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Not Your Average Investor Show
Not Your Average Investor Show
428 | [BREAKING NEWS] Home Equity Lines Of Credit Available For Your Investments! We Explain It.
We get asked about using Home Equity Lines of Credit (HELOCs) to buy rental properties all the time (and it's a GREAT way to build wealth), but they haven't been available for rental properties... UNTIL NOW!
That's right-
If you have a rental property with equity in it, it is NOW possible to buy more properties without having to refinance, but it's not for everybody.
That's why we're doing a deep dive into how you can use HELOCs on your rentals to grow your real estate portfolio on the next episode of the Not Your Average Investor Show!
Join Gregg Cohen, co-founder of JWB Real Estate Capital, and show host, Pablo Gonzalez, to learn about:
- Why HELOCs for your rental properties recently became available for investors (and who should use them)
- How HELOCs and cash out refinancing are different (and when to use each)
- What you need to know to take advantage of this change (and how this can accelerate your retirement goals)
- and more!
If there is one thing all savvy investors know, it's that when contexts change, big opportunities happen...
But those windows don't stay open forever!
Join us to understand this change, and be one of the first to take advantage of it!
Join our real estate investor community LIVE:
https://jwbrealestatecapital.com/nyai/
Schedule a Turnkey strategy call:
https://jwbrealestatecapital.com/turnkey/
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Today, big News in the world of Rental Property Investing. It was not too long ago that one could only use a home equity line of credit. AKA A, HELOC as on your primary residence was the only thing that you could do it on in order to buy rental properties. But now it is available on your rental properties, and that's a big deal we're gonna explain to you. We're hopping, we're going to explain to you what it means, how it's, what, you know, what the current situation is, and then we're going to help you understand the difference of like when you're going to want to use refi versus one of these HELOCs. welcome everybody to your weekly edition of the Not Your Average Investor Show I'm your host, Pablo Gonzalez, with me as always, the man that I affectionately like to call GC, because he's got the genius concepts, because he knows how to generate cash flow, because he's a great host, and because his name is Greg. Hello,
Gregg Cohen:everybody. Fantastic to be with you and very Merry Christmas. Happy Hanukkah. Happy holidays to everybody.
Pablo Gonzalez:That's right. This is our last show before. Well, kind of our last show before Christmas because we have a special webinar coming up on Thursday. So little sneak peek into the future there. But yeah, yeah, that's right. We are off next week. Next week is what my people think is Christmas. Hispanic people call that Christmas in America. Christmas day is the next day, but we still, uh, we still keep it holy, right? You see. Love it, baby. Let's go. And we love to kick off this show with, you know, what'd you say? What's it called again? What's it called again? The Roll
Gregg Cohen:Call, baby. The
Pablo Gonzalez:Roll Call, baby! Kicking us off is The Mystery Man with A Merry Christmas from Kuwait. We got Chris Lee from Fernandina Beach. We got the ringmaster Drew Barnhill checking in. We got the maven from the mountains of Denver, Leslie Wilson. We got the MVP. Everybody's heard of him. Lee Bishop, we got our community manager in the house, Joanna, who loves Christmas more than anybody here. Just throwing it out there. She is super into Christmas, Joanna. I see you. We got John Moran checking in from Port St. Lucie, Florida. We got Oh, he said, here we go, Steelers, Rockland, California, I know it's Lewis Hudnall rocking it. We got the early bird coming in a little later today. Dean Curry from Columbus, Ohio. We got world famous composer, John Williams from long Island, New York in the house. We got the famous, the man with the hockey stadium, a hockey arena named after him, the number one referral source from customers to JWB Roger voicenet from Charlottesville, Virginia. We got, let me see you. We're at your front. Zay from Lamey Linden Bayer. Good to have you ready. We got Jeff Petty. John checking in from Missouri. Good to have you back. Jeff. We got Kevin O'Brien. Checking in with hello friends from Rhode Island. Good to have you Kevin. We got the man. Everybody know us from California. Noah Rundar He just puts in yeah, he knows that I'm gonna check in on him We've got the the mother of the fairy godmother of the not your average vegetable community world famous author Lydia Filson good to have you in the house Lydia. We got the fairy godmother herself as well. Jen fills in checking in Chris man, lau x Is it, is that, that like low? Is that pronounced low as in a, like it's like in the French pronunciation.
Gregg Cohen:I just know whatever you say, it's going to be wrong.
Pablo Gonzalez:It's definitely not Chris Lokes. I'm sure of that. We got Jeff Lenvey in the house. Good to have you back Jeff with a good afternoon. Good. Happy holidays. Who else we got in here? Susan Parker checking in with the Merry Christmas. We've got the shaman in the house, checking in big poppers in the house. We love it when he calls him big papa. Haven't seen his name in a while. Co founder of the co founder Jay Cohen, Greg's dad. Good to have him. Good morning, JW. Could be many people with a Not Your Average guest checking in. I'm guessing it could be Pedro Nacenciano. Oh no, he says Jersey. Fam is sometimes Hervé. He sometimes says Fam. So I'm not sure. If you're checking in from your text and it doesn't have your name on there, you gotta let me know who you are. We got Leo Ferraganon! Leo! Good to have you back, my friend. Haven't seen your name in a while. Favorite smile from the Pacific Northwest. Pamela Myers from the Seattle area. The Man of Seattle. Steel is checking in. John Barite, man. This Vincent. Vincent. Vince. Vince. Did I say John? My bad. You did. I'm I'm just going down the, I'm just going down the line. Vincent. You're doing so good. I'm going down the line. I'm going down the line. Robin Schofield from New Hampshire. Good to have you as well. Alright, I think we're gonna kick into this Christmas without JWB. What? Misty and Troy Johnson are in the house. Shannon ler in the house. Vernon Campbell in the house. Who else? Alright. Okay. Okay. Oh, I arve, he said. That's right. It's me. Good to have you Arve. Haven't seen you in a minute. Lox, Chris Lox. Thank you, Chris. Thank you for protecting me from myself. Okay, I feel like I'm caught up if I'm already reading the stuff of people correcting me. Nope, I'm wrong. Jay Kurupp is in the house. We got David Vivar in the house. Good to have you. Love it. Sylvana Kuchar from New Jersey. Good to have you. Ramon Johnson saying happy holidays. Anthony Williams. Alright, now everybody's checking in. We're gonna run out of time just on the roll call. Joe Culler, I see you. Columbia, South Carolina. Alright, GC. Um, before we get started, we got some, is it a breaking news? Is it an update? You were just kind of teasing me with some, some stuff that you want to talk about here. It's
Gregg Cohen:something we got to talk about. We're all excited about the summit. That's coming up for, for a while. Now we were getting our. Our ducks in a row and everybody was saying, Greg, Pablo, when are you going to talk about summit? Well, we're talking about summit now. So summit for those of you who haven't been a part of it yet, it is the pinnacle event of the year to take all of us who get together every single week in online world in this, It's wonderful community that we have and we get together in real life, our IRL as it was told to me, because I'm not exactly hip with those things. But anyways, we are coming together. It's summit. We're doing it February 28th and March 1st here in Jacksonville, a two day event. And this year it is going to be better, but we are intentionally keeping it smaller. So it is going to be limited to a hundred. Folks, and it is going to be limited to JWB clients. So many of you are JWB clients already. We can't wait to see you. If you're not a JWB client yet, now is a great time to become a JWB client. What does that take? It means getting on the phone with our team and then putting your first property under contract before Summit. So, we are super excited. We had hundreds of folks that came last year, could have had more. Pablo and myself, our entire team, are super excited to bring this to you. And it's going to sell out. It sold out last year in like two weeks. And that's when we didn't have a hard cap of 100. So it is going to sell out. And the thing to do is to become a client if you're not, but to keep tuning into the show, we're going to open up registration on the show. It's going to happen sometime over the next few weeks or so. I don't exactly know when but you got to be on the show because I know it's going to sell out and we want you to be there. So, Pops, what did I miss?
Pablo Gonzalez:I thought you nailed that pretty well. Don't forget it's the February 28th and March 1st, right? That's when we're going to do it. So reserve your date, be on the show. We're going to announce it. JWB clients only members of the Not Your Average Investor FAM only. We're making it purposefully small. This is a celebration of the community, not just some kind of like big, diluted event. Jack is getting closer though, with people guessing where I'm at today. Greg, do you know where I'm at today?
Gregg Cohen:I don't know where you are. You're across the pond. Where are you? In London?
Pablo Gonzalez:I'm in a houseboat in London.
Gregg Cohen:Ooh, a houseboat. Let's go.
Pablo Gonzalez:All right, GC. So we got the summit, we've got the incentives that are happening right now at JWB. Want to remind everybody about that?
Gregg Cohen:Yeah, absolutely. This is perfectly timed, especially for those who want to be coming to summit. Maybe you're not a client now. This is the perfect time to become one. JWB is offering our largest incentive package. And we're doing this because we want you to be investing. And we want to kick off the year so far ahead of our sales goals that we're not, we're just, we're just outpacing what we thought we would do according to business plan. So for the month of December, only the first 25 contracts are going to get up somewhere around 13, 000 13, 400 worth of incentives by putting properties under contract with JWB. It's available for new clients. It's available for repeat clients. There is no limit to the amount of properties you can put under contract at one time. The only limit is that it's limited to the first 25 in the month of December. I checked earlier, I think we were at 10 properties or 10 contracts that have already taken advantage of it. So there's somewhere around 15 spots left. And so again, Great opportunity to connect all of these dots. Hopefully you're a current client and you're here because you want to learn how to home equity lines of credit and cash out refinances can help you achieve your goals and buy more properties. That's a great time to do it with this incentive package. And if you're a new client. You can do the same thing. You can get these incentives and then you can get your ticket to come to Summit as well. So if you're interested, reach out to your portfolio manager. If you're a current client and if you're not a current client yet, reach out to us. You can text us. Text number is 904 293 0341. 904 293 0341. Give us a text, jump up, set up a time to jump on the phone with us and we'll get you going. Give me that number again. GC 904 293 0341 904
Pablo Gonzalez:293 0341. Joanna put it in the chat. If you want to get started and you know what I've heard, you see that most people, their biggest concern with getting started is finding the money to do it. And that's why we are covering a brand new source of capital that most folks did not realize that they have access to, because for a long time, we've been talking about how people ask if they can use a HELOC, but. You know, it's always been contained to just the equity in your primary residence, but that's changed, right? You see, now you can use the HELOC in your rental properties. What happened? Talk to me about it.
Gregg Cohen:Yeah, absolutely. Well, you know, people didn't realize this, but when I started to invest in 2006, you could get home equity lines of credit on their, on your investment properties. That's actually one of the strategies I used very early on to build up my own rental property portfolios that I bought. rental properties. They appreciated. I then went to the bank. I was able to get new loans, home equity lines of credit on those investment properties, which gave me capital to reach my financial goals quicker. We're obviously going to break down how we, how we are going to do that with all of you in the show today, but this idea of using home equity lines of credit to build Your financial portfolio has been around for decades and decades and decades, but somewhere around the great financial the great recession and the housing crash that happened in 2007 continued through 2011. One of the first things that banks did was they stopped home equity lines of credit on rental properties. And we have been waiting well over a decade for those home equity lines of credit to open up on rental properties again. And part of the reason we've been so excited to bring this show to you and this concept to you is because you as JWB clients are sitting on hundreds of millions of dollars of equity. in your portfolio. And we are so excited about that for you. But you also are telling us, Hey, I want to achieve my financial goals by this date. And what I hope to do on the show today is to connect the dots and show you how a home equity line of credit, or maybe a cash out refinance can help you trim that timeline down of reaching your financial goals. Just like it did for me. 20 something years ago when I first started to use home equity lines of credit to add to my rental property portfolio.
Pablo Gonzalez:Nice. So they, they cut it off post financial crisis. Cause people were getting into like trouble with it kind of thing. And then now they are opening it back up to stimulate the economy. Like what's the, what's the thinking there? Do you know?
Gregg Cohen:Well, I mean, it's not necessarily like people were getting into trouble specifically between or because of home equity lines of credit. When the great recession happened, the entire lending industry. was very different after that. So they took a look at the things that they deemed more risky than another thing and said, listen, we're stopping that. So some examples of this that really didn't equate to what I would say well, I should probably walk it back. Banks would assume that it's riskier to do certain things. So like, for example, you can get a home equity line of credit on your primary residence. You can do that today. I do that. Many of our clients do that. You can still do that. You could do that before for the last 10 years. Banks said, well, listen, we're okay with doing that. But for rental properties, they said, well, we're going to stop that because there were a lot of investors that were buying up assets on rentals. Loans they shouldn't have been getting, which increased the purchase prices and then increased the foreclosure rate and led to the Great Recession. So they said, listen, we'll continue to do primary, but we're going to stop for the rental properties until, largely until we get this thing figured out. Some other examples, you know, you used to be able to buy an unlimited number of properties on your in your portfolio with an unlimited number of conventional loans. When I started in 2006, that was the case as well. Well, then it changed and then it went to, four properties was the limit that you could have as far as conventional financing. So if you wanted to buy a fifth property and you wanted a conventional loan to do it, you couldn't do it for a while. So they slowly opened that, they shut everything down. Then they opened it up to four. Now the limit is 10 finance properties. But again, don't let that discourage you. There are a number of strategies to be able to add to your portfolio over 10. So all I'm saying is, listen, when the Great Recession happened, banking changed, lending changed, they stopped a lot of programs because they were trying to figure out how to do loans the right way. Over time, what you have seen is that they have slowly brought some good loans back and they've kept much stricter standards all along the way. And so this is a, a natural occurrence. For rental properties and home equity lines of credit to be offered. They were offered again a long time ago. It's those strict lending standards, which we have in place now, which you didn't have in a great recession which, you know, ultimately led to a big, uh, a big challenge for the entire economy.
Pablo Gonzalez:Got it. All right. So not necessarily a riskier thing, but what makes a home equity line of credit different than other things, right? Like, you know, assume that the majority of our audience, we have a bunch of people checking in today. In fact, 116 people are here today. So they want to hear about this subject for those of us that aren't super familiar with how home equity lines of credit work versus just regular financing. Can you just give it a quick breakdown?
Gregg Cohen:Yeah, absolutely. So a home equity line of credit, I'll just take my own personal house. For an example, right, I have a conventional loan on my own primary home, my personal residence. Over time, the value of that home has gone up. And so, and I want to use that equity because I understand how that is a tool to help me get to my financial goals. And so as I see the value of my own primary residence going up, I said to myself, well, how can I unlock that equity? But I didn't want to mess with my primary conventional loan. My, my first loan. because my interest rate is 3 percent on my house. I'm like, I'm not touching that, right? How can I unlock the equity that's built up in my own primary home and then use that as capital to accomplish my financial goals? So I go to a bank and I said, hey, can I have a home equity line of credit? And what the bank does is it looks at the amount of equity that I have in my home and they may say, well, you know what? will let you take out somewhere between maybe 75 percent up to 75 percent of the value or if it's for a primary residence they'll actually let you go up typically to about 90 percent and they said okay well the new value is this Let's discount that. Let's call it to 75 percent because that's what they'll do for investment properties. And then they'll say, well, what's that equity spread left over? And then they'll say, well, for very minimal fees, sometimes not even an appraisal they'll say, okay, well, we'll basically give you a revolving line of credit for that amount. of equity that you have in your home. And the beautiful thing about a revolving line of credit is that if I want to use it, I pay interest on it. And if I don't want to use it, it just sits there as kind of like dry powder for me, waiting to be used when I see a good investment opportunity. So this is what I do for my own primary residence. This is what a lot of our clients do for our, their own primary residences. And they use that to go and private lend or of course buy turnkey rental properties. But now not only do you get to do that same thing, with your primary residence, some of you own 5, 10, 20 rental properties. That same line of thinking can now be used to tap into that equity spread that you have in your rental properties. And again, the beautiful thing is it's very low cost to set it up. And you don't pay interest on it until you use it, which is different than a loan or a A cash out refinance, which is what we'll talk about going forward as well.
Pablo Gonzalez:Got it. Okay, cool. So, Chris locks is asking a couple, like a question, like how do you set it up? Jack has a question about he locks and getting called in, but real quick, just to make sure that I understand this, the difference between a HELOC, a home equity line of credit and a refinancing is number one, there's just like way less pain and pulling out the HELOC, right? Like the, like the cash comes quicker. And it's less expensive to like file to do it. On the other side, it's not the same interest rate, right? Like there is a, like the HELOC will have a certain interest rate and then the home equity line of and then, uh, cash out refinances is like parallel to like mortgage rates and stuff like that. Right. So they're like, they come from two different sources and therefore, and then one is, you know, just availability of cash that can, you can just have it in a pool and you're not paying any interest on it. And you have access to it the moment that you want it versus a refinance that is just a loan that you're going to be paying back no matter what. So those are kind of like the, the main differences between the two, right?
Gregg Cohen:Well said, yes, you have extreme flexibility with a home equity line of credit, but you're going to pay higher interest rates. when you use that money. Whereas if you do a cash out or any type of refinance, you're locked into that monthly payment. Whether you use the extra funds that you may have tapped into or not, if it's just sitting in your own bank account, you're still paying that interest and that monthly payment on that new loan that you have. So there's a lot less flexibility there, but you are rewarded with that because you get a lower interest rate to do that.
Pablo Gonzalez:we're going to jump into examining the difference between when you use a heel lock versus when you use a cash out refi. But right now we've got a handful of questions that I think we can answer. People. Are you ready? Do you see, ask a couple of questions here?
Gregg Cohen:Yeah, baby. Let's do
Pablo Gonzalez:it. First of all, Leslie Wilson says, now I understand where the mortgage servicer of my Florida property has been flooding my inbox with cash out your equity offers. I thought they wanted to get me out of my low interest primary loans by tempting me to refinance that. That in itself is, is a point, right? Like. One of the reasons why people are sticking with their loans right now are not doing cash out refis Is because you have to switch out your old loan for this new loan, right? So that's another differential Differentiator in the cash out in the in the he lock and it's that you're not touching your original loan This is just a separate pool of money. Next is Chris locks says how do you set it up? How do you set it up? Jc?
Gregg Cohen:Give JWB a call. We have our lenders ready to go and set up HELOCs for you. So give us a call, shoot us a text, set up that phone call 904 293 0341. Cool, there you go.
Pablo Gonzalez:Jag Chata asks, Can HELOCs not get called anytime? Doesn't it make it a little bit
Gregg Cohen:riskier? Jag always has such astute questions and Jag I would imagine, Jag, put in the chat, when did you start to invest for your first rental properties? Because there are some of us who have been investing for a very long time and they remember that post Great Recession, one thing that happened is that banks actually called unused HELOC funds. Meaning, like, if I just had 100, 000 in a home equity line of credit just sitting there, they actually said, well, you know what? We told you you could have access to that. We went through the process, but you no longer have the ability to tap into that. And that was a reaction to the great financial crisis and the great recession that we have. While in the fine print, yes, a bank could always do that. It is not something that I have heard of since the great financial crisis. and I don't think there's a great risk of it, but even if there is, all they're doing is just taking away capital that you weren't using yet anyway. So no real downside risk to you other than you could have gotten excited about making an investment and having that capital available to you. but again, I haven't heard of that. I don't think it's, it's happening these days. And we have a lot of astute investors here in the chat. So if anybody else has a home equity line of credit that has been called recently, I'd love to hear it. I just don't think it's very common.
Pablo Gonzalez:Cool. I'm going to keep asking questions till one o'clock Eastern. And then we'll get into the example. Sylvia Beringer asks, can you also do this HELOC on properties that are held by a solo 401k?
Gregg Cohen:Good question. I don't think so. My guess is no, but probably a good reason to give us a call or talk to our team and get it, get a real answer. I don't think they'll offer those on properties that are owned in a solo forum. Okay.
Pablo Gonzalez:Got it. Cecile is asking, can you use a HELOC to borrow from rental property, which has had high appreciation? That's exactly what you use a HELOC for Cecile. So if you haven't read the property with high appreciation, that's what it's for. H, HTTN says I own the property free and clear. How do I get cash out for next purchase? Can I cross collateralize?
Gregg Cohen:that's what this show is all about today. Because now that we're getting you all excited about what a home equity line of credit can do from your rental properties for, from your primary. Now we can't just like send you into the candy shop and just say, Hey, just load up the bags of candy. Right? We got to help you understand what's the strategy. Because a home equity line of credit might not always be the right way to go about this. So there's a lot of strategy that goes into it. But the simple answer is. Yes, this is a capital source for all of you that are sitting on lots of JWB equity in your rental property portfolios. Can you cross collateralize? I don't really know what you mean by that in this scenario. So you can either put it in the chat or just again, reach out to the team. If you text that number, you're going to get a real human who's going to respond to you. And if she doesn't know the answer that you're looking for, or the team doesn't know we're going to find out very quickly for you.
Pablo Gonzalez:Got it. Lewis also asked about you doing the 401k. Should you call your portfolio manager about that GC? Like if you're, if you're a client, all right, so call your portfolio manager and they can help you figure that out. Right.
Gregg Cohen:Yep.
Pablo Gonzalez:Okay. Denny Davis mystery man says, what determines the HELOC rate? What are current rates right now?
Gregg Cohen:I'm so glad you asked Denny. So we of course do have providers of these HELOCs. This can be a really simple process and can be within the the network here at JWB that you guys have all come to know and love. So if you are interested, reach out to us. I reached out to our lenders today that are providing these and rates will vary. So this is not Definitely going to be what your rate is, but I said, give me a typical rate. And it's based off of prime. So it'll fluctuate, but expect about a nine and a quarter percent interest rate on the home equity line of credit. If that's what you're getting on your investment properties, the, max amount that they will allow you to borrow will be 75 percent of the value of the property. So if you want to do some quick math and see how much equity you have sitting there, take the current market value of the home, which if you don't know that, reach out to our team, happy to give you that information. And then multiply that times 75 percent and then subtract whatever your loan balance is on that property. That amount largely will be what is available to you to tap into either as a home equity line of credit or a cash out refinance.
Pablo Gonzalez:Got it. So that answers Jack's chat in the question in the Q and a as well. Jack started investing in 1999 GC. So you, you nailed it. She's been doing that. Manisteel Vincent Barber. And it says, will the JWB will JB, will JWB lenders work to refi or he lock non JWB investment properties?
Gregg Cohen:Yes. There are some limitations on which states the properties are held in, but man, if we can do it, we're going to help you out even if it doesn't mean business for JWB. Oh, but I, but I guess what you're saying is refinancing other properties and probably buying in Jacksonville. So that probably does mean more business for JWB and then we're definitely going to help you out.
Pablo Gonzalez:There you go. And that answered John Williams question as well. Oh no, John Williams asking if you only do HELOC on rental properties, can JWB help with only rental properties or also with their primary residence? John? Yeah, they can definitely help you with the primary residence HELOC as well, right?
Gregg Cohen:Yes and no. Honestly, it might not be the best thing to do to come to us for your primary residence because you might have a local credit union that even has something better for you in your specific market. So like for me, I the primary mortgage or the, the HELOC that I have, it's such a kind of ubiquitous product out there that you might be able to secure a better one even beyond the JWB network, specifically for your primary residents. When it comes to rental properties, these are some of the only products that are out there and that's where I would recommend coming to us for the rental property home equity line of credit.
Pablo Gonzalez:Leo Ferraganon and She Johnson have similar questions here. What are the approval requirements for a HELOC on a rental property? Are they more strict? What disqualifies you for HELOC? Is there a prepayment penalty to pay a HELOC off early?
Gregg Cohen:All good questions. Let's get on the phone with, with the team and with the lender to get some of those specifics, but I'll just give you a general answer. It's way easier,
Pablo Gonzalez:way easier than everything else. The rest of the specifics call. What's the number GC?
Gregg Cohen:904 293 0341.
Pablo Gonzalez:All right, cool. I'm just going to say it. A lot of folks have been putting questions in the chat and in the Q and A. If it's in the Q and A, it is saved for me. It's easy. If it's in the chat, I may have missed it. If you have any more questions, please use the Q and A. Cause now we're going to go into the example part of it. And I want to come back to these questions at the end. And if it's in the chat, as you can see, the chat moves up really, really quickly. So please pop open that Q and A. If you have a question, pop it in there. GC, you want to share with us this example so we can look through when we Or when we would think about using a HELOC versus a refinance. You're allowed to share, GC. I just let you.
Gregg Cohen:Thank you. I just put that request in. I was hoping that would be approved. You're welcome, sir. we're going to get into some numbers here in a second, because I want to kind of bring this to life for all of you. but I want to just first have a discussion about why this is so important, right? For, for all of you who have invested with JWB. And if invested in real estate beyond JWB, right, as a country, we are sitting on trillions of dollars of equity in our home. And that is a beautiful thing, but these trillions of dollars of equity just sitting there doesn't do anything to help your financial goals. All it does is it makes your net worth look better. And what does that matter to any of us, right? A net worth, a financial statement doesn't really do anything. But if we can wrap our heads around how these trillions of dollars for our country, or hundreds of millions of dollars for all of you who are JWB clients out there, if you can connect the dots to that can bring more income into my pocketbook today. or next year or a whole lot more in five years or 10 years. That's the connection that I want to make the return on equity that is just sitting there doing nothing. Your return on equity is zero. And I had to hear that statement like a hundred times before I fully understood that. So I'm going to say that again. The return on equity is zero. Pablo, can you help me and the team understand, what, what do I mean when I say the return on equity is zero?
Pablo Gonzalez:It means that equity that you have tied up in a property, just because your property has grown in value. That extra equity that you've grown on, like that is the return on your original investment, but that actual equity isn't really returning anything to you right now, unless you're putting it to work for you in some other kind of investment and doing some kind of financial engineering.
Gregg Cohen:Well said. Well said. You know, if you had. 100, 000 in equity that you built up over your JWB in your JWB portfolio. And it's just sitting there, right? The value of the home is worth 300, 000 and you, you owe 200, 000 on it, right? That just sitting there doesn't help you take a step forward to your financial goals. But if you took that same 100, 000 And you invested in a rental property and that started to earn 10 percent returns for you. Over time, in the short run, that would bring income to you because it's cash flow positive. And over time, that's going to bring hundreds of thousands of dollars of additional income. return over that first 100, 000 to you. And that's where it gets exciting. But I feel like a lot of our clients have done the hard part here, which is, you know, getting up enough courage to invest in a rental property portfolio, doing something different. They've had a great experience with JWB. They get to the point where they have three or five or ten properties and they say, you know what, I'm still working my job. Or I'm still not able to take that trip that I wanted to take. Or I'm still nervous about sending my kids to college. Or I still want to donate to charity more, but I don't necessarily have the ability to do that. And I look at the amount of equity that they have sitting on their portfolio and I'm like, you guys are one phone call away from doing all of those things. Let's take that 100, 000, sometimes 500, 000, sometimes a million dollars of equity, and let's teach you how to earn 10 percent on that equity. And let's do it in a responsible manner, where you don't have to take outsized risks to do it. Right? We're not going to take crazy loans to do this. But it's, it, it gets me really passionate because I know how important it is for you all to reach your goals. and home equity lines of credit, cash out refinances, other ways to tap into that equity can help you shrink the timeline to get there. They can shrink the timeline. They're one of the best tools to do that. And I think, and from my experience, they're one of the most untapped tools. But in order to get excited about it, you first have to understand that your return on equity is zero. We need to do something with that equity in a responsible manner, and then it starts to get exciting.
Pablo Gonzalez:Okay. Sounds good. Now that you have made that very clear, this idea that That if you just have equity in a property, it's not really doing it. It's great to have it. It's what you invested for, but it's not doing anything additional for you. You can put that to work, but you got to do it responsibly. Help us think about that, JC. Help us think how we do it responsibly.
Gregg Cohen:Would love to, my friend. All right. So we're going to talk about how home equity lines of credit help investors reach their financial goals quicker. Of course, we've talked about that text line. Go ahead and send that any question you may have set up a phone appointment. Let's help unlock this for you at 904 293 7000. 0341. And as always, it's a member of our team that respond. It's a real human. So, we are always happy to help you. And then I am gonna share real numbers with you. I want to help bring this to life. and I want to help you make the right decision. We're going to put some numbers together about making the right decision on is a home equity line of credit right for me. So to do that, I'm going to show you numbers. Take it upon yourself to do your own due diligence. We're not financial advisors. I'm just here to help. I'm a real estate investor who's done it for 20 years. So, let this be the start of your education, not the end of it. And certainly consult those who you trust before making a financial decision. And with that all right. So, we're here. We're excited. We understand how tapping into that equity can really help us get to our goals quicker. But there's a few different ways to do it, and home equity lines of credit are making the headlines right now on investment properties. But that may or may not be the right thing for you. So we're going to do a little battle royale, cash out refinance versus home equity line of credit, which is better? And I pulled a real client case study here. And I kind of want to put ourselves in the shoes of this client who we can sit down and help and say, listen, we know we want to get to this goal. What's the best way to attack it. What's the best way to use our tools and our resources to get there. So we're going to kind of all go through it together and learn together. Okay. Okay. All right. Uh, so for this client, this is a real client, their why, the reason they came to us many years ago was because they wanted to enjoy an early retirement. They were in their early fifties five years ago when they came to us and they wanted to earn 10, 000 a month coming from their gen JWB rental property portfolio. So that's their goal. We helped map this out for them as a part of the client onboarding process. Okay. And we determined that 10 properties. was their target number of properties so that they could get to their goal. And right now they're at five properties, but they bought these five properties in 2021. Pablo, what has happened since 2021?
Pablo Gonzalez:Home prices have gone parabolic.
Gregg Cohen:Parabolic, I like that one. yeah, home prices have gone up so much. So, but here's the other thing. What were interest rates like in 2021, Pops?
Pablo Gonzalez:Supes low.
Gregg Cohen:Supes low. Well said, buddy. Well said. So, we've got this beautiful thing that's happened where we have earned so much equity. And this client is sitting on over 680, 000 in untapped equity over their five properties. Many of you, if you haven't looked at your reporting lately for JWB, many of you are sitting on similar numbers. I know because I see it, so you should take a look. So that 680 some odd thousand dollars of equity, the connection is how much farther along can that get me in my financial goals and my financial future if I can find a way to tap into that. But for most of us, we've said, well, my only idea has been if I want to. Either tap into that. I either need to sell it, which they don't want to or refinance. And then I'd need to get away from this. I need to refinance my original loan. And that's like three and a quarter percent. I don't want to do that. Well, now this home equity line of credit is an opportunity to do that, but it does not mean one size fits all as far as it always being the solution for you. So we've got to put some numbers to this. Okay. We're going to all kind of go through this together. All right, here are these client, this clients. five property portfolio. You can see they bought them in 2021. You can see the purchase price when they originally purchased it and their current market value as well as their current equity. Pops, any questions or any thoughts on just looking at the, the fun stuff here, how much equity has grown?
Pablo Gonzalez:No. Pretty clear, right? So they, they bought five properties in 2021, somewhere in the range of high one eighties to, to like, to two tens, right? 2 10, 2 17 is the highest one. Lowest one is 180 8, 180 6, and then 1 96. The values have gone up significantly, right? Like it looks like they have se about 70 K in one, about 90 k in another about. Another, you know, another like 90, 000 in another, another 85, 000 in another, and another you know, like about 60, 000 more, right? So you start adding that stuff up and there's a whole bunch of, there's a whole bunch of equity.
Gregg Cohen:I love it. But let's look at that current equity column there, right? So, like, let's go through property one, right? You see the market value of 257, 000 today. Purchase price of 188, 000, right? That's like 70, 000, or what's that? 12, 000 plus 57, 000, so that's 69, 000, that's like 70,
Pablo Gonzalez:000.
Gregg Cohen:Yeah. Right? Yeah. How, how was their equity 125, 000?
Pablo Gonzalez:It's funny. I hadn't even looked at that third one. I was just doing math in my head. That means that your home, your down payment plus the equity, the amount of equity that has gone up is now your current equity.
Gregg Cohen:Yes. And this, this aha. I'm so glad we did that, Pablo, because this aha moment for a lot of you is real. You don't realize the amount that you're sitting on, especially as your homes go up in value. You don't realize that you're sitting on 50, of an untapped resource and untapped tools to help you get to those financial goals. And for this client and for many of you, you take that aha moment times five, right? Times five properties. And that's how this client has over, you know, 680, 000.
Pablo Gonzalez:Yeah. You know, I hadn't thought about how much that adds up, man. You know, like if it's 25 percent down on like multiple properties, that's, you know, four properties, it's a hundred thousand that you're already, you already have, you know, to like start thinking about, right? So then beyond that, however much it went up, it almost. It almost reminds me of the concept of, you know, when people talk about infinite banking, this idea of like putting a certain amount of money into a property and then being able to like take money out from that property to put that to work is another version of that, right?
Gregg Cohen:100%. Absolutely. And, you know, again, you can do this in a responsible manner, meaning like you put 25 percent down when you bought the property, clearly that was responsible. When we go to do the refinance on the back end. the bank is only going to allow you to take 75 percent of the value out. So inherently, you're right back to that responsible lending scenario of putting 25 percent down, except you are taking it from the growth of the asset, right? And if, again, we hit a lot on the value of the five profit centers. Pablo, what's the most important profit center over the long haul that's going to drive most of your wealth? Home price appreciation. Home price appreciation, right? That's why thinking beyond cash flow is important. This is financial engineering. This is where it gets really exciting. And you're just not, you know, cash flow, while it's important, and positive cash flow is what we, what we do, positive cash flow is not going to allow for fun conversations like this. Got to invest in a growth market so that you can, you can do this three years, five years down the road.
Pablo Gonzalez:Positive cashflow doesn't allow for a conversation like this. Meaning that if you're overvaluing where you invest and you're overvaluing having maximum cashflow versus valuing. Cashflow plus growth in the right way, then you likely are giving up the opportunity to have this conversation. If you're in a market, that's only growing 1 percent a year.
Gregg Cohen:Well said brother. I got excited. I gave, I gave the cliff notes version. I'm so glad you gave context there.
Pablo Gonzalez:Got you.
Gregg Cohen:All right, so we got a lot of equity that we've built up because of our down payment, also because of principal pay down, our loan gets paid down every month and that adds up, and then the growth of the asset, and that's how we have over 680 grand in equity for this client. So let's get a little bit more nitty gritty because it's important for us to understand. the current loan that's in place and the interest rate of the current loan to help you decide is a cash out refinance or a home equity line of credit. So you can see here, each property, the original loan balance, the current loan balance. So look at this, Pops, the clients own this for about three years, these properties for about three years. Look at how much has been paid down from their original loan balance to their current loan balance. Right? That's that principal pay down profit center that people just discount, but it adds up. Look, to the tune of about 10 grand per property,
Pablo Gonzalez:10 grand plus, 10, 10 grand plus, right?
Gregg Cohen:Yeah. There you go. There you go. And then we got to look at our interest rates. So for a lot of us, having a low interest rate is wonderful, but you know, sometimes we shut the door on it and we say, you know what? I don't care what happens. I'm not changing that. I'm not getting I'm never going to get rid of that interest rate. And I think that is a. That is a good strategy in, in theory, in generalities, but shutting your mind off on potentially getting rid of that might, it honestly might extend it might extend your financial goals being hit. So we have to keep our minds open a little bit. So as excited as we are that we have a product that helps us keep that initial loan balance in place, I'm going to challenge you a little bit on something I'm going to show you a scenario where. actually refinancing out a low interest rate might actually be a better scenario. We're going to use none other than our favorite guinea pig here, Pablo's portfolio to go through that here in a little bit. So a little bit of a teaser there, but this client here, three and a quarter percent interest rate, we're going to see, is it better for the home equity line of credit or for the cash out refinance? Thoughts, questions, or should I roll right into it, bud?
Pablo Gonzalez:I think you're good, man. Let's keep rolling.
Gregg Cohen:So here's the two options here. We've got a cash out refinance. Let's assume you're this client and you know, your goal is to get to 10 properties with us. You're at five right now. And you come to us and you say, What should I do? I know I have 680 grand in equity here. Do I do a cash out refinance or do I do a home equity line of credit? What we're going to do is sit down with you and we're going to map out something like I've just done for you here. And ultimately for us as financial engineers, we need to understand what is, what are your goals and then what is the lowest effective interest rate combining all of the loans together in order to help you make the best decision as to whether or not to cash out refinance or a home equity line of credit. And so for this client who has goals of getting to 10 properties, they want to use the equity they already have in the portfolio to reinvest to get there. Look at that punchline there at the bottom, Pablo. So the numbers may actually suggest that cash out refinance strategy. is most likely better for that client. What do you think when you first see that? I
Pablo Gonzalez:mean, I guess I'm not super surprised, right? Like the idea of jumping up to a 9 percent interest rate versus staying at like a lower interest rate that you can get right now, which is what, like five and a half, something like that. You know, like, I think it would be specific scenarios where the HELOC makes sense versus others.
Gregg Cohen:Absolutely. Right. So, and the, here are those. There's, there's kind of like a cut and dry basic way to analyze it, which I'm kind of giving you right here. There are a lot of other scenarios to take into account, which is why you need to jump on the phone with us before we actually, you know, guide you in a certain direction. But here's an analysis that all of you can do even before you get on the phone with us. Let's look at the two strategies, the cash out, refinance, and the home equity line of credit. And let's say, what is my lowest total effective interest rate? The lowest total effective interest rate means taking kind of a, taking a weighted average of the two loans and seeing what is your interest rate going to be if I had to combine those and get the weighted average. So for the cash out strategy, it's easy, right? The, if he's going to get to 10 properties that are owned. his conventional loan balance would just be doing a cash out refinance for the original five and then using that money to then fund the purchase for the next five. So all of it is a conventional loan. It's just a cash out refinance and the current rates right now, clients are closing around five and a quarter percent for JWB. So the analysis is really simple. That loan balance now is 1. 5 million of which is cash flow positive, right? And your effective loan interest rate is five and a quarter percent. If we were to run the analysis for the home equity line of credit strategy, and we took those same. properties where he had that three and a quarter percent interest rate on that first five. He'd owe roughly about 700, 000 on those first five. And we said, okay, let's do the home equity line of credit. We would actually be doing them a disservice. He would have felt really good about keeping that three and a quarter percent interest rate there. But ultimately, when you take the weighted average of this. You'll see that the effective interest rate for the home equity line of credit strategy is actually a little bit over six and a half.
Pablo Gonzalez:Got it. Is the total effective loan interest rate the key figure to understand before you are, before you decide on a cash out refi versus HELOC?
Gregg Cohen:There's more to it. It's the kind of the starter, the starter point.
Pablo Gonzalez:Okay.
Gregg Cohen:Right. Okay. I would say it's probably the most important, but there's a lot that can be dictated by your goals.
Pablo Gonzalez:that's what I assume, you know, like goals have to have to make a difference, right? Like Chris Locks is saying, but aren't you also resetting the clock on when you'll pay your mortgage off if you do a cash out refi? Right. Is that a, that's, I assume that that's a yes. Then that also means. So then you also have to think about what your goals are and when if like you have a certain moment in your life When you want to be completely debt free and stuff like that, right which is why you hop on the call with JWB So you're thinking through the multiple factors of how this thing affects not just your cash flow Not just your net worth but your actual goals of why you're investing with rental properties
Gregg Cohen:Absolutely. Absolutely. There's a number of things to take into consideration, which is why I put there cash out refinance strategy is most likely better, right? So the, the fact that you'd be resetting the clock on these loans is a great point. So these loans are seasoned three years. Right. So every month you make a payment on your loan, it amortizes and it gets farther along that amortized amortization schedule, which basically means that the next month that same payment happens, but more of it, you get credit for your principal going down. And so if a loan is seasoned three years, sure, there's three years of credit that you would have earned as far as more principal pay down is the way I kind of think about it. But it's not like it's. 20 years seasoned, right? If it was 20 years seasoned, that payment every month is the same, but the majority now is going to principal. So it would be all things in a vacuum. If it was 20 year old mortgage, it would be another thing to consider with JWB and say, Hey, just because the effective interest rate is lower, does it really make sense for me to do the cash out refinance strategy? So, great point. Exactly the type of conversation that we get to have on the phone with clients and with new clients. And I'll throw a couple other things that you should definitely be considering. You know, these will go against a home equity line of credit, probably. a home equity line of credit is a variable interest rate. Which means that it fluctuates with time. typically the prime rate. So that nine and a quarter percent rate today could go up in the future, could go down in the future. Many people would think that it would be going down because we all assume that rates are going to go down. But we don't know. And so, for a lot of folks, the unknown there, where it affects your monthly expenses, is kind of a negative for people. But then again, you could certainly make the argument that, listen, I think interest rates are going to go down, so this number, this percentage might not be 9. 25, it might be 9 percent or 8 percent at some point in the future as well. So, something else to consider. What are your personal expectations on what interest rates are going to do? And can you handle the fluctuation? Another thing to consider. Here's something else though, and this is, this is how I think. You know, I love flexibility of home equity lines of credit. And there are very few things out there where I know I can make an investment decision like this I don't have to talk to anybody. I can just tap a few things on my phone and I can earn a 6, 7, 8%, 9 percent return on investment. So one thing that I love about HELOCs is that, you know, when I'm managing my own finances and I have more money in my bank account than I really need to have, one of the first things I do is I send that money off to go pay down my home equity line of credit. It may be a dollar, it may be a thousand dollars, but I can immediately make that payment. And in essence, when I'm paying off a 9 percent investment or a 9 percent loan, I'm earning 9 percent on that money. And there just aren't a lot of options for you to make very low dollar amount contributions to your overall financial wealth. Normally you gotta You know, you gotta, you gotta make bigger decisions to earn 6, 7, 8, 9 percent. So that flexibility of being able to use very low dollar amounts and pay off your HELOC is something I like. So again, that, that might not be you, right? You might really love just slow and steady. I love knowing exactly what my payment is going to be every single month. I don't want to think about anything else. It might be your point in life. You say, listen, that's not important for me to go ahead and pay off that, you know, little amount. So all of these things really need to be considered. That's why you need to sit down with an expert and it's just not as simple as this effective interest rate conversation.
Pablo Gonzalez:Got it. Do you see before we move on to the next slide, a handful of folks like Jag and Misty and I think somebody else here drew maybe was asking, are you considering, well, so Refis also have closing costs. Are you considering closing costs in this conversation as well?
Gregg Cohen:I mean, we should consider it. It would be another thing to talk through with the clients. I did not put that specifically into this analysis here, really trying to show the big picture on the effective interest rate. But yes, you'll have higher closing costs for cash out refinances than you will for home equity lines of credit. However, the closing costs for cash out refinances will be less out of pocket than your initial purchase.
Pablo Gonzalez:Okay. So we've talked about the before, right? Like, refinancing while like initial purchase closing costs is somewhere around like 10 percent or something like that. Cash. I refines like four grand, right? Something like that. Or at least those are the numbers that we kind of threw around with John Seabird. So just, just not that those are real numbers. Those are just the scale that we were throwing out during that conversation at one point.
Gregg Cohen:Yes. So I'll give you the real numbers, right? So, so generally with rate buy 8 percent of the purchase price for your closing costs. And, but with the incentives today JWB is covering 2 percent of that. So it would actually knock that down to 6 percent would be your closing costs on a new purchase. On a refinance, typically about 3%. And, what you're not paying for are the, taxes and the insurance prepays and other things like that. So it's less out of pocket.
Pablo Gonzalez:Cool. Got it. All right, GC, let's keep
Gregg Cohen:going. All right, sweet. So we just went through a strategy where actually doing a cash out refinance would be better. And that's dictated by the amount of equity that you're sitting on. What are your goals? How many properties are you going to use that to buy? And that, that helps you determine the effective interest rate. Well, now let's look at a scenario where a home equity line of credit is the most likely better solution here. And we use the numbers for our very own Pablo when we were going through this. Pablo owns I was about to
Pablo Gonzalez:ask. Are we about to talk about me, GC? Are we about
Gregg Cohen:to talk about me? Give me some advice. You know it, buddy. You know it, buddy. Pablo hasn't seen these numbers. I texted him right before the show. I was like, Hey, man, you cool if we go through this with everybody? He's like, Oh, yeah. Yeah, sure. Of course.
Pablo Gonzalez:Whenever, whenever I go to Europe, Greg pours through my portfolio. That's what's going on. He just misses me. He misses me. Go ahead.
Gregg Cohen:Well, well, I wanted to go through a scenario where I knew that a home equity line of credit strategy was likely you know, to be the better, better case. So, Bob's, all right, let's talk about differences in your portfolio from the one that we just talked about, right? Give everybody just a one minute spiel about your investment strategy so far.
Pablo Gonzalez:Yeah, so I've bought I have two properties that I financed at like 20 percent that I bought in early 2021. Then I have one that I bought in early 2022 that I financed at 25%. And then I have a duplex that I live in one side and I'm house hacking it. So I have another unit. So those are my four, my four rental properties.
Gregg Cohen:There you go. And three of those are turnkey properties, right? And we have talked about your goal as being, Hey, listen, I'd like to, I'd like to make little baby properties. Out of the, the, the investments that I've already made, we'll just, we'll just say the three turnkey properties because that's simpler for this. You've come to me and you said, listen, Talk to me about when this thing can be refinanced and I may be in a position, I'm not going to contribute new capital, but I want to take the untapped equity and potentially turn that into another property, right? So now there's big differences there between the scenario we just talked about. Right? The client before has owned those five properties for three years and bought all of them in 2021. And their goals are much, they need to be accomplished much quicker, right? They're looking for a way to buy five more properties and they want to do it now. And because they bought five properties in 2021, they have more equity to work with. So because those are differences than what you're at right now, Pablo, you're working to get there, right? But you haven't had as much time in the game as they have. So for Pablo's scenario, it's all about, Hey, listen, I want to buy one more asset with using and reinvesting those profits that I've already built up. So that's the decision here. We said, okay, there's a cash out refinance strategy to acquire one more property. And in that case, Pablo would own four JWB turnkey properties. Let's go. And let's just start the conversation by understanding what is the effective loan interest rate here as the jumping off point for obviously a bigger conversation. And here you can see that that HELOC strategy is most likely better because it's that same effective interest rate weighted average starting point that we, that we started there, right? His effective interest rate, if he was to keep that initial loan in place and then add on a HELOC, which does have a nine and a quarter percent interest rate, would still be lower than if he was to do a cash out refinance for that fourth property. And, you know, for me, usually when a home equity line of credit is, either has a lower effective interest rate or it's close, typically, this is a general statement, generally a home equity line of credit is going to be the better thing to do. Number one, it's way easier to set up much less of a headache. you know, that flexibility comes into play. Of course, we think interest rates are going to go down in the future, which could actually make this decision even better as we go on. So just generally thinking when we see something like this, that it's lower than meaning the effective interest rate is lower than the cash out interest rate. It's probably the way that we're going to lean.
Pablo Gonzalez:Got it. So when I look at this and I see this HELOC loan balance, it means I would be able to take out 75, 000 in a HELOC. Is that because I'm combining multiple pools of equity from my three properties into one or is that because I have 75, I have 100, 000 worth of equity in one property?
Gregg Cohen:You would be combining it. So you could do a home equity line of credit on each of your three properties and, and including your other two as well, right? So you could do more, you can do multiple lines of credit, which just basically would tap into, let's just say 30 grand or 40 grand on each of these properties to get you closer to that, you know, a hundred thousand.
Pablo Gonzalez:Good clarification because Kevin O'Brien was asking, can I get a HELOC across my portfolio of properties? Meaning, can he, you know, can he combine, you know, like his properties into like one big HELOC? It sounds like you can get a HELOC on all of them and then combine that money to do whatever you want.
Gregg Cohen:Yes.
Pablo Gonzalez:Okay. So each one has its own HELOC and then that money is just available to you super easy because it's just this like pile of cash that's sitting there for you to use.
Gregg Cohen:Exactly.
Pablo Gonzalez:There you go, Kevin O'Brien. All right. What's next you see? That's pretty much it. I mean, I wanted to make sure
Gregg Cohen:what we should talk about beyond the effective interest rate. I feel like we had a good conversation there. So, you know, lastly, there it's, it's just reach out to the team lots of exciting things to talk about. And I hope I conveyed the the opportunity here, but it's not as simple as just one size fits all. So I think that conversation can really help our current clients as well as our new clients. So hit us up, 904 293 0341 and get those phone calls set up and we'll we'll help you get there, but,
Pablo Gonzalez:but, but wait, there's more. We have like 14 questions to go through. Do you see, you want to hang out? Yeah, let's do it. All right, let's do it. Jag, my lady Jag asks, do you think lending may tighten? So basically I think she was asking that when they weren't recalling these loans. Like, do you think there's any chance of like lending tightening or anything like that?
Gregg Cohen:I think there's always a chance hard to say. I don't really have much of an opinion on one way or the other. I don't spend a lot of time thinking about it. I think we've been in a pretty good place lately as far as lending. You're seeing some products come out that were done away with a long time ago that still can be used responsibly. But the best thing is that we still have strict lending standards. That I think is the key.
Pablo Gonzalez:Okay. We have an anonymous attendee that this is relating to the last example, right? Of my, of, of my potential scenarios asking, how do you get the effective interest rate? Because it's still not clicking on how a 9. 2 loan could go down to 4. 3.
Gregg Cohen:Yes. So the, what you would do is you take the percentage of the debt that you have. You know what, let's, let's go ahead and we'll do that thing back up. I know you love a good visual tool. You know, I know. All right. So in order to calculate this, you add up the total debt. So you got the loan balance here, 362, 7, and then you add it up here. So you get your total loan balance. Well, what you need to do is you need to take the weighted average. So you basically take what percentage of the debt is at 4 percent and then what percentage of the debt is at 4%. So what, what you'd actually do is you'd say, okay, well kind of did the math ahead of time right here. So you're seeing all my notes here. So 83 percent of this debt right here is at 4%. So you'll literally do a 0. 83 times four. And then that comes to 3. 32. I just got my notes here, so I'll give them to you. And then you take 17 percent and multiply it times 9. 25 and then that gets you 1. 57. And then you add those two numbers together and that's how you would do the weighted average old school style on a notepad. And that's how you get to 4. 89 as an effective interest rate.
Pablo Gonzalez:Effectively explained. Thanks GC. Tara Paget has a question. How does using a HELOC affect your debt to income ratio?
Gregg Cohen:Great question. Other things to consider as we talk about advising you on what's the best approach here. So a home equity line of credit shows up as a revolving line of credit. So, when your credit is established, they look at things like what percentage of your available credit are you using? So if you take out a large line of credit and you maximize that and you, you know, you take 75 percent of the available credit that can lower your credit score. And then you get that paid off and then your credit score can go back up. So other good things to think about, whereas a cash out refinance, you wouldn't have that issue. It is seen as an installment loan, which is a set amount every single month. And it doesn't, it wouldn't affect, in fact, it would probably positively affect your credit. By taking that installment loan. So I'm giving a whole lot of generals there. Listen, this is establishing credit. So we all know it's some done in some wizardry back room somewhere that nobody really knows. But, but the point here is that these are all great conversations. And if your credit score may potentially get knocked down a few points because of the HELOC strategy, we need to let you know about that. And you need to know about that so we can help you. You know, make the right decision.
Pablo Gonzalez:Anonymous attendee says, is there a cost of opening a HELOC? What's the estimated cost? We said it was kind of cheap, right? Like a couple hundred bucks.
Gregg Cohen:So it depends. And that's why I would really encourage you to well, to talk with our team about, rental property, home equity lines of credit. I don't have the cost right off the top of my head. So just talk to our team. We'll get that cost estimate for you, but I know it's less than what a purchase would be. And, on a primary residence, it's even less expensive. For the primary home equity lines of credit that I've had over the years, they, I mean, they haven't, sometimes they didn't charge me any closing costs. And sometimes they charge you a little bit. So, whatever it is, it's going to be less than what you were expecting based on your other prior purchases. You're probably going to be pleasantly surprised.
Pablo Gonzalez:DL is asking, is there a minimum loan amount? Is there like a minimum loan amount for these home equities line of credit?
Gregg Cohen:It's a good question. I didn't ask that. I'm not sure.
Pablo Gonzalez:Stay tuned. all rights. Jag, very experienced investor. She's asking the HELOC is a variable rate. How did you, how did you manage the interest rate risk on using it as a down payment? Is that putting maybe 50 percent down for the next property?
Gregg Cohen:Really good question. I think that's part of a, just a comprehensive plan. You know, if it's me you know, I like the flexibility of the home equity line of credit, so this is just me speaking personally, if the home equity line of credit effective interest rate is anywhere close or below what the cash out refinances, I'm going to do that because I think interest rates are going to come down in the future, which would only make this decision better. but I like managing money. Okay. And so I have no problem with the fact that it may be variable, and I'm not like everybody. So, how would I manage the risk? I, you know, this is, this is like my bread and butter. So I, I love managing risk and managing money. So I, to me, the fact that it may be variable isn't a downside to me. And so if the numbers made sense, I would take out the whole medical equity line of credit and, and I wouldn't need to only use it for 50%, but that's not one size fits all. I think that is the importance of this conversation that we need to have because I'm a little bit of an anomaly, I would say, right? Not everybody just goes out and quits their job at 23 and, buys 40 rental properties before the great recession happens. And, you know, and all that good stuff. So talk to the team, we'll get the right plan figured out for you.
Pablo Gonzalez:All right. A couple more questions to go before we forget though, GC Joanna just reminded me Thursday, we've got a special webinar with Claudia Kernan, who is a, again, we're talking about creative ways of finding capital to grow your portfolio. She is a 10 31 expert. Am I right?
Gregg Cohen:She is, she is. We are just stacking up opportunities for you guys to make great decisions as you go into 2025. Right. We are now we're talking about a 10 31 exchange. If you all have properties that maybe are just not performing or it's just not the right market across the country and you're like, how do I access that equity? But I don't want to pay the tax burden on it. And how do I take advantage of the incentives that are offered for JWB? Well, that's what Thursday will be about. How can you do what's called a 1031 exchange? And access the equity that you have built up in your properties in Sheboygan and other places in the country, and then use that equity to build your portfolio here in Jacksonville. It's called a 1031 exchange. We're going to have one of our best experts here, Claudia Kiernan, Senior Vice President for 1031, excuse me, for IPX 1031 exchange with us here. She's going to be doing a great job, but just think about all these things that we're stacking. right now for you guys to be able to make great decisions. It's the incentive package. It's now 1031 exchanges. Again, becoming a client before Summit, putting that first property under contract so you can be a part of Summit. A lot of great things. Hope you guys sit down, think about it, and make some good decisions here.
Pablo Gonzalez:I'm going to ask just two more questions, GC, because I got to get out of here. Eve's Richard Dole and an anonymous guest asked, what is the best way to estimate the home value aside from an official appraisal? The best way to estimate your, your home value to know how much equity you have.
Gregg Cohen:Talk to the team. We've got that number for you. It's also available for you on your client ROI report. If you, we can show you how to, how to get that. You, you've got your purchase price and you see how much home price appreciation has been built up. So you can just simply add those two numbers if you want to do it yourself and just log in, but just give the team a call. Happy to give you a full report.
Pablo Gonzalez:And that's for a JWB client. I'm pretty sure Eve's is, I'm not sure if anonymous is, but otherwise say hello.
Gregg Cohen:Talk to a realtor friend, you know, I really wouldn't use Zillow to make an individual property recommendation but you know, you guys, you guys got friends, you got realtor friends in different parts of the country. I would hit up one of them.
Pablo Gonzalez:Got it. All right. Sandra Morales asks, once you invest, is there a minimum timeline to do a HELOC on the property?
Gregg Cohen:Hmm. There is. I don't remember. I'm pretty sure there is and I didn't ask that question, Sandra. Yeah, so just, just fire that question over to us and, and we'll get that answer for you.
Pablo Gonzalez:Got it. real quick, Ramon Johnson asks, if you request a HELOC today and don't use it for six months, what is the interest rate today's rate or the rate in six months?
Gregg Cohen:It varies every day. So it'll be whatever the rate is at the, for the month or the day that you're borrowing it.
Pablo Gonzalez:Okay. Mount man, Billy green, who didn't check into the chat before, but now I got him says, What if I simply have an unusual financial emergency? Should I still call JWB per my interest is, is my interest possibly pulling equity out?
Gregg Cohen:Is my interest possibly pulling equity out? Yeah, like
Pablo Gonzalez:Billy, Billy is a client of JWB's, you know, like he, he wants He's thinking about using a HELOC because of a financial emergency. Still call you guys. You'll still help him out with him. Not a hundred percent.
Gregg Cohen:Yeah, you know, financial engineering doesn't just, you know, start and stop with buying properties, right? If you've got something you want to look at, how to access some of your equity in a JWB property, this home equity line of credit might be a great thing, right? I think a home equity line of credit is a great thing to have, especially if it doesn't cost much to set it up. because you don't pay the interest on it when you don't need it. And it's capital for you if there is a financial emergency or if there are reserves that you want to keep for maintenance costs and things of that nature. This is, this is a much better approach.
Pablo Gonzalez:When using a HELOC from a rental property at nine to 10 percent as the down payment, are you finding that the purchase of a new property in today's environment is breaking even or even going cashflow negative after servicing the new conventional loan and the funds used from the HELOCs as a down payment?
Gregg Cohen:So the rate of return is better than 9. 25 on your new purchases for JWB. So your rate of return, especially with these incentives, will be somewhere around nine and a half to about 10 and a half percent return. So it's nice to know that you're, you are in essence, borrowing nine and a quarter money to earn, call it 10 percent money. However, the beauty of this thing is that you can borrow this money, but you can pay off this 9 percent interest aggressively. So it's not like that 9 percent money is going to stay there for the next 30 years. Another part of this strategy and this plan and the conversations we need to have with you before you take this and run with it is to say, Hey, listen, okay, now we have 9 percent debt here. How quickly can we pay this thing off? And that's where the C3X strategy and the aggressive strategic pay down strategy comes into play. So that you don't have this 9 percent debt sitting out there for a long time. You get aggressive, you pay it off in a short number of years, and then it makes that decision even better than just that, call it net 1 percent gain from, you know, nine and a quarter to whatever, 10 and a
Pablo Gonzalez:half. Okay. I know I said last question, but really last question now, just because I see a couple people asking it, is the interest on the HELOC for the rental property tax deductible?
Gregg Cohen:Yeah. It's a good question. I don't see why it wouldn't be. Your interest on rental properties typically is I think so. I don't see a reason why not.
Pablo Gonzalez:Okay. Talk to a tax professional.
Gregg Cohen:I am not one.
Pablo Gonzalez:All right. Talk to a tax professional. GC. Last official, not your average investor of the year before Christmas. So pumped to do this with you, buddy. I'm happy that I can call him from a host houseboat all over the world. I'm glad that the technology exists to be here and share it with a community. Want to thank the community. I do want to remind you that if you do want another bite of the app, another bite of the natural investor and not your average investor show Apple, you can join us on Thursday for the special webinar. Of 10 31 exchanges with Claudia Kernan. So we'd love to see you there. Really want to wish the community a Merry Christmas. They came out in full today. Tons of questions. Sorry, we couldn't get to all of them. Just 120 plus people showed up today. So I just really want to acknowledge that you taking your time out of your day. To join this community to ask these great questions. It really, really means a lot to us. It's like a early Christmas present for me to see like this giant turnout on a week that I know everybody's kind of distracted with holiday parties and all these different things. So really, really appreciate it.
Gregg Cohen:Likewise, buddy. It is one of the things that I'm most thankful for. I think my, my gratitude is always there, but especially thinking about Thanksgiving and then this holiday season. Everybody in this community has been so much on my mind. Pablo and I talk about it all the time. What a gift it is to have this community. And I never knew it could be what it is. And that's just because I didn't understand the power of community 10 years ago, or even five years ago when we started. And so. This is something real and special. And one of the things I'm most thankful for you know, this year. So 2025 is going to be amazing. Appreciate all you guys. And I'm glad you guys got a lot of the show today.
Pablo Gonzalez:Any advice from now, you know, before people talk to Santa, you got some advice for them.
Gregg Cohen:Tell Santa don't be average. Don't be average. Merry Christmas, everybody. Hope to see
Pablo Gonzalez:you
Gregg Cohen:Thursday.