Video Closed Captioning:
good morning good afternoon good evening
folks michael zuber one rental at a time
back with his monday expert and friend
of the channel mr greg dickerson how you
doing sir doing great michael good to
see you i see as well so one of the
things i know we both enjoy doing is
helping folks giving advice so i thought
i would read a question that i got this
morning and we would both give our
answers or opinions on it you ready yes
sir okay so i’m just gonna read it
verbatim it says i know you’re very busy
and i appreciate your time i just wanted
some advice on how to acquire my next
two rentals i have two single-family
homes in florida
i refinanced about a year ago before
this huge appreciation
i’m locked in at 3.1 percent
30-year fixed for both i have about 110k
in equity now
the only two options i can think of to
access this money is
one cash out refi or two key lock
i do have a great interest rate see
above
and i would like to but i would like to
get cash or access to cash to keep
growing
what should i do
what are your thoughts on that
so the question is should they use a
heloc or refinance into a permanent
mortgage well i think the basic question
yeah i think the basic question is hey
i’ve got these two assets they’re doing
great for me today i have lifetime low
interest rates 3.1 percent as an
investor
crazy good especially on a cash out
right
but now he’s sitting out a couple
hundred grand and i think he feels like
he’s
actually i don’t know if it’s a he
anyways he or she uh kind of it’s like
burning a hole in his pocket he wants to
use it to get to four right because i
talk about four being life-changing
yeah then so now he’s like do i do a
cash out refi which probably takes him
to four and a half percent interest so
his rate goes up
or does he get a heloc
and use it and what’s not said there
should he maybe sell in 1031 i mean
let’s just all throw it out there right
so basically how do i take my two assets
i’m still in growth phase
uh
what should i do feel free to ask number
one learn how to do deals without having
to use the money so that’s number one
because you can’t you can’t so you don’t
need money right you need to know how to
do deals and creatively structure them
and there’s always opportunities
depending on what kind of asset you’re
looking at
uh to be able to do that and or raise
capital from other investors to help you
purchase more so you have other options
in just that but let’s just talk about
refi versus whole you know heloc
you know you have to look at what’s the
advantages you know it’s basically a
numbers thing which one works out better
from a cash flow standpoint from a rate
standpoint you know long term which
one’s going to free up more equity refi
you can only pull out so much home
equity lines sometimes you can pull out
more you know of your equity that way
and then home equity lines uh the thing
about that is that they can be cancelled
so generally it’s a one year um you know
kind of a revolver kind of thing but you
got to be careful because you know they
could they could just cancel that home
equity a lot of credit on you if the
bank has a situation or gets in trouble
the rate could be variable on those
things you have to kind of watch that
but the advantage is it’s like a
checkbook so money in and out you’re
only paying for what you’re using versus
a refi you’re paying interest whether
you’re using it or not
um you know in terms of that that cash
theoretically right once you pull it out
you pull it out but it’s still
you know a cost of that transaction he
locks are generally cheaper than a
complete refinance and easier the other
thing is just a bank line of credit so
you know versus the heloc you can go to
the bank you get you know lines of
credit uh things like that so there’s
other ways to to get the cash and
generate it but
generally the best scenario is pull your
equity out refinance into a long term
you know debt if that works for you or
you know somewhat of a shorter term
three five seven year interest only that
creates a lot more cash flow then
redeploy that equity a lot of times that
makes the most sense
versus a heloc situation yeah when i see
questions like this and i get these
questions almost every day literally
almost every day versions of this
i actually typically turn it around and
say
basically
basically wrong question
what i want people to tell me about what
deals they’re finding today
right because if you’re not finding any
deals today
why does the cash matter
right adding on more debt which a heloc
or an equity line with theory would be
more debt doesn’t necessarily be a good
thing just because you have 100k in
equity doesn’t mean you need to use it
if you’re finding deals and you’re
creative and like you say you know your
buy box and all those things and you can
find deals that make 12 13 15
well then shoot doesn’t matter right go
go
you know if you’re going to borrow at 4
and earn 15
simple equation but if you’re telling me
deals in florida and i’m just picking on
florida because that’s where his first
two are in your deals are say six
percent
yield cash on cash return on capital
whatever your variable is and you got to
borrow at four well that’s a very
different discussion right earn
earn a theoretical six versus costing a
fixed four
i don’t know and then the other thing i
talk about is is
uh i certainly am a fan of 30-year fixed
rate debt
3.1 is awesome
uh you know doing a refi today you’re
probably going to four and a half that
hurts but how much has rents gone up
right rents have probably gone up now
have rents gone up more than your
increase in mortgage payment i don’t
know do the math i think there’s a lot
of math here
but the biggest question i have for
people that ask me this question is
tell me about the market what are you
finding what are you finding yeah it
doesn’t even make sense to do a deal and
yeah the return get offset and those
types of things versus just let me get
more more yeah mores
aren’t making any more cash flow and the
values are going backwards let’s say
interest rates rise real estate reprices
and values start turning the other way
then it really doesn’t make sense to do
anything right now like you said
you know
from that standpoint uh
you know but long term versus short term
you know that you know i have these
discussions all the time which is better
yeah and it really depends on your goals
you know the property whether you want
to keep it or whether you want to get
out of it and whether or not you want
the cash flow obviously the cheapest
interest rate is going to be a
short-term interest-only loan that’s
going to get you the most cash flow and
you can you know you can keep
refinancing those right now you’re in a
risk environment because we know rates
supposedly are going to go up which
affects values and it affects cash flows
um you know down the road so you got to
think about that when you’re doing these
you know short-term interest only loans
um you know where are we going to be two
three five years you got to make sure
you look at the ceiling on that you know
generally they have you know uh rates
and cash flows on them rate caps you
know with these interest-only loans you
need to know what that looks like
and then is the value going to be there
so right now from from the standpoint of
equity property values are at all-time
highs
i think we can all agree that they’re
gonna level off
if not go down
so you may not be able to pull any
equity out in a year from now so if you
can pull it out right now and you know
maybe pay a little bit higher interest
rate you might want to do it now because
you may not be able to six months from
now or three months from now or
a year from now depending on what
happens with interest rates and values
of real estate and things yeah so this
is kind of my wrap up on this heloc’s
i’ve used a heloc right i don’t want to
sound like i’m um
do do as i say not as i do so i did use
a heloc several times in as i was
growing my portfolio but here’s the
difference
i was in a career in a profession where
i had chunk money because i had
commissions and stock grants that would
vest every 90 days
so i had chunk money i would only use my
heloc to buy the next rental if i knew i
could pay it off in the first in the
next 12 months sometimes 15 months
basically i had a plan to pay it off
because i never wanted to
increase the risk where my wife and
daughter slept that was that was that
was like a non-negotiable i got around
it by saying hey i’m going to pay it off
with this check and that check and this
check and
so i did use a heloc but generally
speaking i don’t like them because they
variable rate debt they can be canceled
is everything that you went through so
when in doubt i did cash out refunds it
was a big part of my growth it was
something i did i only had enough
capital by three units after three units
i was recycling capital and the first
five or six were all cash out refi
uh and then i did some 1031 exchanges so
uh i am a huge believer in recycling
capital but it’s not about the capital
it’s about where the money is going
um so that’s that’s very good advice
again
you know where did you get in at what is
your basis because recycling capital
only works if properties are you know
values are increasing if you’re in a
declining market you know that strategy
no longer works because you’re losing
equity and you know you pulled your
equity out but you’re not going to be
able to refi again you know because the
values are going down so there’s a time
for that and that works great as long as
property values are escalating we’re at
the end of a 15-year bull cycle in real
estate and you know if you look back
over the history of real estate it moves
in these cycles we’re at the end of that
now we saw you know we saw in some
markets a 50 decline in values of real
estate across the board pretty much a
few little pockets here and there but
overall most most housing markets in in
the country took a hit you know 809
and you know we went through this last
week or last time about what an interest
rate percentage does to your ability to
buy and you know at three percent
your loan amount is 474. 474 000. a two
thousand dollar a month payment at three
percent will buy you a mortgage not
including your down payment of 474. okay
at four percent that’s 418. at five
percent that’s 372. 100 000 difference
of what you can borrow
with a 2 000 a month payment so you know
those values drop drastically as rates
go up a small percentage so
you know you have to you have to keep
that in mind and look at that the other
thing is that we didn’t talk about
instead of a heloc as a second mortgage
so yeah i was just thinking that yeah
and a lot of times you can take more out
exponentially with a second mortgage
than you can even with a heloc and
that’s a more longer-term you know loan
sometimes you can amortize second
mortgages for 30 years you know
sometimes yeah yeah that’s a good point
i i think seconds are something that
hasn’t been very common for the last
decade i do think they’re going to come
around
again so yeah i think a second mortgage
yeah that way i mean i remember people
that had third mortgage i remember yeah
yeah i remember well this has been a lot
of fun greg where can people find you
yeah gregdickerson.com all my info is
there youtube channel podcast my twitter
link is there a lot of people didn’t
realize it was on twitter and uh so yeah
you can catch all my links there
gregdickerson.com thank you buddy