Mundo Sanchez explains why the second loan in his strategy isn't a true refinance. The DSCR loan stays put while a second-position loan pulls out the investor's initial equity. He calls it a HELOC with sellers but tells title companies it's a refinance of the down payment to avoid confusion.
In the second transaction, it's not a true refinance though, right? Great freaking question. Yes and no. So you are refinancing your equity out of the property, but you're not refinancing the underlying DSCR loan that you just got. That stays in place. You're just pulling your equity that you just put in, or your capital partner just put in. You're getting that equity back out. The DSCR loan stays in place right where it is. Depending on who I'm talking to, I will interchangeably change what I say. So if I'm talking to sellers and agents, I'm framing this whole Morbius Method structure as a HELOC. So I'm refinancing the equity out of my property in a second position loan. That's what a HELOC is doing. You're getting your equity back out to do whatever you want with it, right? When I'm talking to title companies I don't talk to them and bring up the HELOC concept for some reason. I don't know why. I've tried to do this many times. They get really, really confused. I, I really don't know why. I always tell them, hey, it's a refinance of the equity, the buyer's down payment. We're refinancing that equity back out. They're like, okay, cool, got it, right? There's obviously a little bit more that needs to be said in that conversation, but they seem to resonate with that better than framing it as a HELOC, which is what I do when I'm talking to agents and sellers. So it all depends on who you're talking to.
