Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
debt repayment question
Old 01-02-2018, 02:34 PM   #1
Full time employment: Posting here.
Luck_Club's Avatar
 
Join Date: Dec 2016
Posts: 717
debt repayment question

The next phase in my retirement plan is to repay debt at an accelerated rate. I have about $530K lump sum of cash to deploy. My preference would be to obtain a new HELOC, retiring my mortgage and increasing my HELOC to 80% of my home value. The bank offers a unique product which has a 35 year draw period (i'm 50 ). The appraisal came in at $675K.

For various reasons which they haven't disclosed they want to completely ignore certain income streams, and not count assets I hold. For example I sold a property and am hold a 3 year baloon note worth $90K that has a 5.5% interest only payment beginning this month. Sorry that can't count as income, because it wasn't on 2016 tax return. The $25,000 carryover loss takes away from my income. I am truly in the dark as to why they are dragging their feet on approving the line increase. Back of the envelope looks pretty safe from my perspective, with nearly double the income/ cash flow required to qualify. If it wasn't for wanting the ability to pounce on opportunities I wouldn't even care.

So my original plan was to prepay my first mortgage and 1 rental mortgage, and this would give me plenty of capacity ($400K+)to add more rentals as a cash buyer. If they don't rewrite the line, should I hold the cash for investment opportunities, prepaying just the 1 rental mortgage, leaving the now non-deductible primary loan, and a bunch of cash earning 0.5%?

If they rewrite I'm golden, and know the path to take. If they don't I'm struggling with the balance between holding the cash for opportunity, and freeing up cash flow. My plan is to buy 1 more rental at some point, and possibly a second home in Florida which may or may not be rental material, so I kind of need about $400K liquidity or easy credit.

Thoughts, suggestions?
__________________

__________________
2017 dry run spending: 2018 accelerate debt elimination: 2019 RV procurement & 1MY begins: 6/19 DW last month went early: 9/19 start cross country loop: 1/20 first reinforcements arrive. 6/20 sell business or shut doors. 9/20 begin globe trot: 4/26 401K reinforcement.
Luck_Club is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-02-2018, 03:03 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 2,337
You know the interest on that HELOC is no longer deductible, right? I can show on my current draw that the money was spent rehabbing a rental, so I think there is a good chance I can deduct the interest, per the CPA. Refinancing a first into a HELOC? Don't think that will work.

I can't answer the question about the mortgage on your principal residence without seeing all the numbers, but if the interest rate is low and fixed, I would probably just ride it out and hold the cash pending acceptable investment opportunities. If the rates are high on any of the rental mortgages, I would tackle those.

I don't know where you invest, but it's going to take a lot to pry money out of my pocket to buy more properties because of the run up of the last few years. A simple 20 percent decline will not bring the cash flow to an acceptable level. I am paying off mortgage debt and saving cash to buy the next asset class to crash. I have two 5.875 percent mortgages left and they will be the next to go.
__________________

Another Reader is online now   Reply With Quote
Old 01-02-2018, 05:25 PM   #3
Full time employment: Posting here.
Luck_Club's Avatar
 
Join Date: Dec 2016
Posts: 717
Quote:
You know the interest on that HELOC is no longer deductible, right? I can show on my current draw that the money was spent rehabbing a rental, so I think there is a good chance I can deduct the interest, per the CPA. Refinancing a first into a HELOC? Don't think that will work.
Yes. I lose all incentive to itemize after 2017. The Equity line is for opportunities to invest, where I could later finance, but to add strength to my offer, I would be all cash.


Quote:
I can't answer the question about the mortgage on your principal residence without seeing all the numbers, but if the interest rate is low and fixed, I would probably just ride it out and hold the cash pending acceptable investment opportunities. If the rates are high on any of the rental mortgages, I would tackle those.
The rate is lower than the investment properties, but it is about flows, and reserve capacity.

Quote:
I don't know where you invest, but it's going to take a lot to pry money out of my pocket to buy more properties because of the run up of the last few years. A simple 20 percent decline will not bring the cash flow to an acceptable level. I am paying off mortgage debt and saving cash to buy the next asset class to crash. I have two 5.875 percent mortgages left and they will be the next to go.
Yes deals are difficult to find, but they are out there. I look about 1 time a month so not going crazy to find anything. I'm really beginning my debt elimination phase, but would like 1 more property to add some more cushion to the cash flow. I just relisted a rental and bumped the rent $150 a month, and the phone is ringing!
__________________
2017 dry run spending: 2018 accelerate debt elimination: 2019 RV procurement & 1MY begins: 6/19 DW last month went early: 9/19 start cross country loop: 1/20 first reinforcements arrive. 6/20 sell business or shut doors. 9/20 begin globe trot: 4/26 401K reinforcement.
Luck_Club is offline   Reply With Quote
Old 01-02-2018, 08:20 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 2,337
Generally, I like the idea of a HELOC to acquire, rent, refinance and repeat. Much easier than going through a mortgage process when you are looking for deals. However, I'm having trouble following your numbers without interest rates and balances. What happens to the $530k cash you have now if you do this?
Another Reader is online now   Reply With Quote
Old 01-02-2018, 09:00 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 24,773
Quote:
Originally Posted by Luck_Club View Post
....Thoughts, suggestions?
Find a smarter lender?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...target 65/35/0 AA
pb4uski is online now   Reply With Quote
Old 01-02-2018, 09:09 PM   #6
Full time employment: Posting here.
Luck_Club's Avatar
 
Join Date: Dec 2016
Posts: 717
Quote:
Originally Posted by pb4uski View Post
Find a smarter lender?
Agreed. Most have a 10 year draw period, and they have a 30 or 35 year draw period. Effectively the last HELOC in my life time.
__________________
2017 dry run spending: 2018 accelerate debt elimination: 2019 RV procurement & 1MY begins: 6/19 DW last month went early: 9/19 start cross country loop: 1/20 first reinforcements arrive. 6/20 sell business or shut doors. 9/20 begin globe trot: 4/26 401K reinforcement.
Luck_Club is offline   Reply With Quote
Old 01-02-2018, 09:25 PM   #7
Full time employment: Posting here.
Luck_Club's Avatar
 
Join Date: Dec 2016
Posts: 717
Quote:
Originally Posted by Another Reader View Post
Generally, I like the idea of a HELOC to acquire, rent, refinance and repeat. Much easier than going through a mortgage process when you are looking for deals. However, I'm having trouble following your numbers without interest rates and balances. What happens to the $530k cash you have now if you do this?
Without getting into the mud, I have a bit over $600K in debt between Mtg & rental debt, and very little in non-retirement marketable securities.

I will use the 530K in gifts and cash to pay off debt, fund roths for the family, leaving about $60K to cover 1 years living expenses. If all goes according to plan, I will be able to retire all the debt by the end of the year using the cash & earned income from 2018. Still planning on 2018 & 2019 earned income.

I know I eventually have to get to a debt free position, to execute the FIRE plan, but want to unwind it as strategically as possible. knocking out the NON-DEDUCTABLE house mtg followed by the passive loss to passive income rentals, seems like the most logical plan of attack.

The lack of the HELOC increase throws a potential wrench into the plan.
__________________
2017 dry run spending: 2018 accelerate debt elimination: 2019 RV procurement & 1MY begins: 6/19 DW last month went early: 9/19 start cross country loop: 1/20 first reinforcements arrive. 6/20 sell business or shut doors. 9/20 begin globe trot: 4/26 401K reinforcement.
Luck_Club is offline   Reply With Quote
Old 01-02-2018, 09:36 PM   #8
Full time employment: Posting here.
FlaGator's Avatar
 
Join Date: Aug 2008
Location: The 850
Posts: 606
Welcome to the world of the leveraged RE investor.

You're "in the dark" because you haven't spent any time on that side of the desk. You know your CF, NW, etc., but the person on the other side of the desk does their job based on guidelines, not how clever you are and what "assets" you may have. Frustrating as a borrower, but if you want the "best deal", have to play by the rules of the people offering that deal.

Looking for a "smarter lender" is a good tip, but given the details you've shared, I predict you'll pay more than a W-2 borrower with a simple tax return, if you find one.

No tips on what to do if you don't get it approved. Your game was never mine.
__________________

__________________
Stay at home slacker dad since 2015
FlaGator is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Student Loans - Income Based Repayment? FUEGO Young Dreamers 42 10-18-2010 05:06 PM
When does SS repayment make sense? smjsl FIRE and Money 8 08-29-2010 04:13 PM
SS repayment trick smjsl FIRE and Money 4 01-11-2010 06:46 AM

» Quick Links

 
All times are GMT -6. The time now is 07:28 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×