How to Use a HELOC for Real Estate Investing (Live Q and A)

How to Use a HELOC for Real Estate Investing (Live Q and A)


Going live. Oh my gosh. How to use a home equity
line of credit or a HELOC lock for real estate investing. That’s today’s live stream. Let’s dive into it. Hey, everyone. I’m Clayton Morris. I’m Natalie Morris. Hello Hello, hello, hello. Here’s the camera. I’m looking at the camera. No, I think you’re
just looking at me. Just kidding. I can’t stop myself. All right loudly enough. OK, so today we’re
going to talk about how to use a HELOC for
real estate investing. And this comes on the heels
of us writing our book. So tell everyone about this. So this is a brand new
book that we just wrote. Right, we have a Kindle
book in the Amazon store. You can also buy it in
paperback, but only on Amazon. And it’s called How to Pay Off
Your Mortgage in Five Years, or isn’t it Five Years or Less? What’s the name of our book? It’s five years or less. Stop telling you what to do. I’m going to strangle you. This is the live show where
Clayton tells me what to do and I kick him under the table. We’re live at 11:30 Eastern
Time, and it’s literally 11:29. And I’m like, Natalie, you’re
going to join us on the live. She’s like I’m working up here. So she’s in her office
doing work and going over spreadsheets and stuff. I’m like, we gotta go. My spreadsheets are important
to me, and he’s like, did you dry my shirt? And I’m like, get out of here. I’ll be on your live stream. OK, so what were we
talking about besides how we were irritating each other? HELOC. So we’ve gotten a
lot– so we published– and thanks to all of
you who are watching live right now on
our YouTube channel. This is also going out as
a podcast additionally. So thanks to everyone. We’re going to answer your
questions about the HELOC strategy, how to use your HELOC
for real estate investing, how to use it to pay off your
primary mortgage in under five years, that whole strategy
that we talk about in our brand new book, which is called How
to Pay Off Your Mortgage in Five Years using a strategy that the
bank doesn’t want you to know. We’ll post a link to the
book in this chat thread as well so you guys can click
on it in the Amazon store. Or you can just search either of
our names right now on Amazon. It’ll come up lickety split
because we’re broadcasting– we’re not typing
to you right now. We want to be able to focus on
talking to you guys right now. So we won’t be able to drop
that in there, but we’re going to answer some questions
because, over the past week and a half to two weeks
since we published the book, we’ve gotten a lot of
different questions from investors who say, can
I use this for real estate investing, can I do
x, y, and z strategy and also invest in
real estate while I’m paying off my primary
mortgage, using this strategy. So there’s a lot of
different pieces to this that we wanted to
try to answer today. Have you gotten
a lot of e-mails? I have. I think most people
realize that it’s not a one size all strategy. It’s a strategy that we’re
trying to teach people how to better evaluate the
products that they have in their house, like their
home equity line of credit or their mortgage
or their car loan. We break down what goes into
all these various types of loans and how to use the
equity that you have or other cash that
you may have in order to better evaluate how to pay
down the debt that you’ve got. So a lot of times people say
to me, this may work for me but I’m going to tweak it this
way or this may work for me but I want to tweak it that
way or can I do this instead. And so I think
what people really understand about the
book is, yes, it’s a great way to pay down your
mortgage and live debt free. But it also is a way
to teach yourself to revamp your finances so
that they sort of fit you and your family better
and to make bigger goals. Right. To understand how these
financial products work is so important so you
know what’s buried in them. You and I were having a
discussion this morning while I was on the show and
we were texting about wanting to acquire more
rental properties and should we think about doing
some leverage in the future in picking up a package
of 10 properties. And what did you say back to me? Well, OK, you had
texted me this article about how you should refinance
your house until you die. It’s called “Refi till You Die.”
so you pull out your equity just like as a big
chunk and then get a new loan on a new
amount of money, or basically a refinance is
different than a home equity line of credit. And I said, well,
this is actually what they teach in
real estate school. You should only
refinance your house if you intend to
stay in that house long enough to recover
the closing costs because, if we were to get– should I use real numbers on
our house or should we make-up– No, make up numbers
sort of round. OK, so let’s say we owe
$500,000 on this house but the house is worth $700,000. So we have $200,000 in equity. And we want to refinance so that
we can pull out that equity. Well, then we’re going
to have a new loan because our original loan may
have been a different amount. So now we’re going to have
a new loan for $500,000. But we’re going to add
to that closing costs. And the average closing
costs on a loan like that are going to be around $16,000. And so let’s say, for purposes
of rounding, $150,000. So then why would I
take what I have now is a loan with a
balance of $500,000 and say, well, I got a
lower monthly payment, but now I owe $515,000. I don’t want to do that
because I want to pay down that loan as fast as possible. Just because now the
monthly payment is lower does not make me feel
better about having a more expensive product. So I understand that you
wanted some quick cash, you want a lower payment, you
want a lower interest rate. If we stay in this house
for, say, another 30 years, and our monthly payment is,
let’s say, $1,000 lower, then in 16 months we recover that. That’s fine. But we do have $16,000
more on the line that we’re going
to have to pay off. I don’t want that. I want to pay that down. We’re trying to knock this
out hook, line, and sinker. And so why would we add
to the value of our loan in order to invest
in real estate? It didn’t make sense
to me because we’re going so aggressively
against this loan, but I understand the idea
of taking your equity out of your home in order to use
that money in a different way. That makes sense to me. I mean, our strategy lately
is we want to just pay off as much debt as possible. That’s our goal is
to get out of debt as quickly as possible with
our primary mortgage, and we’ve done this repeatedly. We’ve done this on
our secondary home. We’ve used this strategy to
pay off your primary mortgage or pay off a secondary home
with using a HELOC strategy. Well, we want to get rid of as
much personal debt as possible. We don’t want car loans. We don’t want home loans. We don’t want student loans. We’re OK with portfolio loans,
where it’s actually building our real estate business. Business loans, we’re good on. Of course, we’re
going to evaluate them to get the best one we want. We want to leverage in order
to build our business, not leverage in order to
build our personal debt. So, guys, go ahead and throw
some questions here in the chat and ask away your
questions around using a HELOC strategy to pay
down your primary mortgage. Now I know over the past
week or so we’ve gotten a lot of questions around that. I’ll kick it off
with one question that I know we’ve received. And I think it would be really– And I got one on my
blog last night, too. I got one in the queue. OK, good. So let’s start with
this one, which is can you pay off
your primary mortgage using the HELOC strategy
and simultaneously invest in real estate? So first of all, we
should go through a couple of layers of this. Our HELOC strategy
teaches you how to get a HELOC, which is a
home equity line of credit, and then to use that like
a bank account to pay off your primary mortgage. So you’re trading
simple interest, which is the HELOC for
amortized interest. And save your
question– so is it difficult to get a
HELOC on an investment property– we’ll tackle that. Great. So we’ll go through
this first one first. So you’re taking your HELOC to
pay back your primary mortgage. Of course, that’s
all in the book. We walk you through step
by step how to do it. We won’t go into all
those details today. This is more of a Q&A on how
it works in the context of it. So let’s say you’ve got a
$50,000 HELOC to work with. You frankly only need to
use like five, maybe even $10,000 of that to pay
back the primary mortgage. You don’t have to use very much. This strategy can work by just
using a small piece of that. For instance, who’s the
gentleman that we talked about? Remember? Carol? Carol. Adam Carol. I think he discontinued
his podcast, but we became friends with Adam. And I think I interviewed
him a number of years ago on my old podcast. He used this HELOC
strategy also, and that’s how we kind of hit it
off actually because he used– his HELOC was only $5,000. He was able to
use that to target toward his principal payment
of his primary mortgage. $5,000, that’s a small HELOC. So in that situation,
it’s going to be difficult for you to use that
HELOC and also buy investment properties with it. You only have
$5,000 to work with, but let’s say you have
$50,000 to work with. You may take five or
$10,000 and put that towards a primary mortgage. You may use the additional to
buy an investment property. For instance, our
company Morris Invest, our properties cost between
$40,000 and $45,000. That’s usually
like the sweet spot for our property properties. So the all in total after
rehab is about that much. So we use our HELOC to
buy investment properties all the time. I think we had about a
$90,000 HELOC to use. So we used some of it to
target our primary mortgage. We used some of it to buy
investment properties. And then of course you’re using
the money from those tenants to pay that back as
quickly as possible, putting all of that
additional cash flow right towards paying it back. So, yes, you can use it. But we had an email
this week from a man named Brian who
said, well, I use my rents to pay back my HELOC. But you have to be
careful about that because the rents are coming
into your business account and your home equity line of
credit is a personal account. So if you take money from
your business checking account and pay down your home
equity line of credit, you have essentially
issued yourself a check or paid yourself. That’s like a draw
from your business. So it will be taxed as a draw. So usually– and
we’ve got over this. There’s a podcast somewhere
deep in our archives about how we got a new HELOC
and we thought, oh, what do we do with this money now. And we decided
should we purchase or should we pay
down this mortgage. We worked out the
money in real time. And so, yes, we split some
to the mortgage and some to the investment. And the way we
worked it out was we knew the investment, we
felt fairly confident that the investment
would make 12%, 13%. But we knew that we were
going to pay interest on the HELOC at 3% at the time
I think that one had already adjusted. So we’re like,
yeah, that’s easy. We make the money here. We pay back that HELOC. But again, you have to take
your tax strategy into account and speak with
your tax accountant about what that means. So we just got
one question here, which was should
you use your HELOC to use it as a down payment
on an apartment building or use it to buy something else
and buy an investment property. You just evaluate the deal. You’ve got to
evaluate the numbers. I mean, frankly it all
comes down to our ROY. And again, we talk about the
best properties are probably not in your own backyard. People think that they are. So you live in a
certain city, and you think, oh, this apartment
complex is down the street from me. Well it might not
be really good ROY. Remember, we’ve
got tons of videos right here on this
YouTube channel and on our podcast, the
Investing in Real Estate Podcast, where we
talk about our ROY, how to figure out those
numbers, and evaluate the deal. And it’s a pretty
simple formula. You want to evaluate the
ROY, and if the numbers work for you, then make the
purchase, take the plunge, and get started. You can get into
analysis paralysis mode and take five years
to get started. I talked to a guy the other day. He said he has a friend
who is an engineer. And he’s taken a 4 and 1/2
years of just doing research. In that 4 and 1/2 years
he’s been doing research, he could have achieved
financial freedom already. I have some people that we
talk to who, in three years, have been able to hit
their freedom number. So don’t waste 4 and 1/2 years
of your life sitting back analyzing numbers. Yeah, all right. So you had a question. And sit up a little– Let’s see. The question that came into my
blog I had linked to an article that I wrote about this a
long time ago was how do we– let’s see. What was the question? How you choose your home
equity line of credit? Because you can
do interest only. You can do 15 years, 30 years. What’s the best way to
choose that problem? We don’t suggest that you
stick with this home equity line of credit for 30 years. You don’t ever intend to
have that debt for 30 years. You want to pay it back up in
the span of one or two years. So you’re going to choose the
one with the lowest interest, and then you are paying
more on that product. How do you explain that? Well, first of all,
HELOCs are typically only 10 years in length anyway. You could get a 15 year– I think we have 15 year one. There’s a 10 or 15– they’re usually not very long. So you’re not going to have
much of a choice in that. And really it comes down to
what are the rates, shop around. We talk about in
the book, there’s a whole chapter
called Shop Local because you can go and
find local properties or local HELOCs at local banks. Some might have a 1.9%
interest for the first year. Some might have a lock
in rate that’s longer and you’re going to get
a better rate– so just shop around and find out
what the rates work for you and make sense for you
because, after a year, if it’s going to adjust– so
you get this adjustable rate mortgage. It’s going to adjust– you’ve got to have
a strategy in place, to know that after that first
year, you want to use as much of it as you can and
pay back as much of it as you can in order to target
your primary mortgage so that you’re not suddenly
caught with your pants down and that rate jumps up to
5 and 1/2% or something. Now you’re suddenly
paying a lot of interest that you didn’t anticipate. So you’re going to have
to evaluate them monthly– how much you’re
paying per month. And I like to choose
an interest only because we’re exceeding
that in the amount that we’re paying back. So say the interest only on
$20,000 HELOC is $70 a month. But we’re putting our
whole paycheck in, and we talk about
this in the book. So we’re paid over and above
into the principal amount of that loan. So it’s almost kind
of a non-issue. Right. I hope we answer that question. Tim writes us. Tim him here in
the chat says, can you loan money from your
HELOC to your location to buy the rental and
then have the LLC pay back the loan to yourself. And that sort of goes along with
what we had just talked about. You absolutely can do that
because say, OK, let’s use real numbers. You took $20,000 as a home
equity line of credit, and you already had
$20,000 somewhere else, and you bought a
single family home. So say $20,000, your
home equity line of credit payment on that
is about $75 a month. But that property now is
making $500, $600 a month. You definitely can
take that money and pay it back to the
HELOC, but again you’re taking money from
a business account into a personal account. And that will be
taxed as a draw. Our podcast we
did just this week was about how to appropriately
navigate your banking accounts between your personal and
your business account. So hopefully you
listened to that one. That just came up this
Wednesday, July 19th or something like that. If you’re not a
listener of our podcast, it’s called Investing
in Real Estate podcast. And the episode was called
How to Set Up and Use– Or how to choose? How to Choose and Use Your
Business Bank Accounts. Yes, yes, yes– how to choose
and use your business bank accounts. Candace asked this question. Candace Neale said this. How long after purchasing
can you apply for a HELOC? I’m purchasing soon–
her primary residence– but already wanting to use
this wonderful strategy. Well, it depends,
Candice, but some banks will actually let you
simultaneously get a HELOC if you’re purchasing. For instance, when we
purchased this house which we’re broadcasting
from right now, we bought this
house and the bank offered us a lower rate if we
also got a simultaneous HELOC with it. So let’s just say
for round numbers, we bought this
house for $300,000 and they offered us a $50,000
HELOC simultaneously, so 350, right? We got a lower rate on
our primary mortgage because we got a
HELOC simultaneously because they were only going
to give us two bank products. But the HELOC was maxed out. They gave us the
HELOC for $50,000 and used that for the
purchase of this home. It was fully maxed out. So it’s not like they
gave us a $50,000 credit. So we had to simultaneously
pay down both. So that’s one option that you
can get it when you close. The reason they did it
for us is because we only qualified for so much in
that first home mortgage, and then we needed the extra
to make up the purchase price. But you are eligible for a
home equity line of credit as soon as you close
based on your equity. It’s just based on how much
you actually have in equity. So if you’ve closed on
a home that’s $200,000, you have now $150,000
loan on that property. But you have $50,000 in
equity that you already gave to the bank. That’s $50,000 in equity the
bank will say, well, no, we’ll loan you on that. It’s just a matter of finding
a bank that trusts you. If you have good credit
and you have that equity and you have a good
relationship with the bank or maybe you are introducing
yourself to a new bank and they trust
you, there you go. You also have to have a low
debt to income ratio, which we talk about in the book as well. Somebody is writing– a
REI3 is asking– he says, waiting 4.5 years is nothing. Grant Cardone analyzed
deals and waited 10 years to buy his first deal. That’s way too long. Who’s that? Grant Cardone? You know, come on. The author of the
10x rule, 10x book. So one of my friends was
with him last week, Grant, and he definitely regretted
not getting into real estate investing earlier. That’s great that he was able
to save up all that money and then buy a big
apartment complex. But waiting five years in
order to build passive income and adding to your net
worth when there’s deals out there currently right now– why do you need to
wait 4 and 1/2 years? It should take you an
afternoon to analyze a deal. Well, think about
it, I mean, they make this argument on the
stock market all the time. If you put your money in a
savings account that makes 1%– a really good savings
account right 1.9%, maybe a CD at that rate– then you’re actually
losing money by the time you retire when
you adjust for inflation. What you need now to live is
going to be inflated by 4%. And if you’ve only ever made
1%, you’re at a deficit of 3%. So you’re losing money. And if you think you can do
even better than that in real estate, if you think that even
conservatively you can do 11% and you haven’t done it, you’ve
lost 10% in your money you cannot afford to
lose because, again, by the time we all retire if we
take an average retirement age of 20 years from now,
15 years from now, we’re going to need at
least 4% or 5% more. And the argument too
that, oh, well, the bank account the 401(k), oh,
it’s always bounced. We had this big crash in 2008,
and everyone’s, well, yeah, now my 401(k) is bounced back. Yes, but you’ve
now lost a decade. Right It took 10 years
for it to bounce back to where it was pre-recession. If you do not make more than 3%,
it’s just back to where it was. And so there are so
many different ways to invest in real estate. Yes, if you see
about $30,000 $40,000 and you buy a rental property,
great, that’s one way to do it. We’ve definitely done that. A lot of our investors
have done that. Maybe you leverage, and you
buy five properties at once. And you have
$50,000 in the bank, and you buy three
properties at one time. You don’t have to wait like
Grant Cardone for five years in order to buy a million
dollar apartment complex. You can go out right now with
no money, find equity partners, and purchase an
apartment complex. It doesn’t take
five years to do it. But I love Grant Cardone. He definitely, though,
regrets not getting involved in real estate earlier. I know that to be true actually. All right, we have a bunch
of other questions here. Let’s pull them up. The most recent one was about
getting a portfolio loan. Iyus? Ilias. Ilias. I hope we’re
sitting there right. Iyus Ilias, can you talk
about portfolio loans? Try it again. Clicking your new
teleprompter for a living. Oias? Oias Ileus. OK, can you talk
about portfolio loans and can they apply
against multiple LLCs? Do you want to take that one? OK, let me think
about the second part. Can you use this for
a portfolio loan? Yes, you absolutely can. And the way that you
would do this is you would open a new LLC
for that portfolio loan. And most portfolio
lenders require you– most of them require you to
take a portfolio loan in an LLC and they’re fine with the
fact that it’s a new one. They want some kind of a record
of good standing for your LLC. But you can show
them that you’re filing articles and your
[? EIN ?] number and that kind of thing. And then if you have already
had an LLC that you’ve been investing in, you’ll show
them the paperwork for that so that they know that you’re
kind of an upstanding business person. And then you acquire, say– in our portfolio loan,
we had eight properties. We had requested 10, and then
they sent out an appraiser. And they’re like, well, we
don’t want a loan on these two. So they took those
two out of the batch, and we said that’s fine. I think we bought
those on our own actually because we’re
like, well, screw you. We’ll just own
those two otherwise, and then we kept the
loan on the eight. Right. Yeah, the thing
with portfolio loans is, if you have them
in an LLC, which a lot of private financing
portfolio lenders want you to buy it
in a business entity. You cannot buy it
in your own name. And they have thresholds. So when we were working
with this one company, their threshold was a
minimum of $45,000 in value. It means the house had to
appraise for that much. But then a few weeks later,
they changed their threshold to $60,000. And then sometimes they
bumped up to $70,000. Remember private financers,
or private institutional financers, are hedge funds. That’s all they are. They’re not governed by
Fannie and Freddie Mac. They are not governed
by the typical SCC rules that you would normally find. So they are a
private hedge fund. They can change their
rules every week. We’ll get e-mails from different
private institutional lenders that we’ve worked with,
and every week they’ll send out an email, like,
here’s the new programs we’re offering. Your local bank doesn’t do that. They’re governed by certain laws
under the federal government. Totally different when it
comes to private finance. And a lot of times I
read these and I’m, like, I want to put my money in
that because then, if you have a savings account
and be like, OK, I’ll lend someone at 7% for two
year balloon note, please. It’s good for them. And it’s a good deal for you. But can you then
get one in an LLC and use your home
equity line of credit? You can because– You have a partner in your LLC. Right. So you can take that
money and put it into the portfolio
as a down payment. You absolutely can do that. We had another great
question here from REI31rth. What’s your real
name, by the way? I love real names. Anyway, he says, I’ve
have big time flippers urge me to take a 1% to 2%
HELOC and lend them money for flips at 10% or 12%. Thoughts on this strategy? Yes. I’d do that. You can absolutely
do this because– I mean, you’ve got to
trust that flipper. Well, not necessarily. I mean, yes, you do obviously
want to analyze the deal and make sure that the
person that you’re lending the money to knows
what they’re doing and maybe has a track
record of other flips. But you want to take primary
first position on that money. You don’t want to be like
the fifth or sixth position on that flip. What does that mean? That means, as a
primary lienholder. So for instance, let’s say
this guy bought a property, he’s going to flip it. You’re lending him money on it. You want to make sure
that you’re on that note because what happens
if he runs to Argentina and doesn’t finish the flip? You get the property. You’re able to foreclose
on that property, and now that flip is yours. Now whether or not
you want it or not, but at least you have the asset. So I know flippers
here in New Jersey that that’s exactly
what they do. They will be the
primary lienholder. They will take possession
of their property if in fact there
is a foreclosure. But, yes, you can use
your HELOC to lend money. It doesn’t even have
to be for flippers. You could use your
HELOC for whatever. We talk about in the book. You pay down a 17%
interest on a credit card. Pay down a 5% car loan. Pay down whatever. But this speaks to the point. You wouldn’t just go
and give write them a check out of your home
equity line of credit. You want to get this
properly notated. You want to actually file
that note with the county. So you are the mortgage
holder on that property. And then once that property
is sold and they flip it, you get your money
back or however you’ve structured it with them. You can have draws set
up at certain points. The thing with
doing private money is you can do it
however you want. We’ve leant private money
to different investors, five year notes at 8% interest,
7% interest, 6% interest, and I think we pay 2% interest
on that note on our own money. So then there’s like a 4%
or 5% interest gained– excuse me– in profit on that. So, absolutely, it’s
a great strategy. Did you see some other
questions come up? Yeah, someone just
said, I called the bank and I can’t get a loan
through a newly formed LLC. Well, yes, no the bank
will not lend to your LLC. They want to be able to
come after you personally because the LLC is only– well, think of it this way. If me the bank gives
you a loan in an LLC, they can only then
come after you if you stop paying for
what’s in that LLC. You can have next to
nothing in the LLC. They can’t then seize
your other assets. Banks won’t do this. These are what we call
hard money lenders, our private lenders. That we’re talking about. Yeah, so these are
different companies. It’s like some of the companies
we’ve worked with are– Lima 1 Capital. Lima 1 is one of ours. Wunder Capital with a W-U. Yeah, another one is
Visio lending V-I-S-I-O, Lima 1 capital. These are all private
institutional lenders. So just for your own education,
go to their websites. Go to lima1–
capital with an A– dot com. And just see kind of
programs they offer on there. You can see what some of
their different 30 year rental properties, fix and
flip programs that they have. They require you to buy
a property in an LLC. Your local bank, your
local wells-fargo, your local Lakeland Bank,
your local M&T bank, Chase, they will not. You’ve got to buy
these properties, and you can buy up to 10
of them in your own name. They require you to buy
it in your own name. That’s the law. You can only buy 10
in your own name, but there may be some movement
under the Trump administration to make it up to
about 20 to do that. So I think we had some
other questions here. Yes, we’re in New Jersey. You’re Farallon. Who could structure
the note deal? Iedwards asks that. It’s very simple. You can actually work with
a local title company. Title companies will
structure it for you. It’s very, very simple our
title company in Indiana will structure it– They’re file it with
the county for like $50. So they’ll say, like, oh,
it’ll cost you $75 for me– They’re draw it up. –to draw up this note, and
they’ll give you a worksheet. I mean, it’s as simple as that. Or you can make it yourself on
like LegalZoom or LegalShield or any of those. You could just make it yourself
and say please file this for me with the county. I mean, you could
do it yourself. I wouldn’t draw it up, have
it signed, have it notarized, and then march it
down to the county. I’m not very
comfortable with that. I’d rather have the experts. So we’ve got a couple of
questions here on HELOC. Someone asked, can I
ask another question that’s not HELOC related. Yeah, we’ll get to those
non-HELOC related questions in a moment. But let me read
these questions here. Khalilah Fiddler
says, have you ever heard of companies out
there such as Replace Your Mortgage who talk
about getting a HELOC loan and replacing that
as your mortgage. What are your thoughts on that? Yes, I have. I’ve worked with
them in the past. I know them. They offer a great program
because what they’ll do is they’ll help you structure
everything and set it up and hold you accountable for
paying off your mortgage more quickly. So some of those programs
do work really well. Replace Your Mortgage–
there’s another one called Truth and Equity. Those are probably
the biggest two that you’ll probably hear of. Kusha writes, the
interest rate on my HELOC is higher than my principal
mortgage interest. Does it still make
sense to use the HELOC to pay down the mortgage? I’ve used my HELOC to buy
turnkey rentals in the past. So Kusha, let’s
answer that question. So what kind of interest
rate is the difference– I mean, because, remember,
it’s two types of interest. So you’re looking
at simple interest with your HELOC versus
amortized interest with your primary mortgage. So simple interest– if
you’re making small payments towards your HELOC per month,
not just once, not just one payment to your HELOC
but like once a week, using our strategy which
uses your direct deposit from your employer or
your work going in there, it kind of keeps
that interest rate from really accruing
very much in your HELOC versus your amortized
principal mortgage. So yes, if you can’t get that
introductory rate of 1.9% and you’re paying 4%,
it’s not as attractive. However, it still works. Right, yeah. I think you have to shop around
for a good HELOC, first of all. If all you can get is 4%, this
is not the product for you. Well, it looks like
they’ve had it for years. Kusha says they’ve had
their HELOC for a while because they’ve used it for– now might be time to go
shop around for a new one. So maybe work on paying it
off, or go to your local banks. And I’m telling you. There’s so many great options
right now at local banks– and not even local banks,
like Bank of America as a local branch,
or Wells Fargo. I mean, they’re incented
to act like a local bank, even though it’s
the larger branch. They want your business
in their branch. They have lots of reasons why. For instance, there
was a festival in town that I went to with my daughter. And there was a bank. One of the very, small local
banks had a tent out there, and they were
giving out ice cream to the kids and
little tiny frisbees. And the guy was,
like, oh, I’d love to learn about what your
bank products are now and see if we could get them in. And I was, like,
oh, well, I’d love to see how you’re going
to incent me to do that. So especially those
festivals, they’re ripe for that kind of
stuff because, if they’re going to look at your products
and say we want them in-house, we’ll give you a cut
of interest, do it. Right. Rajiv writes, how do
you guys recommend paying back the HELOC. Do I use the rental cash
flow income to pay it back. Well, Rajiv, please read
our book and the link should be in this chat
thread on Amazon– How to Pay Off Your Primary
Mortgage in Under Five Years. That’s the name of our book. Because we will teach
you step by step how to set up your direct
deposit from your employer to pay it back, because
the extra dollars that sit in that account act
as a mechanism of paying it back more quickly. And then also, using
additional cash flow payments from your tenants
to put into that account, also a great strategy. I mean, funnel all of
your cash towards it to pay it back quickly. You’re going to pay this
thing off immediately. And then we talk
about in the book now, because you’re putting your
paycheck in that HELOC, then every dollar you
don’t spend on– Gum. Gum. It’s true. Is a way that you pay this back. Someone asks, is there an
audio book version of it. No, we should do
that on Audible. We don’t have an audio book
version of the book just yet. But we do have the paperback
version and the Kindle version. And it’s a short read. You should be able to
read it in a night. OK, Traybore writes, laid
off from a job of 17 years, bank is reluctant
to give me a HELOC. I own a 65k rental
property free and clear and 80k equity in my
primary residence. Will a bank ever
give me a HELOC if I show the plan to
buy flow properties? Yes, it should. Banks will want two years
of stated income, though. So if your LLC is paying
you on a regular basis, you should have stated income. And so, again, it’s based
on all kinds of other things like your credit history
and your credit score. But you should be
able– that’s why it’s important to be paying
yourself out of an LLC because, if you
lose your day job, you still have stated income
out of your own company. When I first left CBS
and I was freelancing, I couldn’t qualify for
all kinds of loans, even though I was
still making money, because I was taking
money into my own– I was taking money for
these freelance jobs on my social security
number instead of on my LLC. And if I had done it on my
LLC and then paid myself out of the LLC, I would have had
two years of stated income. So that’s another reason you
want to be paying yourself regularly out of your LLC. And so, Iedwards writes this. He says, by the way
an amortized mortgage tip, the total
interest paid ends up being about 60% to 70%
interest on a mortgage. Well, yeah. I mean, think about that. So you have a primary mortgage,
you’re paying it back, you maybe get like
a $300,000 mortgage. You’re probably going
to end up paying over $630,000 for the house
once all is said and done. That’s why this strategy, using
the simple interest of a HELOC is way, way smarter
than just waiting the 30 years to do that. You know, there are so many
ways through our brands, either on my website
or morrisinvest or through the book. We give out so many different
amortization schedules– just spreadsheets you can download. But you don’t even need that. If you go to Excel
and Excel lets you create your own
amortization schedule, do that or go to Bank Rate. Do that so that you
see the total of what you’ve agreed to
pay for your house, and this will motivate you to
find a different way to pay it down. Acoustic silk says, darn, look
like I missed what a HELOC is. Well, actually we never even
really talked about that on today’s show. We talked about
that in the book. But a HELOC is a Home
Equity Line of Credit. HELOC, H-E-L-O-C.
There are two types. There is a home
equity line of credit, and there’s a home equity loan. You don’t want the
loan because the loan is when a bank just writes
you a check for $40,000 and you’re done. And it starts
accruing interest– Immediately. So you’re getting a $40,000
balance immediately. A HELOC, you start
with a zero balance, and it’s like a credit card. They’ll give you
like bank checks. They’ll give you probably
even a debit card for it. You start with a zero
balance, and you only are paying interest
on what you use. So that’s why a HELOC– and it’s open for like
10 years 10, 15 years. You have that revolving line
of credit that you can use. So that’s the difference
between the two. Let me see what other. Pound it. Pound it. I will. Any other questions
that you saw came in? Getting longwinded here. I need some water. Hulk Hogan WWF– wow, Hulk
Hogan is in our chat today. Thank you so much, Hulk. He says, non-HELOC
question– would you rather use the BRRR
method on your own on your first duplex versus a
joint venture on two duplexes and leave the equity in? So the buy, rehab, refinance,
repeat is the BRR method. And I’ve got a whole video
here on the channel on the BRR method and understanding
that a little bit or having equity partners. So look, the bottom line
is having equity partners or private money
partners is always going to accelerate
your rate of acquisition because you’re not
having to really use any of your own money. But having said that,
it’s incredibly difficult to find equity partners. I mean, you’ve got to
really put in the time and develop those relationships
and go to your local RIA meetings and establish a
track record of that you know what you’re talking
about with your investments. Or you could do it yourself
and get bank financing or pull some private financing
together or your own savings or leverage your 401(k)
to buy rental properties and then rehab the
property, refinance it, go buy your second one. So, yes, equity partners–
always a killer strategy. You’ve got to put in the
homework and the time and build those relationships,
build up a strategy, and target the areas you
want to invest in order to make those equity partners
happy because, remember, you’re going to be
doing all the work. Equity partners are just going
to be putting up the money, and they expect you to perform
and make sure that you’re getting great returns. Michael Johnson says,
hello, Mr. and Mrs. Morris. Hello, Michael. OK, Acoustic Silk says,
if I’m buying a duplex and living in a unit, can
I put unit B under an LLC to rent it or does the whole
duplex have to be in my name? If you buy it, you
can buy it as an LLC. You can buy a property grant– Garrett Sutton has a book called
The Loopholes of Real Estate. And, yes, you can absolutely
buy rental properties yourself in an LLC, and you could
rent out a portion of it. It’s called a house hacking. It’s kind of like the
term house-hacking You’re buying a duplex. You live in one half. You’re renting the
other half, and it covers your primary
mortgage, the total cost. It’s called house-hacking. But, yes, you can
buy it in an LLC. I would read Garrett Sutton. He is Robert
Kiyosaki’s attorney. He’s written a book called
The Loopholes of Real Estate. So that’s a good one there. Any other questions
you want to get to? Last one? Last question. No, I think we’re good. But, again, if
you read the book, hopefully you’ll have some
other detailed questions because the book
is very detailed and hopefully– you
can always write to us. But, again, we should put
this disclaimer out here that we’re not accredited
financial advisers. We’re just people who
decided in our home to build our own real estate
portfolio so that we could continue to have passive
income, and that’s how we sort of freed ourselves
from the daily grind. And we opened this
YouTube channel. We wrote the book. We do our own writing so that
we can empower other families to do the same. But all of this
stuff, it should just be like a spark to the
flame that you then take to your advisers
and your great team. And we’ll have Robert Kiyosaki
on the show here talking about how important it is
to have the right team, and we want to be in the
spectrum of your teams, your motivators, like
that little push that gets you to learn something else. But we can’t file
your taxes for you, and we can’t open your LLCs
or tell you what to do. We’re just going to help push
you in the right direction, and hopefully you have
a super awesome team to help you execute. Thank you so much, everyone. Top Agent Ken says,
Morris investment, I’ve been following you
guys for eight years now. And I love your classes. I own 44 units now. What are your tips
that you should tell new investors
planning on getting into real estate
for the first time? Just make sure your
ROI makes sense. Make sure the return on
investment makes sense. And if the deal numbers
stack up, great. Take the plunge. Even if you’re 80%
sure, you’re never going to be 100% sure of
anything in your life. So take the plunge. Don’t wait five, seven,
eight years before you get started in real
estate investing. It’s the number one way to
build wealth in this country. It’s a number one way
to mitigate your taxes in this country, and
it’s the number one way to build legacy wealth
for you and your family. That’s why we love
doing what we do here. So thanks to everyone. Please check out the book,
and you can continue. We always answer
every question here even after the show is live. Thank you for subscribing. Yes, Robert Kiyosaki is
going to be joining us here on the show August 3. Yes. August 3rd on our show. We’re super excited about that. Thanks to everyone
for subscribing, and thanks for all
of you for making us a part of your Saturday. We really appreciate it. Much love to you all. Bye, everyone. Bye, everyone.

100 thoughts on “How to Use a HELOC for Real Estate Investing (Live Q and A)

  1. If we no longer have direct deposit from our employer because we reached our freedom number, and quit our job, what is the best way to pay off the HELOC? Drawing from our LLC and getting taxed on the draw? What is your favorite way to do this that you have found to benefit you best?

  2. as a co borrower can i leverage the equity to get my own house?

  3. You guys are awesome……very informative Q&A….However I did't see you guys talking about HELOC on investment property ? I learned from you guys that property must be under LLC, but then how to take HELOC on that property tied to LLC ? Please comment…Thanks.

  4. Hello, thanks for the video.

    I have a question: what about getting a HELOC on one’s primary residence to acquire more positive cash flow rental properties?

  5. It is looking like this type of HELOC will no longer be tax deductible starting in 2018.

  6. Hi, I currently have a HELOC on my primary mortgage, it is a interest only HELOC and I have had it for about 8 years and I know it was stupid but I have only been making the interest payments. I got it 8 years ago as a recommendation from a real estate class to buy properties but I did not have the know how at that time to use it for investing, I only paid off debt with it.. My question; what do you recommend on how to get that paid off in 2 years so I can use your method to pay off the mortgage and invest in some of your turn key properties as I am more knowledgeable and experience in buying real estate now than before.. I hope you can give me good advice on this issue. And thanks for sharing!Tracy

  7. Hi, you gave some advice about loaning money to a flipper out of the HELOC and making sure you are in first place on the lien for the property. How do you ensure you are in first place?

  8. With a HELOC should we pay off our smaller debts such as solar debt first instead dumping all of it towards the mortgage so we can pay the HELOC down faster, then using the big chunk for mortgage?

  9. Hello – What if you don't have enough equity in home to secure a large enough amount for a rental property? What are the next best finance options? Conventional mortgage or personal loan? Any feedback appreciated. Thank you

  10. Hi guys I just went to the bank and got the ball rolling on a HELOC, they tell me the process will take about a month. Cant wait to do business with you guys. Thanks for what you do.

  11. HAHAHAAHAHAH I love enjoy watching their conversation… cute 🙂

  12. Will this strategy still work if the current Heloc rates are over your primary mortgage interest rate?

  13. Does your plan work for home owners in Texas?

  14. Natalie did you use to be on CNET?

  15. Heloc!!!

  16. Should I get a heloc to pay down my mortgage if I plan on moving in a year or two? I currently have about 170k in equity.

  17. Hi. I own my home free and clear and it’s worth $115,000. I bought a four Plex with saved up money just the 15% down payment. Can I use a helix in the next year using my home to buy more properties

  18. how does one use a heloc to pay off your home and try to buy a 35k home at the same time?

  19. Hello…just stumbled across this channel. It’s awesome. Should I have a separate LLC for each property or just one and the properties go under that one? Thanks.

  20. 1500 thousand dollars?!

  21. Lmfao really a heloc is simple interest? Where do i sign up??? Every one I've seen is compounding interest just like a mortgage. And usually variable on top of that. Seriously if they gave that 4% simple interest id borrow as much as possible and invest in something that compounds.

  22. HELOC's can be 25, 30 yr's!!! The draw period is generally 5 or 10yr's.

  23. Hello!! Thanks so much for sharing this strategy! One question, can I borrow from my 401k and put it in my heloc acct? Was thinking to let it sit in my heloc (save on interest) acct and instead pay the interest of my 401k which is extra money for my 401k acct. Then when I finish paying, borrow from it again?
    Let me know your thoughts please.

  24. Whats an LLC?

  25. Can you just buy a house and have it rented? Or should have a category as an investment property?

  26. Please,Is it possible to get Heloc on property that is free and clear. I mean with no mortage?
    What is the best way to pay it back?
    How many yrs? 5yrs or 10yrs.
    I appreciate you two for what you do.Thank you!

  27. The Bible says you should not charge interest to friends or family only your enemy’s.

  28. I found a HELOC with a promo rate of 2.75% for 3 years. Being that the Fed is possibly raising rates would you recommend this or taking the promo for 1year for 0.90%? Also, I’ve heard that you can replace your entire mortgage with a HELOC. Is this still a good strategy? This would be for my primary residence

  29. Hey Guys I was watching your old TV series video's on YouTube I look up to you Guys and I really believe that one of the days I will meet you guys I'm an in South Africa and I have learned so much from your content and your lives has evolved a lot. I really thought you Natalie you were " Lying when you said you were not allowed to do certain things mmmm but now I think it different world, I love you Morris family a lot. MR MORRIS YOU ARE THE MOST AMAZING COOL BUSINESS PERSONAL TEACHER I KNOW. Much Love. I will always enjoy learning and putting to practice what I learn from your channel.

  30. Can you use a heloc on your primary residence to fund the brrr method?

  31. How long do you have to own the property to get a Heloc?

  32. I was planning on buying portfolios of property that are ready to go. Is there a disadvantage to this if i have the capitol?

  33. Thank you! Love the show

  34. I've been trying to get a HELOC and i'm a bit stuck. Do i apply as a secondary home? I dont live in the state so i can't call it my primary. But b/c it's not my primary most banks i've called have told me that I couldn't borrow more than 55%. any suggestions?

  35. For heloc my bank offer 2.24% for 6mo then to 4.8% with a minimum take out of 10,000 dollars and my mortgage loan is 4% . Would it be best to take out the full amount of the equity or to take out alittle and pay it off and then take more out. Or do you take the 10,000 out first and start paying it back then take little by little. Thanks

  36. Morris are these heloc’s available in all states? A few years ago these heloc’s to help pay off your Mortage were not available in New Jersey

  37. what is the difference between an amortized interest and a simple interest?

  38. Should I pay the minimum payment on my heloc and collect the rest as passive income or should I pay off the heloc as soon as possible?

  39. I purchase your book just now but I wanted to know who do you recommend I get my HELOC with? I live in Southern California, Is there a specific type of HELOC, or are they all the same? Thank you

  40. When you and your wife are best friends love you guys and your energy and thanks for the advice

  41. Bla Bla Bla bla

  42. How can you get out of HAMP loan when you have no equity to get Heloc.

  43. what do you think about getting a loan to pay down your mortgage in order to qualify for a HELOC line of credit

  44. hey guys, my name is Joel I like your channel with a very rich information, I m air conditioner tech. but I have a question.Do you think my bank can let me get  a heloc to pay off my  primary residency  with 39.000.00 dlls. ?Thanks

  45. You guys are too cute😊👌

  46. Thanks for sharing and hopefully i can do it,.. I’m 48 and got scared of real state buying after the market crash in 2012

  47. Hi there ,i have a question about getting a heloc to pay mortgage, let say i have a $10000 heloc and transfer that money to the principal and start paying the 10k to the heloc . What is the difference between doing this and just pay the principal on the mortgage every month $833 ($833 x12=10000) ? I have used different mortgage calculators and there is no big difference.

  48. I like watching nice couple talking on the same page , me and my wife trying to form the same way of working and understanding things together

  49. Great videos Morris family beautiful couple just ordered your book. I was wondering with a HELOC line of credit do I pay my mortgage twice out of the HELOC line of credit or do I pay every 6 months to my mortgage principal

  50. Hi I just bought and read your book on Amazon. It makes perfect sense and is exciting to think it could work. I just was looking at several HELOC interest rates on line and they all are about 5% unless I am reading it wrong or misunderstand. Have rates gone up that much since you wrote the book?

  51. Hi guys, my brother-in-law just got a HELOC and the bank specifically asked him what purpose the money will be used. Whether it will be used to pay off debt or applied to mortgage? Why would the bank be hesitant to open HELOC for such purpose?

  52. Hello, I'm listening all you are saying and I must find and read the book you suggest or your book. I don't find the link of amazon to get the book. So pls what's the title of the book and the name of the author/s? could you pls let me know ASAP. Thank u. you both are very honest and humble in sharing all you know. Both of u are real awesome personas. God bless u. Pls let me know about the book.

  53. Never mind I listened carefully and I got the name of the book. I'm to check it up on amazon right now. I'm assuming is under your both names?

  54. So what are your websites that you said. I would like to take a look also on both websites. Could u pls let me also. Thanks

  55. Can I get a HELOC from a hard money lender?

  56. Can your business get a HELOC?

  57. love you guys!

  58. Thanks > God Bless

  59. Should I start buying houses on a sole proprietors, then later transfer properties to an LLC?

  60. Another Awesome video content. Thanks Clayton & Natalie.

  61. My wife and I were discussing the idea of using a heloc to buy our 1st rental property. I decided to research it a little bit and came across your channel. Of all the finance options, tbis makes the most sense by far. You got a new sub, and hopefully we'll get a new property !

  62. 9 mins into it befor you even talk heloc?

  63. For many, the key to successful real estate investment is keeping priorities straight and keeping an eye open for deals at all times. You know, people definitely appreciate the way you seem to always be aware of what’s going on and what opportunities there might be around the corner. You’re fantastic. Have a great day!

    Bert Levi in San Diego 😊

  64. What’s the maximum loan someone can get on a home worth 1million owned free and clear?

  65. You guys are great and funny. Thank you for your knowledge…

  66. How do you find these properties? How do you manage a property in Jacksonville, if you like in NYC?

  67. Appreciate you guys. I started dialogue with my credit union. These are the options they presented to me. Interest was about 5%. How do I know what to pick?
    Texas HELOC 10-Year Draw 15-Year Amort

    TEXAS HELOC 5 YR DRAW/10 YR AMORTIZATION FIXED
    TEXAS HELOC 5 YR DRAW/15 YR AMORTIZATION FIXED
    Texas HELOC 5-Year Draw 10-Year Amort

  68. Again keep your wife out of your videos, you explain it so well and on the other hand she makes so complicated that people just loose interest everytime she opens her mouth

  69. You guy are Very genuine, great video 👍

  70. What’s the percentage of HELOCs called back in recent years?

  71. Are you kidding me? Bye after 60 seconds….

  72. You don't go into any detail at all in how to use a HELOC to pay down a mortgage!?

  73. Clayton, would I ever want to use the Heloc to buy the property and then get a mortgage on it through another bank? The idea is to pay off the Heloc and put a fixed rate on the property and possibly pull out some cash.

  74. Thank you very much for the information, i will use a heloc to get my future rental properties

  75. Hi , if we open heloc account. Should we stop using the regular credit cards .Replace all cards transactions with heloc account addition to lump sum for mortgage payments . I have equity of 50k. I will appreciate your answer. Thanks.

  76. you can use the gross rent multiplier (GRM) to know if a property is cash flowing

  77. GB you both, so much clear information that’s why your so successful because you share the knowledge!

  78. Not sure if this is too old to get a reply but….Does the bank typically reappraise your home to determine the current value when approving a HELOC or is the HELOC based solely on the original purchase price?

  79. I would like a audio book version as well fyi.

  80. Hi, I would like you to do a video analyzing what if the economy crashes? What is the impact on your personal and business assets and how to protect them?

  81. I am very interested in using a HELOC for rental properties. What worries me is the rate skyrocketing. Its 2019 and rates have gradually been going up. Is there any warning signs? Any tips on rates skyrocketing while having a balance?

  82. 19:20 fake it until you make it. 19:32 deceiving facial expression before telling a lie

  83. Do you happen to have a video on whether it is best to put your personal home in the business LLC and pay yourself rent? if not, can you possibly touch on this? I've always heard it is best to pay yourself rent. If you do it this way, will you be able to pull the HELOC and pay as an LLC expense vs writing yourself a check (owner payout) from LLC then paying HELOC?

    Thank you.

  84. Our local financial institutions are reaching out and joining with California financial organizations community "norms". As I wake up to my options I realize this nightmare vis-a-vis helos perse.

  85. I had no idea about a HELOC and am in the process of doing a refi. that is a terrible deal. I haven't signed closing contract, so do you know if I can back out still?

  86. Can you take the helix from one llc to purchase property in another llc? I started an llc and am investing and want to purchase now in another state.

  87. I feel like I'm drowning in confusion. I want to borrow, pay some bills and buy a triplex or quadplex. how do I pay off HELOC and Mortgage, maybe Im not understanding because I don't want to lose my home because I got a HELOC and didn't understand….eeeekkkk

  88. HI .. have 1 property in NC which value 300K and i have 95K loan pending on it. I am expecting to get 100K in HELOC from bank. i have 30K in cash in my saving. I am planning to buy rental property in NJ for 570K and pay 20percent. I am expecting 3800$ in mortgage and it will give 5200 in rental income which gives me 1400 in net cash on which I'll pay 25percent taxes as rental income so i'll end up with approxitely 1100 in profit. Should i do this?

  89. if i buy one property using HELOC. Do i have to wait to take HELOC on new property to buy next property?

  90. LOL She's still looking at the screen – it's ok – do what you do 🙂

  91. Is it better to have an LLC over a regular Corporation?

  92. You should be continuously be adding to your positions inside your retirement accounts, with the key focus on cash flow from the assets. It's just like rental properties with focusing on cash flow from rents. 401k's are wonderful.

  93. Thank you guys!!!!

  94. Have no regrets grant. Just learn from it

  95. Just bought a single family from a duplex using a heloc, no LLC. Should I start an LLC ?

  96. I am looking for what podcast number is “how to choose and use your business bank account” they talk about it at the 17 min mark of video

  97. Great, good Q&A good references no hold back.

  98. Heloc will never make you fail on your plan, you’re 💯 safe from it, I got approved now my wife will be soon

  99. If it’s about Heloc I can testify it’s great opportunity to use

  100. So a question. If you were to buy a property with a HELOC and then transfer it to your LLC… then are you not supposed to pay back the HELOC with rent payments you receive to the LLC? I know it would get taxed as a draw, so what would be the proper way? Are you supposed to wait to transfer the property to your LLC until you have refinanced and it’s no longer under the HELOC? Thanks for anyone’s input.

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