How to Use Home Equity to Buy Investment Property (HELOC vs Cash-Out Refi Explained)

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Show Summary

In this conversation, Dylan Silver interviews Arthur Miguez, a partner at Lending Spot, discussing various aspects of mortgage lending, particularly in South Florida. They explore the growing popularity of DSCR loans, the competitive investment landscape in South Florida, and the diverse profiles of investors in the region. Arthur explains the differences between cash-out refinancing and HELOCs, emphasizing the importance of leveraging home equity for real estate investments. The discussion also touches on future projects in Miami and the advantages of investing in the area.

Resources and Links from this show:

• • • Investor Fuel Real Estate Mastermind
    • Investor Machine Real Estate Lead Generation
    • Mike on Facebook
    • Mike on Instagram
    • Mike on LinkedIn
    • Lending Spot’s Website
    • Arthur Miguez’s Email Address: [email protected]
    • Arthur Miguez’s Phone Number: (305) 772-1619

  Listen to the Audio Version of this Episode

  Investor Fuel Show Transcript:

  Arthur Miguez (00:00)
  If you want to start your real estate portfolio and you already own a home, so this will be a second home that you’re going to own. The cheapest is always going to be to keep, to convert your current home upgrade to a better home.

  because you have to have a justification. Are you upgrading for your family work or whatever? And then be able to convert your existing one into a rental. Because if you think about it, that house is going to have the lower payment.

  Dylan Silver (02:00)
  Hey folks, welcome back to the show. Today’s guest, Arthur Miguez, is a partner with Lending Spot. They are a comprehensive boutique mortgage lender who has a diverse client profile, including first time buyers, real estate investors, people who are self-employed international investors, and homeowners looking to refinance to improve rates, restructure debt, or access equity through cash out refinance, second mortgages, and HELOCs. Thank you for joining us today, Arthur. Thanks for taking the time.

  Arthur Miguez (02:26)
  Thank you for having me Dylan.

  Dylan Silver (02:28)
  Now, when we talk about the lending space and as I’m reading out, you know, the profile of lending spot, you’re really involved in pretty much almost every segment of lending.

  Arthur Miguez (02:41)
  Yeah. So we specialize in residential mortgages. So we are involved in every aspect of a residential mortgage. So we do first time

  buyers, second homes investment. But I think what makes us a little bit different is the because we are based out of South Florida, Miami, Miami has a very diverse population. So we’ve kind of built out a niche as well where we have an extensive portfolio dealing with investments.

  everything from foreign nationals to new-build condos to buying duplexes, quadplexes, and all that. And that’s basically been something that is going to become, especially for me, a background where we have focused a lot more on that area than we would with the traditional FHA conventional mortgages that are known throughout the country. Because South Florida is very known for a different type of employment history and population.

  Dylan Silver (03:39)
  Now, when we talk specifically about working with investors, know, DSCR, I’ve seen the traditional mortgage lenders, big names and small alike get more into DSCR. Is this because there’s more people that are interested in investing in real estate or is this because maybe more people are tax savvy now and so are unable to show a higher income amount on their tax return?

  Arthur Miguez (04:07)
  It’s a combination of both. So I will tell you the DSCR product has been around for quite a bit of time, but it really gained popularity post COVID. What happened was during the COVID crisis, a lot of non QM lenders, anything that isn’t considered an FHA or conventional mortgage, they stopped funding. was a market collapse that there was a lot of those programs were suspended.

  And then they really have started to regain popularity since 2023. So now you do see pretty much everyone in the mortgage space does offer DSCRs and so forth. And it used to be where people would be like, okay, the DSCR would have a higher rate or it be a little bit different. And that’s why people that maybe didn’t want, didn’t have the income to declare and so forth, or use it. But I can tell you in today, the DSCR prices out interest rate wise, the same as it would do

  a traditional Fannie Mae loan, which it used to be at least 1 % to 1.5 % higher

  than if you would do the same scenario. Now it’s the same. So now it’s a better product for those investors. Two reasons. First is the ability to vest under an LLC. A lot of investors, especially seasoned ones, want the ability to vest for LLC for whatever tax purposes or based on the advice of their attorneys and accountants, they prefer that.

  So that’s a huge advantage that you can’t do on a traditional income law. The other thing is it’s a very simple law. What really matters more than anything is does the property cashflow? And honestly, if you’re going to invest, that should be fundamental in anything. Do you really want to invest in a property that doesn’t cashflow? If it doesn’t cashflow, then the question is after repairs and so forth, will the cashflow? That’s always kind of like the question.

  Dylan Silver (06:47)
  Now, for folks who are looking into DSCR, I understand ⁓ most of the time they’re putting a good amount of money down, 20 % down. So they’re also potentially walking into this with some equity, is that true? After the loan has been finalized, they’re putting so much down, they’re gonna have equity soon.

  Arthur Miguez (07:01)
  Correct. Correct.

  Yeah, I mean, the minimum down payment is 20%. Some people advertise 85%. I mean, 15 % down payment. The issue is that mostly depending on the market, it becomes very difficult to cash flow if you do less than 20 % down. Depending, because it’s very much market based. It’s all about does your market support the rent versus the value of the home? And where is that kind of like I can tell you.

  Dylan Silver (07:22)
  Okay, I got it. ⁓

  Arthur Miguez (07:32)
  I’ve done loans in Texas and North Carolina and certain rural areas. And at 20%, it’s very easy to have a positive cash flow. In other higher market areas like South Florida, you may need to put 25 or 30 % in order to have a positive cash flow.

  Dylan Silver (07:48)
  Now, when we talk specifically about South Florida, I’m a big fan of South Florida, you know, and I’m in South Florida all the time. And I think really anybody who goes through there, especially if you’re connecting to some flight outside of the country, you’re like, man, I wish I could spend some more time here. And so I found myself doing that. Anytime that I have to be in, you know, Miami International or Fort Lauderdale, the airport’s down there, I’m like, I’m gonna spend a couple days down here, because it’s just so great.

  And as more and more, not just people who are traveling, but real estate businesses seem to be flocking towards South Florida, have you seen that there is maybe an increased level of competition in the investment space, in single family specifically, where you have not just folks who are investors by trade out there, but also folks from around the country who either want to move there themselves or are thinking about, I’m going to be

  potentially living in South Florida, I might as well be investing out here as well.

  Arthur Miguez (08:52)
  Yes, definitely. We definitely see a very strong market in the investment space. can tell you as a company, a large percentage of our loans, greater than ever, are mostly investors. So that’s always like what the data tells us. It’s very much what do we see as far as non-owner occupied homes in the market. And that market continues to get stronger and continues to grow year over year. So there’s definitely the demand taking up. Single family homes are very hot commodity.

  even more so on the investment space and even multi-units to a certain degree, or even condos. And there’s multiple reasons for that. We can go into the specifics about zoning laws, how they’ve changed, how some markets don’t want to have or allow anywhere the build of multiple units, the age of the home, and also the investor strategy. A lot of investors would rather have the lower cash flow.

  Dylan Silver (09:26)
  Well, yeah.

  Arthur Miguez (09:49)
  If get the greater appreciation, if they plan on selling within a certain time period, other people rather have the two units because it provides a greater cash flow even though it may have a lower appreciation rate over time.

  Dylan Silver (10:34)
  Now, when we talk specifically about, you know, the the avatar of someone who may be investing in South Florida, I’m thinking it’s got to be pretty much across the board. You mentioned international investors. I’m imagining also you’ve got, you know, people who earn well in W-2 in order to able afford that, you know, South Florida lifestyle who are also looking at, how do I diversify into real estate? But then you’ll also have, you know, people who are real estate professionals and this is their full time, you

  a career path which is investing in real estate, flipping homes and having a rental portfolio. Do you see that as well in your business that you know it’s not one group of people but it’s really across the board who’s investing in South Florida?

  Arthur Miguez (11:17)
  Correct. You have all walks of life. I do see mostly independent mom and pop style investors investing in their local market. Most of the people that like to invest, they like to invest in, when you invest in real estate, because it’s a real tangible asset that you can touch. then obviously there’s going be some work. It tends to be people that already live here. So a lot of your multi-unit investors, single family investors are people that basically they have a home, they have equity.

  And they’re like, okay, I want to buy an investment property next. then a very common step is they bought a starter home, let’s say four five years ago. They now have some equity in the property and they want to convert that into a rental. And that will then give them a certain amount of income as well. And then they upgrade. So they basically buy a house three years ago, family grew, they want a fourth bedroom or they want to change or they want upscale the neighborhood. They keep the old house. And then that becomes kind of like

  the most common first investment. It’s convert your existing primary into an investment home. And that’s one of the most common ones that you’ll see in the independent space.

  Dylan Silver (12:26)
  I have a granular question that I really should know the answer to as a realtor in Texas, is there a difference and what’s the difference on a granular level, if you could give away some of the gold for us here, between a cash out refinance and a home equity line of credit?

  Arthur Miguez (12:43)
  So.

  Trying to think best way to phrase this and answer in a way that, so this is the way I always will analyze it. A home like we learned in credit is like having a giant credit card with cash available. So imagine you have $100,000, but instead of having to get a cash advance at a 20 % rate, which it would, it would be with a major credit card, you could basically use your home as that cash advance. So the advantage is if you have $100,000 as an example, and you want to pull out money,

  for anything that you may need. A HELOC is a great thing because it converts something into liquid cash because not everything can go on a credit card. So you’re basically using your house’s equity in order to do that. The advantage is that if you have a low interest rate, so if you buy your house, let’s say between the year 2020 and 2022 when rates were, you know, sub 4%, you don’t want to lose that first mortgage, but you do want to have the liquidity available. But then it’s always about

  The question is what product is better? Is it a cash out or is it a HELOC? To me, it’s all about what are you going to use the money for and whether or not and what the loan amounts are. So I’ll give you a perfect example. If your HELOC is greater than your primary mortgage, meaning you owe a hundred thousand and you want to take out two hundred thousand, then chances are your overall payment will be higher because the HELOC will always have a higher interest rate.

  So when you do a blended rate, you’re gonna basically owe more on the higher rate and you owe less on the lesser rate. So if you do a cash out refi and you combine the two, you’re actually gonna get significantly lower rate overall and a lower payment if that’s the goal. The second option is what are you gonna use the money for? So a HELOC is great if you’re gonna use it, but you know that you’re gonna put it in, put it out and use it like a credit card where you’re gonna be able to pay it off within a certain period of time, but you also want.

  liquidity available. A cash out refi to me is much more valuable in the sense if you want to take out money and let’s say whatever money that is, let’s say you want to put down payment on another house, that down payment on 500,000, 20 % to $100,000. Then the cash out refi may actually make more sense. The reason

  that money you’re already allocating into an asset and that asset then is going to be locked into that other asset. So you’re not, you’re going to pay the full amount on the draw.

  of that at a higher rate. And the difference between a HELOC and a cash out refi, the difference can be up to three to 4 % difference in interest rate. if all that money is going to be drawn at once, imagine if you had your credit card maxed out. Do you really want your credit card all of sudden to be maxed out on your HELOC? And then you’re not planning on paying it back because that was already allocated towards a long-term fixed investment. That’s the best way I would kind of tell you how your decision-making should go.

  Dylan Silver (16:03)
  Yeah, it’s

  Now for folks who are looking at leveraging their homestead, The place that they’re living. And they’re looking at getting into real estate investing as a mom and pop investor. Are they looking at some of these strategies? Because I think that this doesn’t get talked about enough, right? That people who’ve lived in their home for a while and are interested in getting into real estate, it’s not like they need to save up all this money in order

  to come up with that 20 % down payment for the next home, that if they’ve lived at their home for long enough time and there’s a lot of equity there, that they really can tap into this to start their investment portfolio.

  Arthur Miguez (17:06)
  100%. Like most people don’t know that they can use that equity. Some people are fearful of using that equity. And there’s always two strategies to this. Let’s talk about what is the most cost saving strategy.

  If you want to start your real estate portfolio and you already own a home, so this will be a second home that you’re going to own. The cheapest is always going to be to keep, to convert your current home upgrade to a better home.

  because you have to have a justification. Are you upgrading for your family work or whatever? And then be able to convert your existing one into a rental. Because if you think about it, that house is going to have the lower payment.

  You own there for a while, you’re going to have the most equity and you’re to get the most cash flow. Your newer home at that point, you can enter with as little as 5 % down. So instead of having to put 20 % down, you’re putting 5. That is a huge monumental difference in the difference. So if you look at it,

  Dylan Silver (18:02)
  That’s huge.

  Arthur Miguez (18:05)
  You upgrade to a house, let’s say $700,000 now in my market. That’s only $35,000 versus if you buy a $500,000 investment, that’s $100,000. And chances are that your house that you’re exiting and converting into your rental won’t need the amount of repairs that you may need if you buy that investment property. Because I think that’s the most underrated cost side and that people don’t realize how much you can have to make in repairs in order to do that. Because you’ve already lived in it.

  Dylan Silver (18:16)
  Yeah.

  Arthur Miguez (18:34)
  I’m pretty sure that that owner has maintained their house to where it’s livable. They’re living in it. It’s good enough for them. And then they’re able to go at a higher price point with less money. I think that is one of the most sound strategies in order to do so before you even get into the investment space of putting 20 % up.

  Dylan Silver (18:49)
  There’s so many ways.

  I mean, you mentioned that, right? Being able to, you do have to be willing to move, right? Or at least ⁓ change your homestead. But there’s so many ways where folks can tap into their current asset. And I think most people are just not aware of that. Maybe these are not conversations that they’re having, but certainly can and should be. Because if you’re interested in investing in real estate and you already have equity in the home, if you’re willing to relocate or if you’re willing to change your

  said that is just a huge opportunity for folks that I think in many ways may be untapped. We are coming up on time here though Arthur, any new projects that you’re working on and then as well what’s the best way for folks to get in contact with your team?

  Arthur Miguez (19:37)
  Yeah. So new projects that we’re working on, we are the preferred lenders for several new construction condos in South Florida. So being the Viceroy and a couple other projects that we have going on, those are fantastic new investments. Most of our clients that are investing in these projects in Brickell are foreign nationals. So they’re basically people buying from other countries, buying them as investment properties with a down payment.

  and they’re able to invest in the United States. It’s a huge advantage. A lot of people from South America love to invest in the U.S. I always say Miami is the capital of Latin America. It’s a financial hub of Latin America. And it’s a huge opportunity for people that want to come in and invest. And more importantly than anything, there is great opportunities now because the rents in that area really to support where you’re getting great cash flow at 30 percent down. Traditionally, a condo with the HOA fees, you would have to put as much as 50 percent.

  So at 30 % down, fact you’re seeing cash from these buildings makes it a phenomenal investment. Miami continues to grow and with more and more companies moving down here, you see it on the news every single day where Palantir is moving to South Florida. Ken Griffin moves Citadel to South Florida. It’s really becoming a huge financial hub where we are still continuing to grow and have that market where it’s a city of the future. If you really think about it, people say it’s so expensive here, but

  Dylan Silver (21:00)
  Yeah.

  Arthur Miguez (21:03)
  They’ve never been to New York. Like if you compare it to New York, if you compare it to LA, if you compare it to San Francisco, we’re still a very affordable market and we have a huge tax advantage because we don’t have a state income tax. And Ron DeSantis just recently pushed into the Senate the possible removing of property taxes on your primary home. That is something that is huge. And the good thing about the state of Florida that most people don’t realize is

  Dylan Silver (21:26)
  first state to do that.

  Arthur Miguez (21:33)
  We don’t pay taxes, but our government has a surplus that is public record. So the fact that we don’t have to pay a personal income tax and we can still get our services because it’s managed in a way where you do get a surplus really shows the positive impact that it’s having. having, you know, between Fort Lauderdale, Miami and Palm Beach, have three major airports that have international flights. That allows for amazing connectivity with the rest of the world.

  And that’s really so if you ever do want to contact me, my name is Arthur Miguez with lending spot. My cell phone number is 305-772-1619 or you can email me at [email protected]. Dylan, I really want to thank you for your time and the opportunity, my friend.

  Dylan Silver (22:15)
  Yes, thank you for coming on.