Should you Get a HELOC? Should you Refi A Property to Extract Cash? Should you 1031 Exchange?

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

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