Articles

HELOC for Investment Property


So How to Use a Home
Equity Line of Credit or a HELOC for
Investment Property. That’s today’s show. Let’s dive into it. Hey, everyone, I’m Clayton
Morris– longtime real estate investor. I achieved financial freedom
a few short years ago. And now, I’m helping you
build financial intelligence. So if you are new to
the channel, that’s what this channel
is all about, so go ahead and hit that Subscribe
button and like this video. So we help you build
financial intelligence. And our goal is
to help you build passive income every month. You can do it a number of ways. We do it with
rental real estate. So what we like to do is
buy properties, hold them, and let that cash flow
produce for us every month from tenants. That’s what we do. Now, one of my favorite ways
to buy rental properties over the years is
using a HELOC– a home equity line of credit. On today’s show,
we’re going to dive deep into what a home
equity line of credit is. Heck, I’ve written a whole
book about how to pay off your mortgage in five years. You can click on that if you
want in the description below and check it out on Amazon. But in the meantime,
let’s talk about– before we get to the home
equity line of credit, let’s talk about your house,
OK, because if you’re watching this video, if you’re
joining us now, then chances are you live
in a home that has equity, or you’re hoping to have equity. So you live in a
primary residence. Now, we just did a
whole show called, Your Home is Not an Asset. So I won’t go too deep
into why that’s the truth that your home is not an asset. But first, we need to establish
that as the mechanism, right? It’s a primary
residence that you own. Your home is not an
asset, OK, that when you live in a primary
residence, it’s not producing monthly cash flow. Now, I know this is contrary
to the American dream. And the American dream says,
buy a piece of property, live in this property. And that’s it. You’ve reached the
American dream. But that’s not. It’s actually wrong. And that’s how the
middle class live. They buy liabilities. And your home that you
live in is a liability. I’m sorry, it just truly is. A performing asset is something
that puts cash in your pocket every month. And the home you live in does
not put cash in your pocket every month, unless
you rent out a room, or you Airbnb it or something. Or you live in a duplex, and you
live in one side of the duplex. And the other side,
you’re renting out, OK. Other than that, your
home is not an asset. Now, how can you turn
your primary residence into a bit of a
performing asset, not fully, but a bit
of a performing asset? Guess what– you can do
that with a home equity line of credit on the
equity in your property. Now, this is a strategy I’ve
used to buy rental properties. It’s also a strategy
that I write about in my book on how
to pay off your mortgage in no time at all. So a question we
commonly get around here is, well, if I got $50,000
or $100,000 home equity line of credit, what
should I do with it? Should I use it all to pay
down my primary mortgage? Or should I use it to
buy investment property? Now, I can’t answer
that question for you. I can only tell
you how I’ve done it, which is, we had an $80,000
home equity line of credit. We used half of it
to buy an investment property and the other chunk to
pay down our primary mortgage. And it’s a strategy that I go
more deeply into in the book. But a home equity line of
credit is basically that. It’s equity in your home that
you’re leveraging from a bank. So let’s say you live
in a $200,000 house, OK. You’ve put down 25% or 20%
when you moved into that house and you purchased it. Now, you’ve built up some
equity in that property. And now, the amount you owe
on your primary mortgage is a lot less than you
owe back to the bank, OK. I’m sorry, the amount that
you paid that you still have on a balance is way
less than what you initially bought the property for. So that difference, of
course, is the home equity– that home equity that
you have in the property. Now, my strategy is always
to go to a local bank. I like working with local
banks, because now, they’re going to know better
the neighborhood. You’re going to be
able to get some really fantastic introductory
rates on your home equity lines of credit. Typically, you could even
get like a 1.9% interest rate on your home equity line
of credit for one year or so. And then it will go up
to the market prime rate a little bit higher, maybe
in the 3% to 4% range, depending on where the
interest rates sit. But that 1% for the first year– that’s a killer way
for you to leverage that to buy rental property. OK, so now, you go
to your local bank. You’ve got a $200,000 home. You maybe have $100,000 worth
of equity in that property. Now, a bank is never
going to give you 100% of the equity in
your property, right? So in that scenario,
you have $100,000. Well, the bank is going to
probably give you 70% to 80% of that equity. So you might walk away
with an $80,000 home equity line of credit. Now, what is a HELOC? Well, a HELOC is
simply a line of credit they’re extending to you to use. It’s not a check, right? It’s not a home equity loan. In that scenario, they’re
cutting you a check– avoid those at all costs, OK? You want a home equity line
of credit, which is just like getting a credit card. You start with a zero balance. Very often, these banks will
give you a credit card– sorry– a debit card. They’ll give you checks,
even, for having a home equity line of credit. It’s essentially a bank account. They will set up with
its own account number and routing number,
a bank account. Now, you start with
zero balance, OK. And the beauty of this
is that usually a HELOC will last you about 10 years. Now, often it will
end after 10 years or working with that
same bank, you could even re-up it again and go back
to them and say, well, now, I’ve built up a lot more
equity in my primary residence. I’d like to
renegotiate this HELOC. And they’re going to
say yes, let’s do it. So in this scenario, let’s
say you have $80,000, right? You go to your local bank. They send an appraiser
around to your property, OK. They will sometimes pay for it. Sometimes you have to pay for
the appraisal on the property that you live in. They’re going to look
at comparable properties in the neighborhood. And why we work with
a local bank is, they’re going to have a
much better assessment of the neighborhood than
in big national bank, OK. And then they’re going to extend
to you a line of credit based on the equity in your home. Great, now, you
kickstart that process. So what do you do now? Now you’ve got
$80,000 to work with. Personally, I would be
buying a rental property with that amount. And whatever’s left over,
most of the properties that we do at our
company at Morris Invest are going to be in that
$50,000, $60,000 range. So that’s what
exactly what I did. My first three or four
rental properties, I used a home equity line of
credit to invest in property. Now, why is this smart? Well, because you’re
turning that home is not an asset into a bit
of a performing asset by leveraging the
equity in the property in order to purchase
a performing asset, which increases your net worth. So now, you have a
home you live in. And now, you’ve just bought
a three bedroom, one bath house for $50,000, $60,000. That’s cash flowing–
$700, $800, $900 a month in cash flow. That’s a win-win, right? You’re now leveraging that
equity you have in your home because you cannot eat equity. You live in this home. What’s that equity
doing for you? It’s not doing anything for you. I don’t invest for appreciation. I invest for cash flow. So the house you live in
is not producing cash flow. And that equity is
just sitting there. And a bank is
willing to give you a percentage of that equity in
the form of a loan in the form of a line of credit. Hello, use it. Now, you don’t
necessarily just have to use it to buy an
investment property. Maybe you have
$5,000 in credit card debt that’s sitting there at 18%
interest on your credit card. Hello? Or maybe you’ve got a student
loan that has $13,000 left, and you’ve got a high interest
rate on your student loan. Hello, use that home
equity line of credit with that 1.9% interest
rate to pay off those high-interest
liabilities that are in your liability column. You’re increasing your net
worth by leveraging that equity in your home. Now, you need to be
smart about this. Don’t use a home
equity line of credit and go out and buy a boat. Don’t go out and use it to buy
another liability in your life. Use it to increase your net
worth and by performing assets. Now, the vehicle– let’s
talk about the vehicle that is a home equity line of
credit– what exactly it is. OK, it’s different
than your mortgage. The mortgage on your primary
residence is amortized, right? So you’re dealing
with time and interest in your amortization calculator. When you got that
30-year mortgage, you basically were paying a
boatload of interest upfront on that property. Probably about the seventh
year is when you actually start making some
significant payments towards your principal
balance of that house. That’s a mortgage, OK, that’s
amortized over 30 years. A HELOC, a line of
credit, is different. It works like a credit card, OK. So it is setup,
and it’s structured completely differently. So when you’re using,
these are two completely different financial products. These are two different
bank products. So if you can use this HELOC– and even if you take
5,000 of it and fire it at your principal balance
on this mortgage, OK, and then pay it
back down, you’ve now shaved a ton of time off of
your amortization calculator. That’s what I’ve written
about in my book. But using that home
equity line of credit works the same way that
a credit card would. And you can buy rental
properties with that amount and then pay yourself down
using the rent from that tenant to pay it back. It’s a killer strategy. And then the beauty of
this, a snowball effect. And I’ve heard people ask me,
what about the snowball effect of using a HELOC? Well, in my book, I describe
how you structure your HELOC like a bank account, because
it is a bank account. You can structure it
even with direct deposit from your employer. So let’s say you make $2,000
every two weeks at your job, OK. You can set up to have
your direct deposit go into your HELOC account so that
every time you’re being paid– let’s say you had a $4,000
balance on your HELOC, and you made $6,000 this
month from your job– you’ve now reduced your
HELOC down to zero. And you still have
money left over. And you can rinse and
repeat this entire process. So that’s how you
can snowball it. Now your HELOC is
back down to zero. Guess what– now go out buy
another rental property. This is how this strategy works. So like I said at the beginning,
we had an $80,000 home equity line of credit– Natalie and I did. We were able to go out and
buy multiple rental properties using a strategy– and using
the rent from these properties– paid it back down to zero and
then went out, right again, and bought another
rental property. And then that way, you’re
leveraging the equity in your home to buy
rental properties. This is not cash coming
out of your own pocket. This is cash coming from a bank. This is other people’s money– OPM. Now, the beauty and the strategy
of paying your mortgage off quickly that I’ve written
about is that now, maybe you had $100,000 worth of equity. And you took $20,000
from your HELOC, and you fired it at
the principal balance on your mortgage. Guess what. Now, it’s down to
$80,000, right? Now, and you could now
go back to that bank and renegotiate the
equity in your home. You could say, now, I
have $120,000 in equity. Let’s renegotiate our home
equity line of credit. And they’re going to
look at and say, well, yeah, you increase the equity. Let’s do another
appraisal– great. Instead of an $80,000 HELOC,
you get a $90,000 HELOC or a $100,000 HELOC. And you can keep shopping
around at different banks around your town with
competitive rates. After you’ve spent a
certain amount of time with that one bank,
move it around– shop it around and move
it to another bank. So this is the incredible
power of a home equity line of credit. I love it, because it allows you
to pay off high interest credit cards, high interest
loans and use it to invest in
real estate, also, pay off your high-interest,
high-time mortgage, the home you live
in using a HELOC. I’m a huge fan of this process. And I encourage you,
just if you have some equity in your property,
even if it’s $5,000, you don’t need a lot in order
to start to use this strategy. You don’t need $100,000
worth of home equity. You can use a small
amount to start making big changes in your
life by using a home equity line of credit. So thank you so much. I want to open it up now
for questions and answers about the home equity
line of credit process. So we’ve got a ton of
questions coming in here. Let’s see here– holy smokes,
we got a lot of great questions. Let’s check an art of tracking. Thank you so much for the super
chat I really appreciate that. I appreciate that. I appreciate that. Let’s see what we got
here– art of tracking– I appreciate that. And he wants to know,
can you get a HELOC on investment property or
only a primary residence? No, you can absolutely get
home equity lines of credit on investment properties. But you can
typically– it’s odd. You have to work
with local banks. Some will do it, and you
have to shop that around. You can go to
portfolio lenders who will do that and kind
of operate the same way. So there’s all kinds of
different bank products out there. You just need to shop around. All right, Rick Martin, let’s
get to your question here. Hey, Clayton, about to
max out my $300,000 HELOC, purchasing 12 units in only nine
months, bringing in $115,000 a year but putting all the
cash flow back into the HELOC. The goal was three units. But I think it’s
an addiction now. See, there you go. Rick, I love that. So here in the flesh
is a person who’s actually done this strategy. Rick, you are a
testimonial right there– good job. And then you ask the
follow-up question– should we just buy two
properties every six months? Or should we buy fix and flips
to decrease the amount of time paying back the HELOC
in bigger chunks? Well, Rick– fix and flips is
a whole other animal, right? And a lot can happen
in the economy. A lot can happen in the
economy in that amount of time. So I personally, the
stuff that I buy– I don’t want to say
it’s bad economy proof. But I’m seeing some
stuff in the market right now in those more
expensive neighborhoods and things. I just want to
stay away from it. I like to buy– the stuff
that we do at my company at Morris Invest, we do single
family homes, three bedroom, one bath, two bedroom, one bath. Those things are cash flow
machines, because number one, they’re in blue
collar neighborhoods– B and C class neighborhoods. They’re tenants that work
at the local hospitals. They work at the local
school districts. In a down economy,
in historically in my neighborhoods,
those people have continued to rent solidly. In fact, rents even can
go up in our experience. So getting into the
fix and flip game– now you’re going to put a lot
of money out of your pocket or your HELOC to
do fixes and flips. Fix and flip can
take nine months– six months. I mean, most of
the time it’s going to stretch into the
nine-month mark, because now you’re
dealing with winter, and you’re dealing with some
other things that are variables you can’t control. Maybe the city didn’t lay
the power pole in time. Now, you’ve got to wait
three weeks for them to come out and put the
new power pole down. A lot of variables. And then you enter into
that fix and flip game. And then what
happens, of course, is you never know
what can happen. So the economy can
take a total dive. And now, you’ve got a
house that you bought. And you’ve put all this money
into a renovation project. And you were hoping
to sell it retail on the open market for $200,000. And guess what. Maybe these first-time
homebuyers– the interest rates have gone
up, and you can’t buy it. So I would really stick
to what you do well, which is what I do well, which
is buy rental properties. Let the cash flow from the
tenant pay the HELOC back, not necessarily relying
on the fix and flip, because now you’re relying
on the sale of the house in order to do that. Plus, you got to pay a
boatload in taxes when you do that strategy also– hope that helps. Terrell Hill wants
to know– let’s see. We jump into some
questions here. All right, Terrell– Terrell Hill– Terrell
Hill says, “Clay, you have spoken about
this so many times. When are you going to put
together an example using HELOC with actual numbers on paper?” [LAUGHS] Well, I’ve written a whole
book about it, Terrell, where I use actual numbers. And we have Excel spreadsheets
and everything in the book. So we have put all of
that together for you. In fact, we’ve done videos
where we specifically walk you through that entire process. So I hope that helps. And that’s why we spent
months writing the book. So I hope that you’ll find
that helpful, Terrell. All right, let’s see
what other comments we’ve got coming in here today. John Guthrie says, “Can I have
two HELOCs on my primary home?” That’s a great question. I’m not sure, Johnny. You used to be able to,
OK, before the crash. Maybe I’m wrong, but I
don’t think any bank– excuse me– is
going to be doing– so what that means is, right,
you’ve got a primary mortgage. That’s the first lienholder. Then you’ve got a HELOC. That’s the secondary
lienholder, OK. So now they’re already
behind the first guy, OK. Now they’re going to have
a third one who’s going to be behind the second guy. I just don’t see it. I mean, maybe there
is a bank out there that’s willing to do that. Or maybe there’s a
sort of private lender that’s willing to look
at that and do that. But I don’t think so. I don’t think that’s– if you find one, I’d
love to hear about it. And also, why would
you want that? If you have enough equity to
go get a third bank product, why not renegotiate with
the first guy, the HELOC that you have. Because if there’s
enough wiggle room now for you to get more equity, just
renegotiate with the first guy, right? And you probably get a
new introductory rate when you start over again. So that’s what we do. I wouldn’t waste my time
looking for a third person. Ken Davis says, “I bought
two rental properties with hard money. Does a HELOC avoid the
need for this step?” Yes, absolutely, because now,
you’re paying hard money. A hard money loan
is expensive, right? A hard money loan
can be 10% to 8%. Just out of curiosity, Ken,
what’s the interest rate you’re paying on this hard
money loan to somebody? Yeah, it can be a
little bit less too. But then you’re playing
points for closing costs. You’re paying a lot of stuff. With a home equity
line of credit, you don’t have
any closing costs. You’re basically writing cash. For instance, we just
had a client of ours at Morris Invest– just bought
two rental properties from us. They each cash flow, I think,
like, $700 or $800 a month. And they’re great properties. And I think they were like 60– in the $55,000,
$60,000 range price. So all in, it was like $110,000
for two properties or $105,000 or something like that. They had a $120,000 home
equity line of credit. That’s a cash closing. They don’t have to fill
out mortgage paperwork. They’re able to send the
funding right to the title company for closing. And now, their balance on
their HELOC is 105, 110. But they’re going to use
the rent from the tenants now, just to pay it off. And they’ll probably
just fire it right at that HELOC to get
it down to nothing again. And then they’ll
rinse and repeat. Ju-ju ju– Sparks wants
to know, “How do you use the rent money from
the LLC to pay the HELOC on your primary residence? Doesn’t that trigger
a taxable event?” That’s a great question. That is a great question. Let me think about
that for a few moments. I’m going to pull up some
notes on that, because that’s a great tax question. I believe, though,
that it doesn’t matter. I just need to double check. So let me pull that up. I’m going to get some– I’m going to go into my
archives for that one. So thanks, Sparks,
because Natalie handles a lot of the tax
and stuff here on our team. So I’m going to find that out
and get an answer for you. Great question. These are the kinds
of questions– the thoughtful questions–
that I love from you guys, so really, engaging stuff here. So I’ll get back to
you on that question. And I’ll get back to you on
that question in just a moment. David Molder wants to know– “My HELOC kept adjusting, so
the payment kept going up. So refi to payoff the HELOC
and keep payments down. Tenants pay for it. Suggestions and advice? I don’t want to screw this up.” OK, so your HELOC
keeps adjusting. Right, I mean, that’s one of the
things with a variable interest rate with a home
equity line of credit that you are dealing with
is that it will adjust, OK. But given still the
historically low numbers, you’re trading a
line of credit, which is completely different
than an amortized loan that you have on your
primary mortgage. So even with that
variable interest rate, what I would even suggest doing
is using a chunk of that to– and use my strategy
that I’ve written about and pay down that mortgage,
increasing your equity position, OK. Yes, you’ve got a
variable rate, which can fluctuate a little bit. But it’s 10 times better– 10 times better than the amount
you’re paying in interest on that primary mortgage, OK. Now, that’s going to give
you a little bit more wiggle room over here on
your primary mortgage. You’ll have more equity
now to play with. I would then refi. I would look at going
to another bank, refi-ing that, getting,
again, that introductory rate, trying to play
with those numbers a little bit– shop around. There’s going to be
another bank that’s going to be willing to take that on. And they’re going to give
you more of a set rate. So you just have to shop
around and be smart with it. But again, increasing
your equity position with your primary
mortgage is going to be key in this process. Ken Davis says, “The
hard part of hard money is the for 4K or so twice to do
the conversion to convention– closed once for hard money and
then again for a 30-year note.” Yeah, so, again, you’re
paying these fees. You’re paying
these closing costs to be converting, converting. They’re going to
play points upfront, plus the really high interest
rate for a hard money loan. I mean, using your own home
equity as leverage in this is a game changer,
because now, it’s sort of like you’re using
yourself as the bank here. All right, I’m going to
jump over to comments here. Hard money, see what we got. Daryl Jone– Darryn
Jones says, “Thanks, Clayton for providing these
valuable video resources for free.” My pleasure, Darryn. I love communicating
with you guys and helping you guys
build financial freedom. It’s a passion of mine. So thank you for that. Evelyn– I love you. Thank you, Evelyn,
I love you too. Kiran Dwaries. Hey, Clayton, checking
in from South Africa. I have a flatlet on my primary
property that I rent out. Can I register that
flatlet in a company? Or must I register the
entire property in a company? I’m not sure about
South African rules. But I would imagine that
you would have to register– well, if you’re
creating a business. So if you’re
creating a business, it wouldn’t matter what
you’re registering. If you’re registering–
while else you have the home in an LLC– if you live in that
property in America, there are some hoops you
have to jump through. Check out our episode that
we did with Garrett Sutton where he talks about
moving the property you live in into an LLC for
protection for liability protection. I’m not sure about
South African laws. I would just talk to a local
tax accountant in South Africa and see what you can do. If you are renting
it out as a business, it is a business expense. And so in that
regard, I’m just not sure what percentage
of the property would be considered
part of your business. Hope that makes sense. It’s a little bit
tricky, because it’s part of the property, and
you’re in South Africa. So you’re throwing me
for a loop a little bit. [LAUGHS] Hey, Rick Martin. Let’s see here– Ken– see, already asked Ken. Let’s see– OK, B.
Sims says, “Should you form an llc for your first
rental home using the heloc to deduct interest?” Should you form an LLC for
your first rental home using the HELOC to deduct interest? Well, I would always have
an LLC for rental properties that I buy because of liability. So I never buy a property if I
can stop myself from doing it in my own name, OK. Or if I have to, then
I will immediately convert it doing
a quitclaim deed and transferring
it over to an LLC. Rick Martin says, “CLAY
what about putting all of your properties in an
umbrella insurance and not an LLC. Any benefit other than taxes?” I don’t know that that’s
proven fully yet, Rick. We have an umbrella
insurance policy. But all of our properties
are in a holding company or individual LLCs that report
up to our holding company. We have a video
here on the channel all about the best
legal entities to buy rental properties. And again, I would
point you to our episode with Garrett Sutton. He’s Robert Kiyosaki’s attorney
over at corporatedirect.com. They can answer these
questions for you. Tell them we sent you
at corporatedirect.com. They set up all of our LLCs. They do an amazing job. So I would ask
them that question. Crypto wants to know,
“Does Morris Invest always sell properties that are
already cash-flowing? If so, that’s cool.” Not always. We try to. It just depends on where. Like if you booked a call
with our team right now, it depends on what
we have available. We’ve got properties right
now that our team is already renovating, because
we don’t wait. We just get started. So you might get us
where, hey, we’ve got three weeks left on
this one before it’s done. Or you might come to us
where we just got this one. And we’re about to start ripping
the drywall out and putting in the new stuff in it. So it just really depends. John Patterson– really
liked you on Fox. Thanks so much– also,
thanks for this wake up call on using my
equity and the HELOC. You bet, John, and
check out my book too. It’s a short read. You can read it in one night. I hope that, anyway, it
could change your life too. We actually have the audio book
version about to come out too. So if you’re into audio books,
that’ll be out soon too. Let’s see– a lot of
great questions here. A lot of great questions
from you guys today. I really appreciate that. Let’s see– Steve
[? Moeller ?] wants to know, “Can you take all
cash flow from rentals to pay HELOC on primary house
and also paycheck part? Can you take all the cash
flow from your rentals to pay the HELOC on
your primary house, or should you keep
it all separate?” Again, that’s a question
coming back to one we had earlier just
for tax implications. It depends on like where
you’re housing that money. If you have that money– you can’t commingle funds. OK, you can’t commingle
profits from your business. But you can take a
distribution to yourself as the owner of the company. And that’s how we
typically do it. So as an owner of your LLC,
as an owner of your business, you get paid, right? So you make money
from your company. And then you’re able
to pay yourself back. So just like any
business, right? You have to you pay
yourself basically a salary. And you’re able to
take that distribution. So we do that all the time. And we have people– like, you saw Rick here
right in our chat today. It’s exactly how
he was doing it. And Rick, hey, jump in the chat. I’d love to hear
how you do it, man. Rick had $300,000. He’s paying himself
and paying down these properties using the cash
flow from the tenants, which is exactly what we do. Rick, feel free to jump in. I’d love to hear your
thoughts on that, which is exactly how we do it. You have to distribute
it to yourself first. I mean, so that’s what
we do from our tax team, our amazing team. We have to take a
distribution to yourself first in your own
checking account, and then you can
pay yourself, OK. So you have to distribute
it to yourself first in your own checking, OK. Then you can pay the HELOC down. That’s how we do it. Let’s see, what other great
questions we have today? Let’s see. Ken Davis says, “Got
to drop, work calling.” By Ken, great to see you today. Dario says, “Is a 10
to 12% gross return a good investment,
already cash flowing?” OK, so now, look,
at Morris Invest– let me just tell you what
we do at our company. OK, we’re a turnkey company. So we find great off-market
properties with our team. We renovate them, place
tenants in those properties with our teams and
get them cash flowing with property management teams. And then you would
buy it from us. Now, our goal on
every property we do is about 8% to 12% net return– net return, meaning we’ve
already taken out 40% from our formula for
expenses, repairs, taxes, property management, OK. So when we advertise
a property– we don’t even
advertise properties– but when you book
a call with us, the properties that you
would get access to buy are going to be
between, depending on if it’s a B or C class,
eight to 12, eight to 11-ish%. Prices have gone up. It’s much harder to get
properties right now. But about 8% to
11% net return, OK. So Dario, what you’re asking
me is, is a 10% to 12% gross return a good investment? That’s up to you. A lot of companies
will advertise gross. I think that’s disingenuous. There’s companies
that will advertise, there’s a gross return of 10%. Yeah, that ends up being
like a 3% net return or a 2% net return. So it’s kind of fake. I think it’s kind
of BS, actually. So I don’t know. I’d look at those numbers again
a little bit more closely. I care about the net return. I’m taking out 40% for
unexpected repairs, vacancy, if a tenant has to be
evicted, property management. So gross and net– two very important
terms to make sure you have a handle on, OK, Dario. Faunya says, “Do you have
properties in all states?” No, I mean, our company, we
do Michigan, Indiana and Ohio. Those are our primaries. So I own properties
in Pennsylvania. I own a lot in Michigan. Michigan’s one of
my favorite markets. I own a lot in Indy. That’s one of my
favorite markets. I own some in Florida. I own some in North Carolina. So I own properties,
oh, in New Jersey. Anything else? No, yeah, that’s
all I own right now. Mario says, “I have Fund&Grow
funds and also a HELOC that I’m currently using today to
pay down my primary mortgage– reached out to your team. And now, I’m waiting
on availability.” Awesome, Mario. Yeah, our properties
sell pretty fast. Who are you working
with on our team? Let me know, because
our properties come in, and they sell pretty quickly. So as soon as we get properties,
if people are on a waiting list or waiting for them, you
just gotta grab them. So E. Bing Tang wants to know– “I was watching another
episode”– of mine– “that features Fund&Grow. Which company did
they buy gold from?” So actually, what’s amazing–
you’ve got to watch this episode that we
did on Fund&Grow. We’ll drop it right in the chat. And you’ve got to check it out. So we’ve partnered with them. And you’ll get $500
off your signup if you sign up
through our website. So make sure you save that $500. All you need to do is just go
to morrisinvest.com/funding to sign up. But they’ve pretty
much moved away from the gold money strategy. And now, they’ve partnered with
plastic, which is a company. And it’s amazing. So we had two of our
clients, I think, last week, bought two
properties totally independently of each other– don’t even know each other. And they use the
Fund&Grow process. And the closing
was super simple. So they got the
credit from Fund&Grow. And then plastic,
they’re able just to wire the money at closing
to the title company. And now they own an $800 a month
cash-flowing rental property at 0% interest from Fund&Grow. So it’s pretty amazing. Mario– oh, you reached out
to [? Haley– ?] good job. OK, wonderful. We’ll make sure we’ll follow up
with [? Haley– ?] make sure. So is she waiting on
a property right now? If the property is
available, as they have one if that’s
what you’re waiting on. Let’s see. Let’s see, Diana, let’s check
back on this chat version here. Orlando– let’s see. Orlando Osuna says, I
financed three to four of my properties using HELOC. Should I be concerned? Would you advise to refinance
into conventional mortgages. Interest rate hike
I’m concerned with. Well, I mean, that’s a
good question, Orlando. I mean, it just depends on how– again, we want to make sure
when you’re buying properties that the cash flow will cover– It’s the old saying, right? If you read Gary
Keller’s great book, The Millionaire Real Estate
Investor, one of the points that he makes is that
the 40% that I was just talking about with that other
person here in the chat– you want to make sure that when
you have a rental property, you want to consider 40% for
vacancy repairs and expenses. And then I want to make sure
that that property is going to cash flow at least
$100 more than I need to pay back on my HELOC
or other bank product, OK. If that’s the case Gary
Keller makes the point, then you are golden, OK. So even if you’re
cash flowing $100, and you’re building
equity in yourself and your net worth
thanks to these tenants, then you’re golden. So yes, you might have
this variable rate, which might go up a little bit. So you’ll pay $20
more, $20 less. It just kind of depends. But as long as you’ve built in
that 40% for vacancy repairs, expenses, and then you’re
still cash flowing solidly over that point– over your leverage point– then you’re good. Your tenants are
paying your HELOC down. And I would not use
any of that cash. I would use all of
that money that you’re making from your tenants to
pay down those debt services. Fire it like a cannon
against those things, OK? So I hope that helps. I hope that helps. Let’s see– we’ll do like
a few more questions here. Rick Martin asks, “Anybody
got an interest only HELOC?” Yeah, I have an
interest only HELOC. Yeah, it’s totally fine,
because, again, you’re firing all of that extra
cash flow right at it, OK. And it’s variable. But that’s the bank product. It’s interest only. So go for it. Let’s see– OK,
Arturo Gutierrez says, “I bought my first investment
property at 20% down. But I bought it under my name. Can I get an LLC? If so, what’s the risk of the
lender calling upon the loan?” Again, listen to my episode
with Garrett Sutton, OK. He talks about this. First of all, lenders do not
want to own property, OK. Lenders, banks do not want
to own rental or houses. They don’t. They don’t like to– they’re not good landlords, OK. So when you do it
properly, and you’re quit claim deeding the
property to your LLC. That’s not a sale. It’s not triggering
a sale of a property. Now, if you sell it to
your LLC, then that’s due on sale clause
in your mortgage. Now, what’s the worst
that will happen? And I’ve only ever heard of
this from so many investors I’ve worked with over the years. It’s only happened one
time that I’ve heard of. And this was a mortgage
lender who told me this. He says, he’s only
seen it one time. The mortgage lender called up
the person who did it and said, hey there. We noticed that you transferred
the mortgage out of your name into an LLC. Can you switch it back? It was like a hand slap. They’re not going
to foreclose on you. And they’re not going to trigger
a due on sale clause, OK. It’s not going to happen. They do not want to go
through a foreclosure process. They’re not going to want to
become an owner of a property. They’ll simply work
with you on this. But again, because
you’re just deeding it to yourself– quick
claim deeding it, you’re not triggering a sale. There’s no sale of the property. I hope that helps. But again, listen
to Garrett Sutton. He’s an attorney on this. I’m not an attorney. And he can better explain
to you the ins and outs of that process. E. Bang Tan says, “If you
have the option of choosing Fund&Grow or a
HELOC for funding, which one would you choose?” Honestly, I’d use both,
because they’re both going to be kind of similar. If you have equity
in your home, I mean, that’s the way we did it. Again, if you go
through our website at morrisinvest.com/funding,
Natalie and I did raised $174,000 at 0%
interest from them. But we also used our HELOC
to buy rental properties. So we used our 401(k)
to borrow from. We’ve used our HELOC. We’ve used Fund&Grow. We’ve used all of these
different methodologies in order to buy properties. Christian wants to know, “What
property management company does your team use?” We use a bunch of
different ones. I mean, we use Beka Management. We use Principal
Property Management. We use– what is it– [LAUGHS] Three Street. I can’t keep them all track. We have a great team that– because over the
years, we’ve definitely had some bad property
managers years ago. And so we have a great team
that will vet property managers, work with them to make
sure that they fit and are great for our clients. So we work with a bunch
of different ones. We work with Home River. We work with Weichert Realty
that in certain markets has a property
management component. So we work with a bunch
of different ones. Jason says, “Hey,
Clayton, just noticed you were on live and
was looking today, actually to apply for a HELOC.” Well, this is
kismet, then, right? So that’s great, Jason. Shop around locally
to find a home equity line of credit, a lot
of those local banks, or just watch this. You can go back and watch
the replay of today’s video if you missed the
beginning of it, because I laid out
all of the details on how to use a home equity line
of credit for your properties and also investment properties. A 401(k)– that’s a
very risky proposition. No, it’s not. Please, please, please, Faunya,
watch my videos on 401(k)s, OK? Oh, man, I just did a whole live
show talking about the 401(k). I was a guest on another
podcast, a military investing podcast. I talked with them about it. People in the military–
they have– what is it called– a TSP, which
is like a 401(k). You can borrow from your 401(k),
not withdraw your 401(k)– borrow from it as a
loan to yourself, OK. We have a whole video
series on how to do that. I’m not going to get
into details now. But it’s a killer strategy. And it’s not risky. It’s only risky if you
thinking of leaving your job. And even then, Fidelity or
whomever you’re working with would put you on like a payback
plan for your loan to yourself. So it’s not that risky. But again, just
educate yourself on it. I think you’ll totally blow
your mind once you get– we’ve been so beaten
down about the 401(k). We’ve been lied to about it as
if it’s like this sacred cow. It’s a pretty terrible
vehicle to begin with and the fact that they
don’t want you to think that you can borrow from it. It’s actually a very
simple process– Fidelity, Wells
Fargo– they make it like three clicks
on their website for you to be able to
borrow from your 401(k). That’s how I bought my
first two rental properties using my 401(k). Well, you guys are awesome. How many of you are
now subscribers? We have a lot of people
watching the show right now– hundreds of people right now. So thank you guys so much. How many of you are subscribers? I’m going to show the chat. You guys are awesome. I hope, Jason, I hope
you’re a subscriber. Diana, I hope
you’re a subscriber. Christian, I hope
you’re a subscriber. Rick Martin, I hope
you’re a subscriber. Faunya, I hope
you’re a subscriber. If you’re not, please
subscribe to the channel. We do this live show
every Wednesday at 11:00. But we also publish
videos regularly throughout the week to help you
build financial intelligence. We’ve got some great
videos we just published on the self-directed IRA. You’ve got to check
out that whole series. We’ve got a lot of
great content here. I honestly believe–
and I’m not just saying this to
sort of pat myself on the back in any kind of way. But I believe that
this channel– if you just pay attention
to this channel, and you watch all of
our videos, you’ll find a strategy
that works for you. And you can achieve
financial freedom just by watching our videos. We’ve had so many people,
now, who’ve written us, who’ve gone through, like a
number of our videos here, and took action, bought their
first rental property, paid off debt, saved money on
taxes, following the strategies that we talk about
here on the show– the stuff that you were never
taught in school– the stuff I was never taught in school. It’s all right here
on the channel. So thank you so much
for subscribing. I really appreciate it. And please share this with
someone that you love. You can also download our
Freedom Number cheat sheet simply by clicking right there. We’re going to put the link
right up there for you. Or you can visit
morrisinvest.com/freedom. It’s three pages. It’ll teach you how to build
financial freedom based on the number of
rental properties that you will need
to pay off debt. It’s a powerful strategy. So thank you guys so much. We’ll see you next
week here on the show. Until then, go out there– take
action– become a real estate investor, because I
believe it’s the number one way to build wealth. Much love to all of you.

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