same market before jumping around to other markets. Seems to keep getting more and more competitive, like everywhere else I'm sure.

@Kushaal Malde

I appreciate the insight. I agree, buy first sell later is probably the preferred option. I don’t think we want the headache of moving more than once. Also, and I know we are still in a hot market, it’s a scary thought to not have a permanent home, even temporarily. I have seen others sell and hope to get back in, but the months turn into a year trying to find the right place and then all of a sudden market prices keep rising so then they’re left shopping for a home that is lesser than their last home (not specifically price, but for value). 

DTI shouldn't be an issue at about 19%, so that's a plus.

HELOC is available to fund 10% so I may dig into those options on a jumbo.

New home purchase would be higher in value. Probably in the neighborhood of 13-33% higher than what we could probably sell the current home for. The other consideration was to find a new home on the low end of that price increase and use excess funds to remodel as opposed to attaching it to the purchase price, so in total that could force some appreciation and keep debt service lower. 

With the local market still being a bit tough, the other consideration was to use a smaller amount of funds to continue looking at out of state investment properties and put the primary residence upgrade on hold unless the perfect storm happens. A little more time would allow for more savings, hopefully purchase prices level out or maybe even pull back a bit (wishful thinking), etc. 

Trying to figure out a realistic way to potentially upgrade my primary residence by selling my current home and purchasing another in a competitive market (San Francisco Bay Area). 

Any thoughts on how to finance this? 
not sure how challenging it would be to have a sales contingency, but if I can include that and still competitively make a purchase, that is always preferred.

Option one would be to access my HELOC + bridge loan to fund the new purchase at 20% down, then sell the first home. Proceeds from the first home sale would pay off the HELOC, bridge loan, and the rest could either pay down the new mortgage to have it hopefully recast instead of refinanced.

The other option would be to access the HELOC to fund the new mortgage at 10% instead of 20%, eat the PMI temporarily, then once the first home sells take the proceeds to put toward the new mortgage and hopefully have it recast and drop PMI.

I’m assuming the bridge loan is the riskier of the two in the sense that the loan duration is so short and probably slightly more expensive.

Any other ideas on how to finance? Wouldn’t want to come out of pocket. Ideally want to use proceeds from sale of current residence.

After all is said and done, still would like to have a little bit of funds available to purchase another investment property, but that would ultimately depend on how all the numbers work out and if there even is enough profit to support that. Or I guess if there are still proceeds leftover from the sale of the first home, anything in excess above what is needed to get the new mortgage to 20% could just be held in cash and reinvested into another property. This eliminates the whole HELOC conversation with the new property.

@Sean Ruggiero

Take a look into direct recognition versus non direct recognition. This usually helps to better grasp the dividend/loan conversation. I would keep in mind not all contracts are the same and some direct recognition out perform non direct recognition and vice versa.

@Clifton R.

Thanks for sharing your spreadsheet, that was definitely helpful. I cross referenced against my calculations and am glad to see everything was pretty similar (reassuring to know my math is on the right track!)

It looks like my biggest variances would come down to property taxes and insurance.