In this podcast episode on Real Estate HELOCs, the hosts explore the concept of HELOCs (Home Equity Lines of Credit) and their potential financial benefits. They clarify that HELOC stands for Home Equity Line of Credit, emphasizing its significance for homeowners seeking to leverage the equity in their home. The hosts discuss the misconceptions surrounding HELOCs, particularly an influencer's claim that obtaining one is like getting "free money" from the bank.
They delve into the practical aspects of HELOCs, explaining how individuals can use them to access funds for various purposes, including real estate investments. The hosts outline the key qualifications for obtaining a HELOC, such as homeownership, equity in the property, and a good credit score. They stress the importance of understanding the terms and conditions of different HELOC offers from various banks or credit unions.
The episode covers the potential uses of HELOCs, ranging from basic investment capital for real estate acquisitions to creating a financial safety net for unexpected expenses related to property ownership. The hosts share insights on leveraging HELOCs strategically, including a concept they call "Moneyball Banking." This strategy involves utilizing HELOCs based on Moneyball principles to gain a financial advantage for investing in additional real estate.
Overall, the podcast aims to educate listeners on the value of HELOCs when used wisely, providing practical tips on how to qualify, apply, and make strategic financial decisions with Home Equity Lines of Credit.
Chapters:
00:00 Merry Christmas!
1:30 Football
4:00 What's a HELOC?
9:35 Simple math
17:55 Should you do it?
22:00 Over time
26:00 Discipline
29:49 Moneyball Banking
00;00;00;00 - 00;00;14;11
Unknown
Not everybody knows how valuable a hillock is. It is honestly one of the greatest financial tools I think that exists when used properly.
00;00;14;14 - 00;00;31;18
Unknown
All right. Well, hello, everybody, and welcome to replace your income with Kevin and Steve. How's it going, Kev? I'm fantastic, man. How are you? I'm good. I'm all ready for Christmas. Ready to head out to Pittsburgh with family. Hopefully Santa brought you everything that you wanted. Steve. What do you want Santa to bring you? Do you need another Harley?
00;00;31;19 - 00;00;50;07
Unknown
Is that what it is? That was the very first thing that came to mind. If you look at my shirt today, I am wearing Davidson shirt wearing a Dave way colors here, which are reminiscent of Harley colors. But no, I am I am sadly not getting another Harley. I think two is plenty. Okay. Yeah, two is going to be lovely.
00;00;50;09 - 00;01;06;25
Unknown
So what I'm getting for Christmas is we're visiting our family on Pittsburgh. We're going to hang out for a week, we're going to do a bunch of fun things, get to roughhouse with my four grandsons. And so that's about as good as it gets. That is as good as it gets. Listen, if you're going to go to Pittsburgh, I need you to do something for me.
00;01;06;27 - 00;01;25;11
Unknown
I need you to not become a Steelers fan. Can you do that? I can do that. Good. Because the Steelers like not that they're competitive with the 40 Niners necessarily this year, but the Steelers have six Super Bowl rings and the 40 niners have five. And it's been a quest for six for a long time. So by default, I must hate the Steelers.
00;01;25;14 - 00;01;46;01
Unknown
So the San Francisco have a shot this year. yeah. They probably haven't been following, you know, football at all this year. They probably have the best shot in the NFL. Honestly, they are absolutely amazing. And so if any of our listeners out there are like, you know what, Kev, we appreciate your guys's content so much. We want to send you to a 49 ERs playoff game.
00;01;46;07 - 00;02;05;19
Unknown
I just want everybody to know, like I'm open to receiving that gift. That's I mean, you are a generous person. Listen, I'm generous, but I'm willing to let others be generous as well. Yeah. You know, because one of my favorite that's a unique quality, one of my favorite books is called The Go Giver and the Fifth Principle in the Go Giver.
00;02;05;22 - 00;02;27;09
Unknown
It's like the principle is stratospheric. Success is a fact. To be an effective giver, you have to remain open to receiving. And so I am remaining open to receive playoff tickets and airfare. And I'm even cool if, like you want to throw in a hotel and maybe, you know, some walking around money is somebody out there. If you want to do that for me, like I'm willing to accept it.
00;02;27;09 - 00;02;46;19
Unknown
Well, I wasn't going to, like, spill the beans on this. Yeah. Just yet. Okay. But I do have a special gift for you for Christmas. You do? and it may or may not include, you know, an NFL football. Okay, I highly doubt it will. But if it does, I'm going to be real thankful. Well, thanks, everybody, for joining us.
00;02;46;23 - 00;03;09;20
Unknown
We're excited to be here. And we have kind of a cool topic today. This is one that maybe we've kind of mentioned, but I think that there is a real reason to talk about it. And one of those reasons is, you know, Steve and I, we Steve, as you know from the podcast, if you've listened, he references things that he reads a lot.
00;03;09;20 - 00;03;45;24
Unknown
Steve, You do a lot of research, a lot of like industry, whatever, and I just play on it on social media. And so but on social media there is an influencer. That's what we're going to refer to this person as a real estate influencer. K And he did a video recently that you and I got a little bit of a chuckle out of, and we thought just in case because he's fairly well followed, you know, in the real estate space we thought just in case there's somebody out there, maybe even one of our listeners who saw the video and they think, Wow, this sounds like this magical thing we thought, let's actually talk.
00;03;45;24 - 00;04;11;26
Unknown
It is magical, but let's talk about it in terms of, I don't know, what's that word we like? yeah, truth in reality. And so those are two words, not one, but we're going to talk a little bit about it. Okay. Well, fine. Count the ad. All right, Mr. Number Cruncher over here. So we are going to talk today about something sometimes referred to as a hillock, which stands for what, Steve?
00;04;11;28 - 00;04;33;01
Unknown
Taking equity out of your property and using it for other things. So your. That's right. Your personal residence sometimes. Well, it's hard to get a hillock on an investment property. It's almost impossible to get a hillock, but for a personal residence, totally doable. And it's kind of like, you know, having money in the bank, in the bank of your house.
00;04;33;03 - 00;04;54;22
Unknown
So this this particular video we saw was sort of talking about HELOCs, which, by the way, for those that don't know, stands for home equity line of credit. That's what a HELOCs stand for. So every time you here say hillock, what we're saying we're just lazy to say home equity line of credit so it's a hillock. And in this video this influencer was like digit.
00;04;54;24 - 00;05;20;06
Unknown
He's like, you could get a free lock on your house and you could turn $50,000 into 4.3 million. Now, granted, there was no math of how one would do that. There's no timeframe. But what was so interesting is he made it sound like a hillock is just this free thing. He's like, you just go to the bank and they just give you a credit card for the equity in your house and it's free money.
00;05;20;06 - 00;05;40;28
Unknown
All right. So what we thought we needed to do, because not everybody knows how valuable a hillock is, it is honestly one of the greatest financial tools I think that exists when used properly and so we thought, let's dive into what is a home equity line of credit, How does it work? How can you leverage it, How can you use it, How is it applicable?
00;05;40;28 - 00;05;54;20
Unknown
In a couple of different ways. We'll talk a little bit about how would you go and get a hillock and just use it as sort of your basic investment capital to go and get an investment property? And what would be some of the cautionary things that you would need to be aware of if you were to do that?
00;05;54;22 - 00;06;12;11
Unknown
We're going to talk about how can you utilize a home equity line of credit to become We talk about this on the podcast and and in the book we talk about having to sleep well at night account, which is really just reserves for your property in the event that there's a repair or there's a vacancy or something like that.
00;06;12;18 - 00;06;34;16
Unknown
So how do you use a hillock to acquire real estate? How do you use a hillock to be your sleep well at night account? And then we'll touch on a strategy that that maybe is not right for everybody. But there are companies that utilize this strategy really well, and it's something that that we I personally have utilized. I'm a really big fan of and I've nicknamed it Moneyball Banking.
00;06;34;16 - 00;07;04;02
Unknown
And because I'm utilizing Moneyball principles with my hillock in order to get myself ahead to invest in additional real estate. So we are going to touch on all of that today. All things he locks in home equity lines of credit. And so let's start with this, Steve. So if somebody wanted to consider getting a home equity line of credit, what are some of the things that they would need to have in place in order to qualify to go to a bank and to apply to get a home equity line of credit?
00;07;04;09 - 00;07;21;05
Unknown
So the very first thing that you would need to have is a house, a home that you've purchased and it is that where they call it a home equity line of credit? It is. So the house is sort of necessary. Yes. Thank you. So the very first time we unlock that one, got to have a house, got to own it, got to have your name on it.
00;07;21;10 - 00;07;40;24
Unknown
All that good stuff. Yes. Right. So number one, that number two, you have to have owned it long enough for the market, has to have done its things such that there is equity. Meaning let's say you bought the home for $100,000 and over the course of several years it went up in value to say $150,000. And so you the home is worth, you know, 150.
00;07;40;24 - 00;08;01;08
Unknown
So you've got $50,000 in equity. Right. And I'll just point out that sometimes you can borrow up to 100% of the value of your home. Yep. Other times, depending on different things in the bank that you're utilizing, it could be something different than that can be 75%, 80%, you know, whatever equity line of credit that I personally utilized went up to 80% equity on my home.
00;08;01;08 - 00;08;21;00
Unknown
Right. But Adam, who is one of our coaches, has utilized very prolifically home equity lines of credit that go up to 100%. So the terms can change. And it just kind of depends on what bank you're going to. But yes, so there are variations. But you point out something that that I mean, maybe it just seems like no duh, but it's really important.
00;08;21;00 - 00;08;36;23
Unknown
I was talking to a buddy of mine who I was kind of telling him what we were doing from a real estate standpoint. He knows a little bit about what we do. And I was talking about how I'm utilizing a home equity line of credit as just part of my overall real estate strategy. And he's like, Man, that sounds awesome.
00;08;36;23 - 00;08;53;21
Unknown
Could I do that? And I went, Well, maybe now he bought a newish townhome one or two years ago and I was like, What did you buy it for? What do you think it's worth? And I was like, Well, you might could go get a home equity line of credit, but it's not going to be enough to really do much for you to go and acquire real estate.
00;08;53;21 - 00;09;17;17
Unknown
So that is really key. If I would say this in general, if you're listening and you have owned your primary residence for at least five ish years, right, it could be it. Now, I will let me qualify that there's a chance that if you bought it, like during COVID with a significant down payment, that you would also maybe be okay.
00;09;17;24 - 00;09;37;07
Unknown
But I would just look at you want to you want to have enough money in equity that would be enough for an average down payment on a property if we were to utilize it with Moneyball real estate, which would mean you would want to have. So I'll kind of let me give you some some math, Right. Let's say I, I have to pull out my calculator.
00;09;37;13 - 00;10;06;07
Unknown
Let's say that you have a home that is worth half a million dollars. Okay? If it's worth a half a million dollars just to be safe, let's see, what would 80% of loan to value be? That would be $400,000. Okay. So if you had a home and your remaining mortgage balance was anywhere around, you know, 325 or below, probably 300,000 or below.
00;10;06;09 - 00;10;37;04
Unknown
So if you bought a primary residence, it's worth 500,000. You don't have a current home equity line of credit on it and your remaining balance on your 30 year fixed mortgage or whatever you have is 300,000 or less. There's a really good chance that you could leverage a home equity line, assuming that you have decent credit and that you know your homes, you know, you have this equity in reality and your debt to income ratio isn't crazy to where, you know, if you've got 1000 different car payments and your debt to income ratio is way out of whack.
00;10;37;04 - 00;10;56;20
Unknown
So but if you have about that kind of an equity amount in your primary residence, that may be enough for you to investigate getting a home equity line of credit and being able to potentially utilize it as a source of a down payment on an investment property. And again, this would be your primary residence that you'd largely be looking at.
00;10;56;26 - 00;11;16;00
Unknown
It's fairly difficult to go get a lock on an investment property. Yeah. So, so you ask me like what things you need in order to get the HELOCs. So we identified you got to have the home, it's got to have some equity in it. You talked about you got to have good credit because that will play a part in the interest rate that you'll be charged.
00;11;16;19 - 00;11;40;05
Unknown
interest rate, which probably which means that it's not quite free. Yeah. Right. interesting. So that influencer said that was free. But there's an interest rate. Yes. So it's free if you don't draw on it. so so the nice. Well and it may not even be free then because sometimes they'll charge points, sometimes they'll put or they'll put a fees on the home equity line.
00;11;40;05 - 00;12;03;18
Unknown
Right. Itself. Potentially. It just depends. So potentially it is free if you don't use it. But that and that's one of the cool things about it he like is that if you're not using it for the usually you're in pretty good shape. There's no expense incurred. But if you utilize that you're he could see pull some money out like he suggested to go use it as a down payment on another property.
00;12;03;21 - 00;12;29;00
Unknown
Then there is a cost to the capital that you end up pulling out. All right. So if you have $100,000 available to you, you pull out 85,000. If your interest rate for easy numbers is 10%, which is kind of a common number right now for a hillock. And it's typically interest only. So easy calculation, so 10% annually that if it was you've used $85,000, it'd be 80 $500 per year.
00;12;29;02 - 00;12;51;14
Unknown
Divide that by 12 and that gives you your monthly payment and that's your cost of capital for that property, about $700. So that's one of the things that you have to take into account when you're going to use that money to purchase a property, because you need to add that into the cost, your monthly cost of owning that property.
00;12;51;14 - 00;13;13;12
Unknown
That's right. Now, and let's address that real quick. So let's say that I were to go through this process, right? I have let's say that I've got $275,000 of a a balance on my mortgage. My home is worth 500,000. I find a home equity line of credit company. Now, by the way, you could look for HELOCs. Credit unions are good places to look.
00;13;13;15 - 00;13;48;08
Unknown
There's local credit unions, There's national credit unions. You could go to like a large national bank. They will offer HELOCs. They probably advertise it. They may or may not have really good rates if you can find it like the you know, a lot of times Steve mentioned there is a drop period on a lock. Right. So a lot of times, depending on the terms and this is why if you're considering utilizing the hillock, one of the best things you can do is call up and this is what I always recommend people do, call up multiple banks in your area, credit unions, and just ask them about their terms.
00;13;48;10 - 00;14;04;25
Unknown
So before I got a he, that's exactly what I did. And I found a bank that had been recommended to me that after reviewing their terms, I was like, This is going to be the best for me now. They would only lend up to 80% of the equity on my property. Unlike other banks, it would have gone up to 100%.
00;14;04;28 - 00;14;34;22
Unknown
But they had a ten year draw period, meaning I could pull money in and deposit money I could make payments into and pull money out of up to the balance of my hillock for ten years. And during that ten year draw period, it was going to be interest only payments. Now, what would happen is after that initial ten year draw, the whatever remaining balance there would be potentially on the hillock just gets amortized into effectively a 20 year loan, right.
00;14;34;27 - 00;14;55;13
Unknown
Like a 20 year fixed loan based on the interest rate. Now, here's the other thing about interest rate that everybody needs to be aware of if you're looking at HELOCs. So Steve mentioned 10%. The reason he said that is because interest rates are higher. Now, a lot of times these home equity lines of credit, they they connect their interest rate to like an index, right?
00;14;55;13 - 00;15;14;15
Unknown
There's these these various financial indexes, mortgage indexes like the LIBOR or whatever. And they there's also this thing in lending called the prime rate. Like there's all of these numbers that you don't have to worry about what they are. Just know the bank or the credit union is going to tie your interest rate to some sort of an index.
00;15;14;22 - 00;15;44;02
Unknown
And as that index moves up, meaning with interest rates generally across the board go up, you'll see that index increase, which will then adjust your interest rate. So it's not quite like a credit card. It's not compound interest rate. You're paying interest only on a simple interest calculation that will eventually become a 20 year amortized loan. There's a lot of jargon, but the if you don't pay it off, if you don't pay it off, if there was a remaining balance after that drop period.
00;15;44;08 - 00;16;03;29
Unknown
So the idea ideally, right, is is you have a ten year draw period. Your interest only use the money, get that thing paid off using your real estate if if possible during that time frame. So you're not, you know, adding what effectively is this just you know, straightforward second mortgage so the interest rate can adjust. There can be an interest only period.
00;16;04;04 - 00;16;23;08
Unknown
There may be a drop period. Some banks will give you like a debit card or like a card that's attached to the hillock. My bank doesn't do that right. So I have to jump through a few more hoops, but I don't mind because it's all, you know, very straightforward stuff. So in general, like Steve said, you've got to have equity, you've got to have good credit.
00;16;23;12 - 00;16;43;07
Unknown
You have to find a bank that has terms that you're willing to accept. But when we come to interest rate, now that we talked about the fact that it can fluctuate the other thing you have to realize is if I were to, in our scenario, go get a home equity line of credit to go buy a property. We know right now, Steve, that mortgage interest rates, even though they're coming down, right.
00;16;43;07 - 00;17;27;06
Unknown
We've seen mortgage interest rates, even on investment properties come down, what, maybe like more than a percent or so now? Right. Somewhere in. But we're still doing, you know, rate buy downs, which can help to increase cash flow. But you may not be cash flow positive. Give a ton on an investment property, which means if I incurred a $700 payment on my hillock and I'm only cash flow positive on my property, let's call it $200 a month for simple math, I have a $500 deficit between what I'm generating in cash flow on my investment property and what I'm owing every month on my hillock.
00;17;27;08 - 00;17;51;11
Unknown
So what should one do? Does it make sense if you are quote unquote, going negative or it feels like you're making an additional payment, does it make sense to own real estate on a hillock? And my answer would be, and I want to get your opinion on this. My answer is it depends, right? It totally depends on what your financial situation is and what your long term perspective is.
00;17;51;11 - 00;18;20;29
Unknown
What would you say? Would it make sense for somebody to do that? Your answer was exactly right. It totally depends. So if if you're in a scenario where you're you're younger, you're in your thirties, forties, fifties, and you've got, you know, a 20 or 30 year window before you're planning to retire, it can make total sense, right? People put four or five, six, seven, $800 a month into a401k on a monthly basis.
00;18;21;01 - 00;18;38;24
Unknown
And they're just simply putting that money away. It's a similar kind of a concept. You have a great way to explain that. I think you've maybe done it before on this podcast. Negative cash flow and making investment contributions to your retirement. Yeah, because, you know, over that same period of time, you know, the value of the home is going to go up sufficiently.
00;18;38;26 - 00;19;11;15
Unknown
The, you know, the depreciation expense that you get to write off the principal, pay down all those things can negate completely that that negative immediate monthly cash flow situation. Right? So so yeah, the answer totally depends. And you just have to take a look at your situation. Now, one one more thing that I would point out in terms of, you know, HELOCs are not free is there are even situations where a bank will promote an an initial interest rate for the first year.
00;19;11;15 - 00;19;45;00
Unknown
It will be, you know, half price, so will be 5%. But at the end of one year, it goes up to a predetermined amount, which was, you know, the prime plus, whatever their fees are. And so that 5% rate could go up to 8%. Yeah, it could go up to 10%, whatever it is, whatever the contract says. And so you have to be aware of that so you can account for that If you're planning to hold the property for 5 to 7 years, you need to calculate into that reality.
00;19;45;03 - 00;20;09;28
Unknown
Right? The reality check that your payment could go from that $700 a month to, you know, $950 a month. Now, let me tell you the way that I kind of look at it personally, right? So if I'm going to go and get a hillock, which I've done and I'm going to go and invest in real estate, which I've done, and I know that perhaps the cash flow that I'm generating from the real estate I own is not going to offset whatever my monthly payment might be on the hillock.
00;20;10;01 - 00;20;29;01
Unknown
You could just look at it in simple terms ago. Well, wait a second. I have $200 a month cash flow. I'm paying $700 a month hillock. I'm quote unquote, negative. We're making payments of an additional $500 of what effectively is just interest to the bank on the hillock. Right. That would I want to do that. But this is the way now.
00;20;29;01 - 00;20;55;15
Unknown
This is just for me. I look at it in this sense. Number one, if and I would say this is good, this this could be applicable to a number of you listening. If you've been dying to break into real estate and you're like, I don't know how I'm going to get into real estate, I don't have time to go and save $100,000 or I don't have the ability to pull it out of my 41k because I'm with the current employer and I love the contribution match.
00;20;55;19 - 00;21;13;06
Unknown
And so I don't want to I don't want to get rid of my 41k and you're going, I have to break into real estate. What could I do? This may be an option. Maybe you go get a hillock, maybe you are quote unquote, negative or making another $500 of interest payments on top of the 200 that you're getting, you know, in quote unquote, cash flow.
00;21;13;12 - 00;21;37;07
Unknown
However you want to however you want to look at it. But I look at our properties and I go, but what is because I'm looking at it from the long term, right, if my finances are such that just based on what I'm earning income wise, plus my real estate plus what other business ventures I've got going on, if I can handle that sort of $500 gap without it sort of affecting my standard of living, it means a couple of things.
00;21;37;07 - 00;22;00;22
Unknown
That means, number one, I can get into real estate sooner than I otherwise would have. Number two, if I've got room on that home equity line of credit, that also becomes my sleep well at night account. Meaning if there's a repair, if there's a missed, you know, payment or I have to evict a tenant, I'm not having to necessarily keep that money in reserve in a savings account where I'm not touching it, where it's earning next to nothing.
00;22;00;26 - 00;22;19;02
Unknown
Instead I've got a sitting in my home equity line of credit. And if I need to access and pull it out, it means that the next month's payment, my interest only payment may go up slightly. But for me there's a margin of safety in keeping it in the home equity line of credit. Now, in addition to that, I look at our properties and I go, I'm going to own this for the long run.
00;22;19;08 - 00;22;58;22
Unknown
What's my average monthly increase, which is the number we've talked about on this podcast, We talk about it in the book. We love this number. Average monthly increase is something that over the long term ownership of the property over a ten year time frame, when you take a look at all the financial benefits that you're getting from real estate, which is principal pay down cash flow depreciation, so tax benefits and appreciation, if my average monthly increase on a property is like 1200 dollars a month over that time frame, and I'm going to temporarily because I may only have to utilize my home equity line of credit temporarily on an investment property.
00;22;58;28 - 00;23;22;22
Unknown
I don't even know if I'm going to own it for the full ten years, but if my average monthly increase is well above what my sort of additional expense is, to own that real estate by utilizing the hillock, I'm still in a positive position over the long run and frankly, far more positive position because if I just use that, he like to get that first investment property and that's all I ever use it for.
00;23;22;24 - 00;23;48;11
Unknown
Am I making a sacrifice potentially for the first few years? Sure, that's what one would be doing. But if it means that you now own a property and that property can grow in equity and provide some growth, that could then be a gateway to you owning your next property and those owning your next properties after that. This is why we're talking about it, because this may be a way for somebody out there listening who has no idea how they're going to get into real estate, but they listen to replace your income.
00;23;48;18 - 00;24;17;09
Unknown
They love Moneyball real estate. They've wanted to go and invest in real estate, whether with us or somebody else. And they're going, I have no idea how I'm going to break in. Here is potentially a way based on your scenario that you could justify it from a mathematics standpoint, from a money and reserve standpoint, from a how am I going to pay for it standpoint, assuming that your financial life is in in your house is in order, and if it's the gateway to allowing you to owning that first property, all of a sudden now that first one is always the hardest.
00;24;17;09 - 00;24;45;26
Unknown
You're knocking down that domino. Just like last week's podcast, we talked about Barbara Corcoran, who who said that first one is the key and then you hang on to it till the fat and juicy. So that's one of the reasons why we like the hillock. It's not for everybody. What you shouldn't do is you shouldn't go get a hillock that you can't afford to buy real estate that you can't afford, and then you're turning around and you're looking at us and you're going, Wait a second, My property cash flow isn't offsetting my hillock payment, and now I'm totally screwed.
00;24;45;26 - 00;25;06;29
Unknown
I can't meet my other obligations and now you lose it all. That is not a thing you should do. Well, the very thing. And there's probably one thing even worse than that. And that is if you don't have some form of self-discipline, you should not be getting a, you know, home equity line credit because you will end up spending it on consumer type items.
00;25;07;01 - 00;25;30;26
Unknown
There's another, you know, social meeting that I'm not going to call him a social media guy, but, you know, a talk show host that specializes in financial matters and super, super conservative, a lot of really great principles. But I feel like in some areas, overly conservative. Yeah, but the reason for it is because he doesn't trust people to be wise and smart with their resources.
00;25;30;27 - 00;25;58;12
Unknown
Yeah. And so if you don't trust yourself, if you're not to to utilize the hillock for the right things, things that are are, you know, appreciating assets and investment type purchases, then you're probably better off not getting it because you will go and you will spend it. You'll get that stereo, you'll buy that thing that depreciates in value or, you know, you take it out of the store and it's not worth half what it was.
00;25;58;15 - 00;26;20;26
Unknown
You definitely don't want to use a lot for those types of things. And there are some good mentalities and some good companies that could teach you how to use the hillock to kind of accelerate debt paydown. Right. Which we don't have time to get into too much today. But here's just the general idea, just so everybody kind of knows, because it is an idea that's floating around out there, there are some guru and influencer types that kind of talk about this.
00;26;21;00 - 00;26;40;19
Unknown
We've worked with some amazing companies that that that really advocate this idea. And I think it's pretty if you're disciplined, I think it's really powerful and it's this idea, okay, And I'll just give it to everybody super high level because it would take a long time to sort of understand maybe, maybe not. But it's this. Let's assume that I have a hillock.
00;26;40;19 - 00;27;01;26
Unknown
Okay? Let's assume that I buy an investment property. Okay. Now let's assume that I also have room on the hillock to consolidate or to to chunk down other debt that I have, whether that's a car or on a depreciate an asset or whether, you know, it's credit card debt or whether it's other real estate that I have that I want to accelerate and pay off.
00;27;01;26 - 00;27;23;12
Unknown
We have some clients that have done this really powerfully and accelerated their pay down on existing investment properties, utilizing this methodology. If you look at the home equity line of credit as you sleep well at night account your source for down payment and a liquid resource for you to be disciplined in paying down other debt that you may be acquire in your life.
00;27;23;12 - 00;27;46;27
Unknown
This is kind of the way that that would work. So you've got this money that's there. If you were to take every shred of income that you get, right, all of your rents, all of your income from work, all of your spouse's income, all of the income that you generate, and you were to take that and make it as large chunk payments on your home equity line of credit.
00;27;46;27 - 00;28;06;02
Unknown
Right. Thousands of dollars a month of payments on your home equity line of credit, then to turn around and pull out just what you need from the home equity line of credit to meet your bills. Right. So let me give you an example. Let's say that somebody makes $10,000 a month, but they've got, let's call it $5,000 a month in bills.
00;28;06;09 - 00;28;33;08
Unknown
Okay? If you have a home equity line of credit and part of the balance on the home equity line of credit may be the money you took out for the investment property. Maybe, you know, consolidating some some credit cards or something like that, potentially paying off some cars or whatever it is. Maybe your sleep at night account if it's liquid and available and you say, I generate from all income sources, including my rents, I generate $10,000 a month.
00;28;33;10 - 00;28;58;13
Unknown
That means and that's what you're taking home. If you're making a $10,000 a month payment out onto the hillock, but then you're turning around and just pulling out 5000 in order to meet your bills because that's what your obligations are, what you're doing is you are chunking down the principal, meaning you're paying less interest, which compounds over time and giving you giving you the liquidity and here's the other thing.
00;28;58;19 - 00;29;20;00
Unknown
If I'm making if I'm generating $10,000 of income and I'm making that as a payment on the hillock, it's effectively satisfying the payment requirement that I have every month on the Hillock. I still have to pay the interest, right? But it's just I'm making these large deposits. And what happens is you start to free up capital by being disciplined.
00;29;20;02 - 00;29;49;21
Unknown
And over time, let's say you free up more money on the home equity line of credit. You could even take a chunk of that and pay down your primary residence and then throw all the income you're generating back onto the hillock until you've got liquidity and you could pay off your primary residence in in an accelerated timeframe. You could pay off your investment properties in an accelerated timeframe, all because you're utilizing this thing that's not free, but can be utilized as a financial instrument or tool.
00;29;49;27 - 00;30;07;04
Unknown
And that's why I like to call it Moneyball banking, because it's a different way of banking, right? You're utilizing a home equity line of credit, you're utilizing your income, you're utilizing property income, you're using it as a sleep well at night account. You're using it to maybe pay down other obligations that you have. It's providing liquidity that you wouldn't have otherwise.
00;30;07;04 - 00;30;25;27
Unknown
You are paying interest. But if your financial life is such that you can make it work and you're willing to work a system like throwing all your income on it, and you look at the properties that you're investing in, in your your average month, the increase is well above what sort of that that, you know, potential gap would be between what you have to pay on the hillock and what you're generating in income.
00;30;25;29 - 00;30;47;11
Unknown
All that could mean, Steve, is you may have access to something that gets you ahead a little bit sooner than you otherwise would. And that's, I think, the what I hope everybody gets from the episode. Number one, he locks are not free. Okay. I don't care how many followers or likes or comments somebody has. If they tell you a hillock is free, they are lying to you straight up, okay?
00;30;47;14 - 00;31;10;29
Unknown
Or they are trying to mislead you to sell you something, but they're not telling you the truth. Okay, That's number one. And then number two, there are ways to utilize it. And one of the things that we're going to be doing that will I'll just tease here is once the book launches, we're also going to be launching a community that provides sort of additional ongoing education on topics for people that maybe aren't yet ready to do real estate.
00;31;11;05 - 00;31;32;10
Unknown
And there's going to be an entire section on this concept of he locks money, Moneyball banking and how one would utilize that. So get ready, everybody, because it could be something that could be really effective. We've seen it work. I've seen it work. Personally, I have many people that I've worked with that have utilized it successfully. I also know many people that have not used it in the right way and have gotten themselves into debt trouble.
00;31;32;16 - 00;31;55;22
Unknown
So just like anything you need to be careful and you need to be wise. Any other thoughts before we wrap this Hillock episode? Steve Yeah, I know. I think I think you've got it covered. Give thank you for listening. We love you. If you haven't rated and reviewed the podcast, we'd love for you to do it. And also, again, if anybody is thinking, Gosh, Kev, thank you so much for the knowledge bombs you drop, I want to take you to a 40 Niners game.
00;31;55;22 - 00;32;15;27
Unknown
I'm open. Okay. Just throwing it out there. I'm okay with it. All right, Put it on your hillock. I'm just kidding. All right, everybody have an awesome holiday season and we'll talk to you real soon. Merry Christmas.