First Lien HELOC Strategy & Cost Breakdown

Hello and welcome. Today we're going to be discussing how to buy a property using a first lien HELOC going to discuss that and we're going to be looking at the cost breakdown using a real life situation. My very own personal case study, purchasing a property single family residence using a first lien heloc. And I'll show you all the cost breakdown and then my strategy in terms of how I'm going to pay that down and how I'm going to leverage it to do many other things. So let's dive right into it. Taking a look at the board here on the left hand side, I recently just bought a property so I am a first time home buyer. So now I'm going to experience what it is like to be in massive amount of debt. The purchase price is $630,000. The inspection cost was $955. The appraisal was $645. I put 10,000 down for the earnest money and the homeowner's insurance came out to $6339.17. When it was all said and done at closing, the final down payment was $60,428.90. All in to acquire this first link HELOC was $78,368.07. The down payment amount was 10.1%, $63,630 which left us with about 2.34% closing costs totaling $14,738.07. Now for the burstling HELOC product itself, the cost that was associated with the HELOC itself was about 1000 bucks.

Right.

All this other cost, majority of it came from right here with homeowners insurance. That was a really quite high, it was way overestimated compared to what the bank was assuming the insurance would be. But we are in South Florida and there's just been a lot I think that's happened over the years that has caused homeowners insurance to just really skyrocket over the years. So that was a majority of the cost. And then in the state of Florida there's a like a stamp docking fee or something like that basically in regards to credit lines for every like thousand dollars that's like a dollar or some kind of fee associated with it. And that was multiple thousands of dollars. And then all the other recording fees, settlement fees, all the other things that came with it. But the product itself, the first link HELOC was very inexpensive to acquire.

Right.

So first lien heloc, the bank that I'm using is University Bank. If you'd like me to connect you directly to that particular bank, just reach out to me, send me an email directly and I'm happy to connect you with the right person, the right team. If you're looking at acquiring a first lien HELOC for yourself to either purchase a property or you're looking to basically replace your amortized 30 year mortgage with a first lien HELOC, this could be a potential option. University bank, right? In addition to the 78,368,07 that went toward the purchase price of the 630 and closing costs, in order to actually get approved, I had to pay off two cars, right, that were in my name. Now unfortunately, every car that I use and leverage is a lease. So I have four car leases. One for myself, one for my fiance, one for my mom. I'm sorry, I misspoke. I have three car leases, right? And then one car that I bought, which was a lease, and then I bought it out. I own that vehicle and I have a finance deal with my older sister. So that's where the four cars came from. So I own one vehicle and I lease three. They're all in my name. But technically I really only drive one of them, right? For business and personal use. Now, because all three are in my name, my DTI looks much higher. My quote unquote debt obligation looked higher. So the bank required that I pay off 2 of the car leases early, which kind of, you know, I didn't really wasn't stressing too much about it, but I had to, you know, put that in here, in the details, in terms of the cost to stay below a certain percentage, which in my case was, I think 41 or 43%. DTI was what we didn't want to breach for the bank to approve the line itself. So I had to pay off those two car leases. That was another 10,226, 26 cents for one. And then I literally have a lease that's expiring in a couple of months. I'm recording this video in December of 2023. The car lease that is number two right here expires in May of 2024. So the payments are almost all complete. After that, I will be buying out the vehicle, leveraging the HELOC when that time comes. So 10,000 1700, technically all in $90,365.18 went into acquiring this property. Now where did that 90,365 18 come from? 100% of that came from whole life insurance. So I have been funding, I've been max funding whole life insurance policies, four of them, two on myself, one of my fiance, one of my mom since 2018. So I've been saving money for the last five years and I've accumulated roughly in cash value across all of the different policies, well over $400,000. Now one of those policies have 358,000 in cash value as of 2023.

Right?

It's 358 and some change. But round numbers here, 358,000. So, so 100% of the down payment, closing costs, all that came from cash value. I borrowed against my cash value, leveraged it. Here we are today. So the financed amount will be 566,370. That's the financed amount, but that's also the credit limit of the heloc. So it's going to be maxed out the credit line out the gate. I'm in the process of getting the line set up, connecting bank accounts, moving everything over to that particular bank so that I can do velocity banking. So that was the cost breakdown. Now going into the strategy, what am I going to do with this thing? Why am I getting a first lien HELOC in the first place?

Right.

The goal is to maintain liquidity all the way through this entire process. That's one goal, maintaining liquidity and access to capital. Number two, I'm leveraging a first lien HELOC and a whole life insurance to actually offset my entire cost of bond borrowing, the $630,000 in the first place. And also to recover. Every single dollar that goes toward the pay down of the mortgage is going to show up in another form of an asset called whole life insurance. So I'm using the same dollars multiple times over, rather than just sending my capital to a debt for the sake of paying it off early, for the sake of removing a payment obligation when it's all said and done. Instead of just doing that where the property's paid off and I just look at it, right? And it's just a paid off property that I can look at and that's all I get to do from that. That's the only result I get from it is I just look at a paid off home and I have no payments. But how do I access the value of that property? Only way I can do so is what, borrowing or selling. So instead of me wasting all that time value of money toward a debt obligation towards this, towards this home, I can actually pay off the home early. But more efficiently by running every single dollar through whole life insurance first, borrowing it out, paying down the debt. And because it's not just an amortized fixed rate mortgage, it's a line of credit. Every dollar I apply in there in principle immediately is available to me. So now this first lien HELOC is acting as an emergency fund, a savings account, a checking account, an operating account for the household accessible money. The moment I apply principle in there, it's accessible for the next 10 years. Open ended revolving line line of credit. Then I take those same dollars and throw it right back into life insurance. Keep max funding these policies. So that is the strategy. Leverage whole life to pay down the property, leverage the HELOC that is being paid down the credit, limit the line of credit to then turn around and max for fund the whole life insurance policy. All the while in between using the velocity banking concept to reduce interest costs and retain liquidity all the way through. So this credit line has an intro rate of 4.99% for the first six months and then afterwards I'm quoted 9.497%. Now what is likely to happen six months from now, interest rates are going to start to come down. That is what I'm assuming, but I'm not betting on it. But I do assume that is likely to happen. Rates are going to start coming down quite soon. If not, that would be my rate, 9.497% and it would stay that rate for six months. So every six months my credit line will change. So it's a fixed rate heloc. Every six months it adjusts.

Right.

So it's a variable rate but fixed for six months at a time.

Right.

So now bottom part here is going into what this is going to look like in action, what's going to be going on and then I'm just showing you how I think, how I leverage, how I'm operating these tools in the most efficient, conservative manner. So with the $358,000 sitting in a whole life insurance contract, this is guaranteed money. This money is growing at a guaranteed compounding tax free rate of return.

Right.

I can, I can count on that money going nowhere but up. Guaranteed tax free use. Now I have a personal rule as it relates to the velocity banking concept and also the infinite banking concept. Leveraging whole life insurance is I typically do not leverage more than 2/3 or 66% or 67% of what I have in available cash value. So you take the 358 times by 66% you're going to get $236,280 is my personal number of max leverage, which is the total dollar amount that I will have leveraged in the cash value. Now, when I borrow against my cash value, I'm paying an interest rate back to the insurance company. That rate is going to be 6% out of my life insurance contract. Okay, so if we do the math, 236,280 times 6% percent, I will pay in a year $14,176.80. Now, in addition to borrowing that $236,280, I'm going to be credited an interest rate of 6%. So I'm actually going to generate $14,176.80 back to the overall cash value for however long I have that money loaned out for. So I'm going to pay the insurance company $14,176.80 and I'm going to earn $14,176.80 as a crediting rate on the cash value. Now, in addition to that, the 358,000, minus the 236, 280, we have $121,720. I'll put it up here. So we got 121, 720. Now, that money is earning the standard gross dividend rate from the insurance company of 5.75%. So 121, 720 times 5.75% would be 6998 and 90 cents. But here's, here's the thing. That is a gross interest rate gross. So the net I will probably I'm in year by 2024, it'll be year six of funding this life insurance policy. So I'm going to assume a net internal rate of return after expenses and fees, probably around 2%. So probably more like this number right here, $2,434.40 could be a little higher. I don't think any lower than the two. So that'll also be earned on top of this money here. So all in, it's about maybe 16,000 plus and some change. So what's happening is the amount of money that I borrowed out of my life insurance, out of my life insurance policy, although I'm paying a cost to do that to the insurance company, I'm creating a wash, or in this case, moving forward, because I've been funding it for, for a good amount of time. I'm going to start producing a internal positive arbitrage on the borrowed funds. Okay, an internal Positive arbitrage. The key thing here is I didn't over leverage. If I took out all of the cash value and I had an interest bill and I did not pay that interest bill directly out of pocket from my income, then the insurance company is going to take the crediting rate that they gave me and they're going to pay the interest instead of adding it to the total cash value. So that is where some of you may have caught into some problems before. And I just felt the need to talk about that a little bit. I think some of us get confused sometimes. It is my personal strategy to always pay my loan interest out of pocket, not from the insurance company. I don't want the insurance company to use my dividend earnings to pay my loan interest because then that's going to affect the arbitrage that I can create inside the policy itself. The positive arbitrage is going to go away because all of my earnings did not get added to the overall total cash value balance. It got taken. Boom. Pay the interest. So every year I will be paying that loan interest out of pocket. Guess from where? Yes, you guessed it right. From the first lien heloc. Denzel, how are you going to do that? The same way I've been doing prior to not having the first lien heloc. I had a cash value line of credit and I did the same thing, ran all my income through there. I saved my money in the line of credit and then I borrowed it out and I max funded my whole life policy and then I borrowed out of my whole life policy and pay down the line of credit and and so I'm flip flopping, moving money back and forth and I'm creating this positive arbitrage long term and also in the short term while maintaining liquidity and reducing my interest costs of borrowing by leveraging the velocity banking concept of parking all income into the line, having that money sit there for as long as possible, which reduces the balance owed, which reduces the amount of interest I pay to the bank.

Bank, right.

So now that you got that full picture there of the total amount of money I'll be borrowing out of the policy out the gate, currently I'll owe 110 and some change. So if you do 236,280 minus 110, I'm going to borrow an additional 126,280 out of the policy and I'm going to make a principal only payment toward the 566,370. It's going to bring the balance down to 440 90. So, so what just happened? I have a credit limit of 566,370. I now owe 440 90. I applied 126, 280. Guess what's available? 126,280 is available for me to use however I see fit. So the nice part here is I didn't lose the money, right? I didn't lose access to that money. If I would have had a traditional mortgage, borrowed from my cash value, applied the 126, I would lose that liquidity of the 126. So because that's not the case here and it's an open ended revolving line of credit now that balance is going to be at 440,000. I'm going to have access to the 120. Okay, so here's what's going to happen. I'm going to be doing velocity banking with three incomes, not just one. So I'm using my income, my fiance's income, my mom's income. We're all living under one household so we are all sending our paychecks to the first lien heloc. In this example I'm literally just showing what my income alone will do with a cash flow principal pay down each and every month of $10,000. So I'm not even like including velocity banking. I'm just showing what it would look like if I just paid 10,000 each and every month to the First Link HELOC.

Right.

And I completely overestimated just to give me a rough estimation of what I should do. And in reality I'm going to do much better, right? Because again using three incomes, all that stuff. And in this example right here, the breakdown, I'm just showing one income. So from January 2024 is when I will likely get the first lien HELOC will have access to it, I can use it. It'll take a couple of weeks to move all my bills over to this bank. Move all the incomes to the bank. Right is likely where the cash value will be at according to my illustration. So then you take that cash value number 438 times it by 2/3.289.080 minus 236, 280 that I had borrowed out 52,800. So I'm like under balling it. I underestimated, did all this stuff. I chose my number to be $46,200. So $46,200 is what I'm going to borrow out from the 70 that I borrow from the HELOC, the bank's money to fund my own bank, the whole life insurance contract, to then pull out of the whole life insurance contract back into the heloc. Why am I doing that? Well, I'm projecting this cost right now. It's low, but come June of 2024, that'll expire and it'll likely jump. So that interest cost will technically be higher than my cost of borrowing inside of the life insurance policy. So the goal here is to as quickly as possible move the 566, 370 debt into the whole life insurance contract. That provides more protection over. Number one, I have a paid off property. Number two. Number three, not only is it paid off, I'll have a credit limit of $566,370 at a cost of borrowing at around, say, 9%. But when doing Velocity banking, I can manipulate that 9 and pay less than 2, less than 3, less than 4% in interest, depending on how much I have borrowed out. The more I have borrowed, the harder it is to reduce that effective rate, the actual net rate, not what the bank tells me, but what I actually pay in interest.

Right.

So I'll be able to bring that down much easier the lesser the balance owed is. So if it's paid off, property's paid off, great. I can then say, yeah, let me go ahead and leverage this HELOC to acquire another property. Or maybe I invest more in my business to increase the cash flow, increase the revenue. Or maybe I invest in someone else's business or acquire a business. There's so many options, and I like to have options when it comes to my money, and I like to have liquidity. So these are the things that matter to me that may matter to you, and which is why you're probably listening to this case study and mapping these numbers out for yourself to see what makes sense. So continuing with on, we are in June 2024, we borrowed 70 out, we max funded our our bank, and then we borrowed 46 and paid down the HELOC. Now, I showed the 46,200 at the end of the year.

Right.

Just to again overestimate on where the balance will probably be at. I show from June to September. September is the next anniversary date out of the four policies that I manage and run. So now the balance will be $425,000. Again, borrow 15k out to fund whole life insurance policy. Number three, max fund it. Done. Not borrowing from it.

Okay.

That money's going to grow compound, do its thing. Keep doing more velocity banking from September to November. November is the next anniversary date of the last policy in that calendar year. Balance will be somewhere around 420. Borrow at 10 going to be up to 430 max fund do nothing. So the only policy I'm ever borrowing from to pay down the property is actually just one policy and that's policy number two right of the 358 and then increasing the 438 in 2024. So by December would have been one year of Velocity banking. Owning a first lien HELOC for an entire year. By the end of 2024 all goes well. Even if things don't go well again, very overestimated numbers. I should have a balance owed somewhere around 363,800 or 375,000. So let's do the math. 566,370 minus I'll just take the high number, 375,000. So I reduced the balance by $191,370. Let's do the math. 566 thousand 370 divided by 191. Three years roughly says 2.96. Take me three years or less to move the entire balance owed to the first lien heloc into my bank. Whole life insurance where the cost of borrowing ends up being zero or actually a positive arbitrage. I avoid all the interest going to the bank. Any interest that I did pay to the bank I make up for in equity. The value of the property increasing. There's going to be tax incentives for being a property owner. Now there's that and then all of the gains from the three different the four different policies. All those interest rates that are compounding tax free over time are going to offset what it cost me to acquire the property in the first place. Place you know, looking at the closing costs and everything, this is very powerful in my personal opinion. Okay, this is what I'm going to be doing with my own personal finances. This is how I'm handling going into a massive amount of debt. I'll be able to for the first time experience what you guys experienced. All my clients, all everyone that I've been serving, helping you pay off your mortgages and pay off your car loans and pay off all your debt. Now I'm going to experience what that actually feels like to be in a lot of debt and then pay it off very fast. Get whatever energy, joy, happiness, peace, whatever comes from being a debt free man. So I've been a Debt free man for quite some time. But Now I'm not 2023, going 2024, and the next three years, let's say I will be an in debt man, talking about getting out of debt. So I get to be on both sides, right? And for a time, 2018 and prior, I was in $30,000 of debt was like my max number. That was the most amount of debt I've ever been in. And then fast forward to today, that number is going to be $566,370. Now, if you're wondering, like, wait a minute, did Denzel actually ever pay off the debt? I mean, he said move 566,370 and move it into his whole life insurance contract. So, like, does he. Will he owe 566,370 in the life insurance after three years? Answer is yes. And then if you're like, well, does that make any sense, Denzel? Well, for most, it probably won't. Here's why. Number one, they don't understand the power of whole life insurance, what it can do for their family, for their household. And two, I would also say that it's a matter of understanding what values you have around money and your moral belief about debt. Whatever your moral beliefs are about debt, debt, if you believe that you should not have any debt whatsoever and you should never use debt or leverage debt or any and go anywhere near the word debt, none of what I said you should be listening to. The last thing I want to do is convince people of leveraging debt. This channel that I've been building for the last five years talks a whole lot about leveraging debt. But make no mistake, when I actually get on a call with clients and I'm working with them, especially those who've paid me money or even those that I serve for free, many of the times I'm saying you're not ready, you're not ready, you're not qualified. You don't have the skills yet. You don't have the discipline yet to make you aware of what's possible. And then you get to make the decision on whether I will use this or not. But coming back to the point of now owing 566,370 at, let's say, 6%.

Right?

What will that cost me per year? 566. 370 times 6%. Let's say that would be $33,982.20. 5, 6, 6, 3. 70 times 9% would be 50,973, 30 to the bank See that instead of me paying 50, almost $51,000 to the bank and never seeing those dollars again, I could have that money in my life insurance policy where I pay a lesser interest cost to the insurance company, 33982. And then the insurance company gives me that money right back in the form of dividends. And if the dividends continue to increase in that life insurance company, guess what? The arbitrage increases greater and greater and greater. Now I'm still paying this though. You have to realize that I'm still paying that $33,000. Where's that coming from? My line of credit. I'm still going to pay 6, some of that 50 to the bank, not all of it, but I'm still going to pay some to the bank and I'll show all my statements and I'm going to do a whole case study and just kind of map this out, do multiple videos, make a whole entire series out of it. But what's happening here is I'm retaining dollars that was already going to leave my economy. That's the big part here. You see, if I would have just take my 358,000 that I've saved over the years and then dumped it in there to pay down my mortgage, I lose liquidity of $358,000 and I still owe, you know, 200,000, whatever it is on the property. And yes, I'll pay it off in roughly the same amount of time, say three years or less, two years or less, whatever it is, pay off the home. But then I have to restart my savings plan up again. Whereas I could leverage this 358, dump it into here, increase it over time, dump it into there, into the HELOC and never actually lose the 358. The 438, never actually lose the savings because when I borrow against my cash value, the insurance company is giving me their money and they're using my438 as collateral. On top of that, I get a death benefit with living benefits in case anything happens to my health. So if I was to pass along the way, over $4 million gets paid out to my family. So their net worth increases by 4 million dol, minus the loan that was in there, minus whatever debts that my family would have to pay off, they're still left with a surplus of say, $3.5 million. I also, when I borrow against the cash value, I do not interrupt compound interest. If this 358 was sitting in a savings account, a high yield savings Account, money market, a CD or whatever it is. The minute I take from there to to pay here I interrupt compound interest, whereas in the whole life insurance contract I do not interrupt the compounded internal growth rate of the cash value and the dividends paid to the total amount of money in there as if I never borrowed it in the first place. I'm still going to earn the same amount as if I didn't borrow, right? Compared to someone that didn't borrow, I'm still going to earn the same amount, if not more. This particular type of life insurance when borrowing is called direct recognition. And then there's something called non direct. The other three policies are all non direct recognition loans. This one is a direct recognition, which just means that when I borrow against the cash value, the insurance company is recognizing that loan and they're going to credit me a different interest rate than their normal crediting rate. So my interest rate crediting is 6% on the borrowed funds and the non borrowed funds is the 5.75%. And there's going to be like a 0.25 or 0.2% difference in gain when doing this. So that's why I said if not more, because I'm actually going to make more by borrowing than compared to the person that didn't borrow the funds and just let it sit and grow. We're talking multiple layers deep, right? On this stuff. It can be a lot. But after five, six years of studying and practicing and studying and practicing and helping people, now it's like a daily routine for me. It's just a matter of running the numbers and understanding where does money reside. How can I take a dollar and get seven uses out of it before I spend the actual dollar, before it leaves my economy? How do I rotate it in my own economy so many times over before it actually leaves my economy? And so every dollar that I'm producing that results in a net cash flow. So I make money in the business, I have expenses, then there's cash flow, that net cash flow before it gets spent towards something. I'm sending a majority of that cash flow to the four different whole life insurance contracts. So boom, it got a use. That dollar purchased a death benefit tax free. Protects my life, protects my family. Cool. We're protected, right? I am my best asset. So I'm protecting it at max, max capacity, right? Over four plus million dollars. So I'm protecting myself and I'm protecting my fiance and protecting my mom and protecting everyone that I care about internally in the household, right? With life insurance. Cool. That Dollar that purchased an asset life insurance protection also has a second benefit, a living benefit called cash value. That cash value, second benefit technically. Now, second use of money, first use of the $1 purchase life insurance. Second use is that dollar is now sitting in cash value of which I can now borrow against and go use it. So second use, I borrow against that dollar and I'm going to apply that dollar towards the principal pay down of my mortgage to accelerate the mortgage line of credit, right? To accelerate the debt owed my home, my primary residence. Now, in addition, I didn't just buy a home just to buy a home, I bought a base, right? So now this base that I bought is going to be an asset where I have a home Office and a YouTube studio of which I use to create content just like this to deliver massive value to my audience, obtain clients, serve people, get paid to serve people abundantly. Right now the home is an asset that produces cash flow in the form of content creation. Becoming an influencer, financial coach, consultant, strategist, ecclesiastical financial counselor. All these different things all flowing money and revenue back to the life insurance contracts which then pay for pay down the balance of the debt. Third use of money paid down the balance of the debt, Fourth use. Now that that dollar came out of the life insurance, that dollar is now earning a rate of return and that dollar is protected with life insurance, that dollar is now sitting in the line of credit, it's paying down the line of credit. Another use paying down that dollar just became liquid again. It's available, that dollar, say a portion of it, 95 cents, 90 cents of every dollar I apply in the HELOC, whatever the ratio is, is now principal, that money is now available. And then it finally leaves my economy to pay bills and expenses. And as it's leaving my economy to pay the home office expense and the YouTube expense and the business expenses, guess what? By the time it left my economy and it paid that funnel expense, it paid that email marketing expense, it paid that, that accounting and CPA expense and the lawyer expense and the coaching expense and the living and the food and the, and the car expense. The minute that money left, guess what just happened? Four more dollars just came into the economy. So for every dollar that leaves my economy, three more dollars is coming back in. How is that possible in the form of a business? I created a business that produces value and I get paid. So for every dollar I put in the business, I get $3 back, right? And my goal is to increase that ratio. For every dollar I put in, how do I get $4 back? How do I get $5 back? For every dollar I put in, how do I get $6 back, $7 back there? It's infinite as to what that number could be. I'm not getting caught up in what it could be. I'm just simply, how do I continue to perform more efficiently? How do I optimize my performance? How do I increase performance? How do I continue to glorify my Father in heaven? By performing better here on earth, by being a better ambassador and representative of the kingdom here on Earth. It's going to require me to increase my skills as quickly as possible.

All right?

It's going to require me to invest in myself as quickly as possible, overcome the education curve right into mastery over skills, gifts and talents that God gave me that I can, boom, deliver into the marketplace, get paid more abundantly. For every dollar I put in, three more dollars come in. Dollar goes in, three more dollars come in. So I'm rotating dollars over and over again by using these different tools. These tools allow me to increase more efficiency rather than just getting one use for a dollar. Where money comes into my economy, it pays bills. Whatever's left over pays towards a debt. But is there a better, more efficient way to do it? I believe there is. This is my way right here. If you'd like to work me one on one with your first lien HELOC or your second lien heloc, or if you got life insurance policies, you want to strategize this, you want to throw this on the whiteboard, you want to map this out, create a financial freedom blueprint over the next 10 years for your life. I think it's time we work together. I think it's time we pull the trigger and sign up for some one to one custom service to achieve financial freedom, debt freedom, independence, living a masterful life worth living that you desire, that glorifies God in his name. My name is Denzel Rodriguez, your personal finance geek of the 21st century. It's been a pleasure. I look forward to talking to you very, very soon. Comment below your thoughts and tune in for the next video.