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Velocity Banking

W. Sabria

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I stumbled upon some videos on YouTube regarding "Velocity Banking" or "High Velocity Banking." The premise is that home loans are pure evil, with amortized interest sucking the life out of consumers 30 years at a time. Instead, using lines a personal line of credit, consumers can leverage their credit, increase their cash flow and afford to make balloon payments to their home loan (although it could technically apply to any other type of traditional debt) every few months. Even with a higher interest rate, you could save hundreds of thousands of dollars by decreasing the number of years you are paying amortized, compound interest.

Forgive me if I'm explaining this incorrectly. But I have to say it really blew my mind. Similar strategies can be used to finance real estate and business opportunities.

If anyone is fluent in this, I'd love to learn about your experience. Also, if anyone can recommend specific banks and related products (in the U.S.) I would be very grateful.
 

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100k

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Yeah, I was watching videos on velocity banking today too and I'm still not 100% sure if it works or not.


Check out the comment section and read what that farmer fella says VS walter.
 

G-Man

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What could go wrong stacking one liability on top of another to try to make a spread?
 

Merging Left

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Nothing stops you from paying down your home mortgage early. There are no early payment penalties. Although you have scheduled minimum payments, you could add on additional "balloon payments" which would go straight to principal, effectively lower your interest rate, and speed up your repayment time.

Without having spent much time reading up on this, it doesn't really make sense to me. You take out a personal line of credit to pay down your mortgage, but you still have to repay the line of credit. It's not free money. Your line of credit likely has a considerably higher interest rate, and it's probably a variable rate to boot.

I don't see any situation in which converting your home mortgage to a line of credit actually makes sense, since you have the option to early-pay your mortgage anyway.

Maybe someone can enlighten me...
 

Valhalla

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Nothing stops you from paying down your home mortgage early. There are no early payment penalties. Although you have scheduled minimum payments, you could add on additional "balloon payments" which would go straight to principal, effectively lower your interest rate, and speed up your repayment time.

Without having spent much time reading up on this, it doesn't really make sense to me. You take out a personal line of credit to pay down your mortgage, but you still have to repay the line of credit. It's not free money. Your line of credit likely has a considerably higher interest rate, and it's probably a variable rate to boot.

I don't see any situation in which converting your home mortgage to a line of credit actually makes sense, since you have the option to early-pay your mortgage anyway.

Maybe someone can enlighten me...
In Canada, mortgage interest isn't deductible but interest on borrowed money to make investments is, figure that one out. So what some do is take out a heloc and take the available funds to invest, deduct the interest paid and the earnings go to the principal of the mortgage.The Smith Maneuvere I guess it's called, which sounds more like something you'd hear on savage love.
 

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I’m going to watch the video again when I have more time and try to dissect it. If what she’s saying is accurate, that’s impressive as hell. But I’m a recovering slowlaner/high debt consumer, so I wouldn’t trust my own initial opinion.

Interesting -
 

Johnny boy

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This is slowlane. People that are in 30 year mortgages, working a job and making payments are throwing their life away and living in chains. People that utilize "velocity banking" are just doing the same thing but they think they're smart.

You can go from 0 to buying a home with cash in a few years of being smart and growing a business. And then you can remove yourself from the business and have thousands (or millions) of dollars in income, be young, enjoy a nice lifestyle and never have to listen to a boss.

And who goes to a bank for money? Make some better friends. If you mix yourself into the right circles, you can get money from a phone call. No credit score, no approval process, just showing someone a deal and what's in it for them and you're good. I'm looking for vacant land to purchase, build a house and grow my business on. Do you think I'm going to a bank? Hell no.

Pay off a mortgage in 5-7 years? You couldn't give me a house for free if it meant I had to stay in one house for 5-7 years. I am completely serious. 30 years??? Don't make me laugh. How can you value your life and your freedom so low?

"But you can save 40,000 in interest"

Who cares? Do you know the opportunity cost of spending your time paying down a house and having to work to sustain your lifestyle so you have little time to pursue your own business?

Many, many millions. The cost of interest is a grain of sand.
 
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Get Right

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Ok, I'll chime in here. This makes sense if you need mommy to hold your hand and force yourself to pay for something you bought faster. As @Johnny boy mentioned...this is high functioning slowlane.

But you are here at the Fastlane Forum. You are trying to do better than high functioning slowlane (there are tons of these websites if you are interested). So might I present a different option for you (based on the video above):

1. Let's say you already are stuck in a mortgage just as the video suggests with a similar income/debt situation. Let's bypass the financial switch-a-roo and just say you have a choice to allocate the $1,400 savings each month.

2. So you have $16,800 in the first year to establish a new business. Since she chose 7 years as the payoff period let's say you will have $117,600 in straight cash to invest in your own business over that same period.

3. Let's also assume you fail a lot and loose half of that. Realistically you now have $58,800 to work with. So you have $58,800 and 7 years of time to develop a realistic fastlane business. That's a lot of money and a lot of time, so let's say you were successful...

4. ...and the business you built profits $200,000 in year #7. You decide to use that profit to pay off your house...BOOM your house is paid for! But wait there's more...

5. Year #8 yields $200k+ more into your bank account....

6. Year #9 yields $200K+ more into your bank account....

7. Year #10 yields $200k+ and a business sale of $400k (2.0 multiplier)....

8. So in 10 years you made $1,141,200+.... and our princess in the video above saved/made $250,400.

I dunno, I guess I just prefer the Fastlane once again... Cheers!
 

G-Man

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Ok, I'll chime in here. This makes sense if you need mommy to hold your hand and force yourself to pay for something you bought faster. As @Johnny boy mentioned...this is high functioning slowlane.

But you are here at the Fastlane Forum. You are trying to do better than high functioning slowlane (there are tons of these websites if you are interested). So might I present a different option for you (based on the video above):

1. Let's say you already are stuck in a mortgage just as the video suggests with a similar income/debt situation. Let's bypass the financial switch-a-roo and just say you have a choice to allocate the $1,400 savings each month.

2. So you have $16,800 in the first year to establish a new business. Since she chose 7 years as the payoff period let's say you will have $117,600 in straight cash to invest in your own business over that same period.

3. Let's also assume you fail a lot and loose half of that. Realistically you now have $58,800 to work with. So you have $58,800 and 7 years of time to develop a realistic fastlane business. That's a lot of money and a lot of time, so let's say you were successful...

4. ...and the business you built profits $200,000 in year #7. You decide to use that profit to pay off your house...BOOM your house is paid for! But wait there's more...

5. Year #8 yields $200k+ more into your bank account....

6. Year #9 yields $200K+ more into your bank account....

7. Year #10 yields $200k+ and a business sale of $400k (2.0 multiplier)....

8. So in 10 years you made $1,141,200+.... and our princess in the video above saved/made $250,400.

I dunno, I guess I just prefer the Fastlane once again... Cheers!
And even then it's only high functioning slowlane as long as some black swan like the bank calling your line doesn't happen. Congrats, you still have to make the mortgage payment, but all of your liquidity went into that line that you now can't access.

You're putting yourself in a totally illiquid state just to try to save some interest. You're making your situation extremely fragile. Always have some money in the bank or under mattress. Better to have both.

I'll share here - wife and I have been looking for a house for the last few months and called off for a few reasons.
  • It's a seller's market. Every house we were interested in was a bidding war over asking. I'm not a real estate person, but I know that the time to buy something is when others are selling
  • Went to 2 banks and a mortgage broker. All approved me for loans amounts that were ridiculously more than what I can afford. If they're approving me for more than what I can pay back, they're approving others for more than they can pay back, hence the bidding wars
  • I live in a high property tax state. I broke out my trusty amortization spreadsheet, and figured out that even on the modest homes were were considering (200-225k), it would be 8 years before the interest and tax portion of my payment would be less than what I pay to rent.
All this and we decided to call it off. Granted that means I have to walk through paths of inventory in the living room of my apartment, but that's ok. The thought of paying the state of Texas 400/mo to live on property I paid for pissed me off so much in the principled part of my brain that we even looked into RV living - which is still on the table.
 

B. Cole

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Agreed on all above - on the premise that a mortgage is inherently slow lane, as with any loan. You’re paying interest on something you couldn’t afford outright - same as a car, credit card, etc.

But - for those of us with a mortgage, and assuming you’ll keep a mortgage until business gains can pay off your house - the question remains, is this a better tactic than paying your bills the conventional way? Not to use as a primary path of growth, but as an expedited path out of a hole you’ve dug, in the company of your growing business.

Call me slow lane for a second, but I’m keeping my mortgage and building my business. I shan’t throw money away renting, and I need my garage and my space for product development and inventory/distribution. Rent would cost me more than my mortgage, with zero capital gained.

Permission to roast and enlighten me. I’m not savvy to the intricacies of creative debt/interest management. I’m a recovering conventional bill payer, here to learn.

:clench:
 

JScott

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And who goes to a bank for money? Make some better friends. If you mix yourself into the right circles, you can get money from a phone call. No credit score, no approval process, just showing someone a deal and what's in it for them and you're good.
I made a $43.5M offer on a property last week. If I get the property, I'll raise 25% of the money in about three days by making some phone calls.

And you know what I'll do then? I'll go to a BANK and get a loan for the other 75%.

According to you, that means I'm slowlane. Or stupid. Or need better friends. Or maybe all three.

But, if you do the math, it actually means I'm smart. I'll be paying about 6% APR on that 75% without any upside obligation. As opposed to the 25% equity I sold to my "friends" -- where I'll be paying 8% preferred return on top of a 70/30 equity split.

I could easily raise the entire amount through phone calls, but that would be financially stupid. I like money. And for that reason, I like banks.

Btw, I also have a 30 year fixed mortgage against my personal residence. At 3.75% interest rate (loan constant at about 4.25%), it's the cheapest money I've ever raised, and over the time that I own my home (about 5 years), I'll probably earn about $200K in pure arbitrage on that money. $40K per year in absolutely free money seems like a good thing...though maybe I'm missing something...

Oh, and just because I have a 30 year loan doesn't mean I have to stay in that house for 30 years or that I don't have freedom. That's ridiculous. My wife decided 6 weeks ago that she wants to move to the beach -- we got our house under contract two weeks later and we close on the sale of our house in two days. Even though we had a 30 year mortgage. Amazing how that works...

Again, maybe my working with banks makes me slowlane. And maybe you could teach me a thing or two. Or maybe you should think a little more closely about the value of cheap money -- I'm guessing your friends aren't lending you money at 4%...

EDIT: Btw, none of this means that I think "velocity banking" is a good thing -- it's just a gimmick. I'm merely commenting on the fact that being averse to banks is suboptimal from an investing standpoint.
 

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levijean

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I made a $43.5M offer on a property last week. If I get the property, I'll raise 25% of the money in about three days by making some phone calls.

And you know what I'll do then? I'll go to a BANK and get a loan for the other 75%.

According to you, that means I'm slowlane. Or stupid. Or need better friends. Or maybe all three.

But, if you do the math, it actually means I'm smart. I'll be paying about 6% APR on that 75% without any upside obligation. As opposed to the 25% equity I sold to my "friends" -- where I'll be paying 8% preferred return on top of a 70/30 equity split.

I could easily raise the entire amount through phone calls, but that would be financially stupid. I like money. And for that reason, I like banks.

Btw, I also have a 30 year fixed mortgage against my personal residence. At 3.75% interest rate (loan constant at about 4.25%), it's the cheapest money I've ever raised, and over the time that I own my home (about 5 years), I'll probably earn about $200K in pure arbitrage on that money. $40K per year in absolutely free money seems like a good thing...though maybe I'm missing something...

Oh, and just because I have a 30 year loan doesn't mean I have to stay in that house for 30 years or that I don't have freedom. That's ridiculous. My wife decided 6 weeks ago that she wants to move to the beach -- we got our house under contract two weeks later and we close on the sale of our house in two days. Even though we had a 30 year mortgage. Amazing how that works...

Again, maybe my working with banks makes me slowlane. And maybe you could teach me a thing or two. Or maybe you should think a little more closely about the value of cheap money -- I'm guessing your friends aren't lending you money at 4%...

EDIT: Btw, none of this means that I think "velocity banking" is a good thing -- it's just a gimmick. I'm merely commenting on the fact that being averse to banks is suboptimal from an investing standpoint.
What are you trying to buy for $43M?
 

G-Man

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I made a $43.5M offer on a property last week. If I get the property, I'll raise 25% of the money in about three days by making some phone calls.

And you know what I'll do then? I'll go to a BANK and get a loan for the other 75%.

According to you, that means I'm slowlane. Or stupid. Or need better friends. Or maybe all three.

But, if you do the math, it actually means I'm smart. I'll be paying about 6% APR on that 75% without any upside obligation. As opposed to the 25% equity I sold to my "friends" -- where I'll be paying 8% preferred return on top of a 70/30 equity split.

I could easily raise the entire amount through phone calls, but that would be financially stupid. I like money. And for that reason, I like banks.

Btw, I also have a 30 year fixed mortgage against my personal residence. At 3.75% interest rate (loan constant at about 4.25%), it's the cheapest money I've ever raised, and over the time that I own my home (about 5 years), I'll probably earn about $200K in pure arbitrage on that money. $40K per year in absolutely free money seems like a good thing...though maybe I'm missing something...

Oh, and just because I have a 30 year loan doesn't mean I have to stay in that house for 30 years or that I don't have freedom. That's ridiculous. My wife decided 6 weeks ago that she wants to move to the beach -- we got our house under contract two weeks later and we close on the sale of our house in two days. Even though we had a 30 year mortgage. Amazing how that works...

Again, maybe my working with banks makes me slowlane. And maybe you could teach me a thing or two. Or maybe you should think a little more closely about the value of cheap money -- I'm guessing your friends aren't lending you money at 4%...

EDIT: Btw, none of this means that I think "velocity banking" is a good thing -- it's just a gimmick. I'm merely commenting on the fact that being averse to banks is suboptimal from an investing standpoint.
Totally agree that for business purproses bank money is the cheapest out there. Would be interested to hear your thoughts on what you will and won't borrow for. For example, I'd look at personal mortgage different than an investment property. Is the logic behind debt for personal residence just that your opportunity cost is too high to put that much cash into a residence when you can borrow so cheaply?
 

JScott

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Totally agree that for business purproses bank money is the cheapest out there. Would be interested to hear your thoughts on what you will and won't borrow for. For example, I'd look at personal mortgage different than an investment property. Is the logic behind debt for personal residence just that your opportunity cost is too high to put that much cash into a residence when you can borrow so cheaply?
We're likely seeing the lowest interest rates I'll see in my lifetime (for the sake of the economy, I hope so). If I have an asset against which I can borrow at 4% and use the money to earn 10-12% (by lending), I'll do it all day. I always have the option to pay off the mortgage early, and assuming I cover the transaction costs (origination and closing), there is little downside risk.

Typically speaking, if bank money (portfolio or conventional) is available for an asset I own, I'll use that first. If I don't have access to bank money, I'll either use my own cash (for short periods of time until I can refi) or I'll use private money. If I need more money than I have access to myself or can get access to through a bank or private lenders, I'll offer equity. For most of these days, the equity is used to cover a downpayment on a large conventional or portfolio loan (like with a commercial property or apartment complex).

Basically, I compare the loan constant (or APR) for every debt/equity option I have available, and I go with whichever is the lowest. I might choose a higher loan constant if there is a significant benefit (non-recourse, for example), but that's an edge case.
 

B. Cole

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Just me - I’d rather owe a bank than owe a friend. There’s also no way I’d lend to a friend unless I am willing to gift it - because when it goes south, you have a high chance of losing the money and the friend. I will not mix business/money/friendship/family. I’m not a credit reporting agency, so there is no incentive to pay me back in a timely manner.

Small taters compared to you @JScott, but along those lines - I just left a bank with a 0% interest LOC for one year to fund my startup’s initial production run. That LOC pays off another LOC that was 0% interest for 6 months, that I used for product development. I got out of the 6 month and into a brand new 12 month weeks before the interest kicked in. Essentially, I used two different offers to completely dodge interest for 18 months - free startup financing. The first and second production runs will pay it all off and then some.

A wise business man told me, the best businesses use other people’s money to make money. I like to think this is my first possibly successful attempt at it.
 

Valhalla

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I'm merely commenting on the fact that being averse to banks is suboptimal from an investing standpoint.
Words to live by. Those who use the banks to their advantage will go much further than those who see banks as the enemy and themselves as the victim.
 

Dameron

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Agreed on all above - on the premise that a mortgage is inherently slow lane, as with any loan. You’re paying interest on something you couldn’t afford outright - same as a car, credit card, etc.

But - for those of us with a mortgage, and assuming you’ll keep a mortgage until business gains can pay off your house - the question remains, is this a better tactic than paying your bills the conventional way? Not to use as a primary path of growth, but as an expedited path out of a hole you’ve dug, in the company of your growing business.

Call me slow lane for a second, but I’m keeping my mortgage and building my business. I shan’t throw money away renting, and I need my garage and my space for product development and inventory/distribution. Rent would cost me more than my mortgage, with zero capital gained.

Permission to roast and enlighten me. I’m not savvy to the intricacies of creative debt/interest management. I’m a recovering conventional bill payer, here to learn.

:clench:
I have an acre and a half in California. The mortgage is $1,800 a month including tax. I live in the house, rent out 2 bedrooms for $400 each. I also rent temporary space for people to park and live in motorhomes - another $300 per month - but not always occupied.

I have 3 small workshops and a classroom here that would cost me way more than $1,000 in commercial rented space each month. They produce income.

Also, on the place is a HUGE kitchen garden, 20 fruit trees, grapes, blackberries, bees, chickens, a 1/4 mile long dog run around the perimeter and a private park.

All surrounded by iron fencing and a security gate. 5 dogs notify me when we have a visitor...

When I moved here 17 years ago it cost me $14,000 for trucks, packing, help to move it all, rewire the shops and then set it back up. Gotta be more now?

I have NO other debt.

I'll stay put and keep working towards something more fastlane in my spare time.

Then again, maybe I am too comfortable? Not hungry enough? What say y'all?
 
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Tommo

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I have an acre and a half in California. The mortgage is $1,800 a month including tax. I live in the house, rent out 2 bedrooms for $400 each. I also rent temporary space for people to park and live in motorhomes - another $300 per month - but not always occupied.

I have 3 small workshops and a classroom here that would cost me way more than $1,000 in commercial rented space each month. They produce income.

Also, on the place is a HUGE kitchen garden, 20 fruit trees, grapes, blackberries, bees, chickens, a 1/4 mile long dog run around the perimeter and a private park.

All surrounded by iron fencing and a security gate. 5 dogs notify me when we have a visitor...

When I moved here 17 years ago it cost me $14,000 for trucks, packing, help to move it all, rewire the shops and then set it back up. Gotta be more now?

I have NO other debt.

I'll stay put and keep working towards something more fastlane in my spare time.

Then again, maybe I am too comfortable? Not hungry enough? What say y'all?
Great set up to start with and good mindset lovely to hear
 

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