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[ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] HELOCs... Good or Bad... Posted by Alfred, TRAINEE on April 23, 2002 at 5:23 PM I'd like to get your advice on something. I have three rental properties that I purchased as VA foreclosures close to 5 years ago. I later financed them at Countrywide. All 30 year fixed, two at 7.0% and one at 7.75%. After the current PITI plus property management fee I get a total of $430 per month in positive cash flow which works out to about $5,100 per year. Of course any money needed for repairs, maintenance or upgrades comes out of that positive cash flow. Thus, sometimes I net close to the 5K annually, sometimes only 1-2K due to repairs, etc. My viewpoint is that I am too highly leveraged and don't have enough positive cashflow so that I can cover these incidental expenses plus put a decent amount of money into my pocket each month. Two are in Las Vegas and one is in Phoenix and they have been appreciating nicely over the years to where I have about 110K in equity between the three of them. I wanted to refinance earlier when rates had bottomed out, but couldn't get much better terms than I already had because, per various lenders... they were rentals, were not owner-occupied and I'm self-employed. So I gave up on trying to improve my lot. But, I just talked with a loan officer who said there is hope for me. He brought up the idea of a HELOC, a variable rate tied to the prime rate. He presented the facts that: closing costs are half the amount of a regular refi loan; I can get the loan quickly on stated income thru a fast and streamlined process; my payments would be less than they are currently; that I would be able to pay off the same or more principle yearly at my choice; I'd get more positive cash flow; the line would be a 90% LTV so I'd have about 30K in additional cash available to me and could access that money any time I chose to with checks. There is a 3 year pre-payment penalty (3% of original loan amount for first 12 months, and then 1% for remaining 24 months). It's currently a 4.75% variable tied to the prime rate. Prime rate has been averaging around 7.25%. If the prime rate dropped that would be great for me... if it went up, (and it usually only goes up in quarter or half points) I'd be ok unless it went up past 4 points (then I'd be paying more than I am on the 30 year fixed). It all sounds good to me so I asked him to send me the documents and disclosure statements so that I could study them carefully and determine if this would truly be a better arrangement for me. Then I extrapolated and realized that if I did this with all three of my properties that net operating costs would go down and I'd have about $1,000 or more per month in positive cashflow as opposed to the current $430. Of course my plan is important in determining if I should do this. My plan is to hold these rentals until the appreciation curve finally levels out or slows (right now I'm getting between 9-12% appreciation annually) and then I will do a 1031 exchange into either two or three free and clear dingbats or into a small apartment building (I'm not sure yet about this). This appreciation could continue on for another 2, 3, 5 or who knows how many years. So... what do you think about these HELOCs? Am I missing something here or could this be a better financing arrangement for these rental properties, taking into consideration my current situation and future plans? Thanks in advance. I appreciate it. Follow Ups: Sounds great to me.. Ward-CA- 6:56 PM, 04/23/02 (0) Post a Followup: Name : E-Mail : Subject : Comments: : I'd like to get your advice on something. I have three rental properties that I purchased as VA foreclosures close to 5 years ago. I later financed them at Countrywide. All 30 year fixed, two at 7.0% and one at 7.75%. After the current PITI plus property management fee I get a total of $430 per month in positive cash flow which works out to about $5,100 per year. Of course any money needed for repairs, maintenance or upgrades comes out of that positive cash flow. Thus, sometimes I net close to the 5K annually, sometimes only 1-2K due to repairs, etc. My viewpoint is that I am too highly leveraged and don't have enough positive cashflow so that I can cover these incidental expenses plus put a decent amount of money into my pocket each month. Two are in Las Vegas and one is in Phoenix and they have been appreciating nicely over the years to where I have about 110K in equity between the three of them. : I wanted to refinance earlier when rates had bottomed out, but couldn't get much better terms than I already had because, per various lenders... they were rentals, were not owner-occupied and I'm self-employed. So I gave up on trying to improve my lot. : But, I just talked with a loan officer who said there is hope for me. He brought up the idea of a HELOC, a variable rate tied to the prime rate. He presented the facts that: closing costs are half the amount of a regular refi loan; I can get the loan quickly on stated income thru a fast and streamlined process; my payments would be less than they are currently; that I would be able to pay off the same or more principle yearly at my choice; I'd get more positive cash flow; the line would be a 90% LTV so I'd have about 30K in additional cash available to me and could access that money any time I chose to with checks. There is a 3 year pre-payment penalty (3% of original loan amount for first 12 months, and then 1% for remaining 24 months). It's currently a 4.75% variable tied to the prime rate. Prime rate has been averaging around 7.25%. If the prime rate dropped that would be great for me... if it went up, (and it usually only goes up in quarter or half points) I'd be ok unless it went up past 4 points (then I'd be paying more than I am on the 30 year fixed). It all sounds good to me so I asked him to send me the documents and disclosure statements so that I could study them carefully and determine if this would truly be a better arrangement for me. : Then I extrapolated and realized that if I did this with all three of my properties that net operating costs would go down and I'd have about $1,000 or more per month in positive cashflow as opposed to the current $430. : Of course my plan is important in determining if I should do this. My plan is to hold these rentals until the appreciation curve finally levels out or slows (right now I'm getting between 9-12% appreciation annually) and then I will do a 1031 exchange into either two or three free and clear dingbats or into a small apartment building (I'm not sure yet about this). This appreciation could continue on for another 2, 3, 5 or who knows how many years. : So... what do you think about these HELOCs? Am I missing something here or could this be a better financing arrangement for these rental properties, taking into consideration my current situation and future plans? : Thanks in advance. I appreciate it. Optional Link URL: Link Title: Optional Image URL: [ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] WWWAdmin 2.0a © 1997 Matt Wright and DBasics Software Company, All Rights Reserved

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