In this episode, we dive deep into a powerful wealth-building strategy with real estate investor and military veteran, Charlie Hardage. Charlie shares his insights on using Home Equity Lines of Credit (HELOCs) to accelerate your real estate investments. Learn how to leverage HELOCs, even if you have a W-2 job, and discover the game-changing benefits of this strategy.
Key Takeaways:
- HELOCs: A Game-Changing Tool for Real Estate: Charlie explains how HELOCs can be a powerful tool for real estate investors, allowing them to tap into their home equity to fund new investments, all while minimizing closing costs and interest payments. He shares his own experiences using HELOCs to invest in various real estate opportunities, from apartments to self-storage.
- The Importance of Tracking Net Worth: Tracking your net worth is a critical step towards financial success. Charlie emphasizes the significance of monitoring your net worth regularly, as it provides an accurate measure of your financial progress. Setting ambitious goals and celebrating your achievements along the way can keep you motivated and focused on building wealth.
- Giving Back: Apart from his real estate journey, Charlie and his wife are passionate about giving back to the community. They have plans to establish charities to combat food waste and support local communities with healthy food options. Additionally, Charlie's military background fuels his desire to create a sense of community for veterans, especially those dealing with PTSD, to ensure they never feel alone.
Charlie Hardage | Real Estate Background
- H&K Investment Group LLC
- Portfolio:
- 1,050+ units across six properties
- Based in: Nashville, TN
- Say hi to him at:
- Best Ever Book: The Gap and The Gain by Dan Sullivan
- Greatest Lesson: You need to think like the wealthy if you want to be wealthy.
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Transcript
Narrator:
Quick disclaimer, the views and opinions expressed in this podcast are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to bestevershow.com.
Charlie Hardage:
Think and act like wealthy people if you want to be wealthy.
Narrator:
Welcome to the Best Ever Show, the world's longest running daily commercial real estate podcast. Our hosts interview commercial real estate experts every day to get you the best advice ever with none of the fluffy stuff.
Ash Patel:
Hello, best ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel and I'm with today's guest, Charlie Hardage. Charlie is joining us from Nashville, Tennessee. He is the co-founder of H&K Investment Group where he used HELOCs to build his portfolio and pay down his primary residence.
Charlie's portfolio consists of over a thousand units across six properties. Charlie, thank you for being a returning guest on our podcast. And how are you today?
Charlie Hardage:
Awesome. So excited to be back. I love talking about real estate. I am doing wonderful.
Ash Patel:
Well, let's dive right into it. What have you been working on since our last interview?
Charlie Hardage:
So last time I had come on the show, mentioned I had done a ton of articles on our website, done a drip campaign for emails, and that's gone great overall.
We're recording in the end of 2023. And so 2023 has been all about just making more content and I've been making content about HELOCs and how they're completely misunderstood. Even most experienced investors don't really understand how HELOCs work. So I'm on a mission now, Ash, to help break down HELOCs and how much of a powerful tool they can actually be when used properly.
Ash Patel:
Can I give you my layman's explanation of what I think a HELOC is? Feel free to just drag me through the mud on this one. So many, many years ago on our primary residence, I got a home equity line of credit. And they gave me a checkbook that has been in my safe ever since I probably pay it $100 per year to keep this equity line of credit open. And it's kind of an emergency fund that we've never used, luckily, but it's there. And I don't know what the interest rate is. I'm assuming it would be at prevailing rates. If I do write a check against that amount. I mean, that's all I know.
Charlie Hardage:
You're definitely not wrong. I'm just taking notes there. You said you've never used it. Interest rates, they typically follow the prime interest rate, which I don't know what it is right now, eight and a quarter or something like that. There's usually some spread or some margin over that. So maybe it's eight and a half is what you're paying. If you're paying a hundred bucks a year, just to hold that open. My advice would actually be to go get a new account because there is a draw period and a repayment period. So they could end up closing it, even though you're paying that $100 a year by not using it, eventually that's going to shut down, which is very, very typical with HELOCs.
But yeah, you had it right. So I wanted to drag you through the mud, but I couldn't because you had it right. But no, essentially the easiest way to understand what a HELOC is. It's essentially just like a credit card, how a credit card works, except with a credit card, it's unsecured. So if you don't pay it, there's not too much that the credit card company can do besides send you a collection notes and hurt your credit with a secured loan, like with a standard mortgage or a car or a HELOC, you would have a lien against the property or the car or the camper or RV, whatever it is. So when it's secured, interest rates are usually much lower.
HELOCs, they go with prime rate, a little bit above prime typically, whereas a credit card is probably 20% or something. HELOCs are going to be about 8%. But if you don't pay that, then they have collateral in case you don't pay it. So essentially, it's a credit card or similar to a credit card against the equity in your home.
Ash Patel:
And how have you leveraged that to get ahead?
Charlie Hardage:
What's really interesting, Ash, is I've listened to the podcast for years. I've done so much homework and research on how to get into real estate. Probably since 2012 or 2013 when I really started trying to dive in, I found my niche. I was really excited to get in, but then it hit me. I grew up with a middle-class mindset. So all of my quote unquote extra money was going into retirement accounts. At the time I was in my late 20s, early 30s, I couldn't touch that for 30, 40 years. So I was really frustrated because I could not get into syndications like I wanted to. Some syndications are 25,000, some are 50,000.
So I actually found this random YouTube video years ago about how someone is using a HELOC to pay off their home early. Again, growing up middle-class debt is the worst thing in the world. Best thing in the world for me would be to be completely debt-free by the time I'm 50 and have two or $3 million in my retirement accounts at retirement. So I can make a hundred thousand a year and two million is nothing in 30 years.
But I'm very strategic, very analytical. And I was like, okay, what if I actually invested that money from the HELOC instead of pay down debt? What if I invested that into a syndication? Now I'm getting that spread, that arbitrage between the syndication, which annualized returns, let's just say 15 to 25%. And at the time I was paying for now 8% on a HELOC. That's some massive spread between not using my money, using the bank's money, using a lender's money and investing that into real estate.
It's definitely a risk. I know some people out there are gonna say, I would never do that, that's risky. I was at a point, Ash, where I was so frustrated. I knew I wasn't living up to my potential. I had all this knowledge about real estate. I was working for a while, a dead end job. I was able to move up a little bit. I was doing better. Still would have taken me years to get into one syndication, let alone two, let alone three, let alone achieve financial freedom.
So we've actually taken our HELOC. We put money down on our house so we can pay that off early. We refinance the HELOC to grow the credit limit and then we're able to invest in multiple syndications, first two as a limited partner and the next few as an active partner. So I'll stop there and see what questions you have.
Ash Patel:
Now I'm literally kicking myself because I'm asking why didn't we do the same thing? This has been sitting idle forever. And many, many years ago when I started investing as an LP in other people's deals, that would have been great because 2014-15 the returns were over 20% IRR and that would have been a great return on 3% interest. What a missed opportunity.
Charlie Hardage:
It's a 500% increase.
Ash Patel:
All right, so you know me.
Charlie Hardage:
You know, you're paying 3%.
Ash Patel:
Take it easy, take it easy. Don't rub salt in the wounds. Okay, so you know me, I like to push back a lot. What do you say to somebody that says, well, the risks are too high, real estate's gonna go down, why would I do that?
Charlie Hardage:
What's interesting is if they don't know about real estate, but they read, I don't know if there's newspapers anymore, but read articles and watch news and hear what their friends say on Facebook.
The market's always going to crash. So as a hardcore real estate investor, I'm extremely passionate about real estate, if you know a little bit about real estate, you know that every investment is so hyper local. Every asset class is completely different. So right now we're investing in multifamily and self storage. Multifamily is not going anywhere ever. Self storage is not going anywhere ever. The returns have reduced, the cashflow may have reduced, but it's not going away.
So absolute worst case you sell that property, you're still probably getting a decent chunk of money back. Maybe not all of your money back, but it's not just going to go away. Worst case you have the land. So to people that would say the market's going to take a hit in terms of using a HELOC to invest in real estate, you definitely do have to be careful. It could take a hit. Maybe if you're flipping a property and while I'm a syndicator, Ash, this strategy can work for any type of asset class, any niche.
So it's not just syndications, but we can still make the monthly payments on our HELOC. We still have income that's coming in that we're able to pay the HELOC down. So maybe we end up paying a little bit more interest over time on it if the property doesn't perform like we thought it would, but we're still getting a nice return from someone else's money. Does that make sense?
Ash Patel:
It makes a lot of sense. And then you mentioned credit cards. So right now, credit card debt is at an all-time high over $1 trillion, first time we've ever passed that. I think it's approaching $1.1 trillion. The real problem with that is that credit card rates used to be 15%, 16%, 17%. That's when interest rates were 3%. Now interest rates are much higher. All the credit card rates are over 20% annual interest. So your HELOC, although it might be high at 7%, 8%, paying off high interest credit cards would certainly make sense. What's trending now is people taking control of 401k or retirement accounts and investing that into real estate.
Let's draw a reference from that to HELOCs. I'm trying to think through this out loud. 401k, you're taking money away from public equities and investing it elsewhere. There's a risk in that the market may go down. I don't think the market should be at an all time high in November of 2023 as we're into a recession, but that's another episode. So taking away money from something that has inherent risk and putting it into real estate, I think is very similar to using your HELOC, taking idle capital and investing that as well.
Charlie Hardage:
Yeah, I definitely agree. With the 401k or IRA or 403b or any of those retirement accounts, there are some tax benefits in that account. If you invest in real estate, you don't get all the tax benefits. And I'm by no means in my CPA, but you do lose out on some of the tax benefits.
Now there's two other options. One is you could take out a loan from the 401k and potentially a 403B. You're paying back interest to yourself. You could go that route. Or the third option is you can invest passively with a 401k. In a lot of those cases though, in a 401k or retirement account, you don't really get to access that without penalty and without income tax, again, not a CPA, but you don't get to access that until you're 60, 59 and a half to 70 or something like that.
What we're doing with our HELOC is a lot of people say that a primary home is not an asset, it's a liability. And I would agree, except that I use mine as an indirect asset where I'm able to take money from the equity that is literally doing nothing in there and invest that and getting massive returns with it.
So if you want to invest with a retirement account, that's totally fine. Just keep in mind that you do lose out on some of the benefits from a tax perspective, but then you still may not be able to access that money until retirement age. I would rather have my money today work for me so I can multiply that and multiply that. So when I get to retirement, my 401k, my IRA, that's just fun money.
Ash Patel:
In 2008, when the recession hit, HELOCs are on the bank's balance sheets as liabilities. They are potential for customers to take money out of the banks. So a lot of lenders went away in closed lines of credit. Are you seeing any of that today?
Charlie Hardage:
Not yet. Here's, I think, a big difference too. In 2021 and 22, we had some massive inflation, the highest in 40 years, with inflation as a real estate investor yourself, you know that the value of properties typically goes up as well. And even though the value of homes in Nashville, some of the value of homes have slightly dropped, there's more equity in homes than ever before. So I do believe we're in a completely different market than we were in 08, 09, because there's so much more equity in our homes.
Now, what I have seen though, Ash, isn't that they're taking away HELOCs, they are tightening up on it. So some lenders would do 90, 95, a hundred percent loan to value. The highest I've seen in the last few months is 80%. That being said, I've not looked into it a ton to shop around. I'm sure others are doing 85 to 90%. But they have tightened up a little bit, but I've not heard of any of them being taken away.
Ash Patel:
Charlie to be clear, your home does not need to be paid off to get a HELOC. You just have to have equity.
Charlie Hardage:
Correct. Equity. And what I'm seeing right now is 80% loan to value. Let's say you have 70%. Your home is worth a hundred thousand dollars. You owe 70,000 on there. You have 30,000 in equity. Well, a lot of lenders will say, we'll only go up to 80% loan to value for a HELOC, so they'll only give you a HELOC of $10,000. For some people, it's not going to do anything, but let's be real. A lot of the homes that we're talking about aren't actually a hundred thousand dollars now, I think the median home price in the U.S. 450 or something like that. And if you've lived there for more than a couple of years, you have a great interest rate and you also have a lot of equity in your home.
So I'm talking to people all the time that have anywhere from $50,000 on a line of credit to potentially hundreds of thousands of dollars. So if you had, let's say $200,000 in a line of credit that you can use over and over again, you're able to do like we did to buy a property, cash flow, pay the HELOC down, and repeat that process multiple times.
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Ash Patel:
And today's spreads are much different than those of two years ago. 3% interest, potential 20% IRR. Now we're at, let's just say 7% interest and 15% IRR with some economic headwinds. In your opinion, still worth doing?
Charlie Hardage:
It's worth doing if you have a great strategy. I'm not saying to get a HELOC and invest passively. There's still some arbitrage in there. There's also more risk in that maybe than there would be in something else. But let's say in syndication that HELOC may be tied up for three to five to seven years.
But if you're flipping a home or maybe you're wholesaling and you need to put some earnest money down, maybe you're doing a BRRRR, your HELOC's not tied up long-term might only be tied up six to nine months. If you can make $30,000 on a flip and you put $200,000 in from your HELOCs, even at a 10% interest rate, what would that be about $15,000 or so is what you would be paying in interest. That's a lot of money. If you're making 30,000.
But what's the alternative, Ash? You don't invest. You wait till everything comes down. So that's, I guess, my rebuttal to someone saying, well, it's risky right now. Sure. It might be risky, but have a great strategy. If you already know your numbers with how much you make on a flip or a wholesale, if you know how long it takes, you know what you're paying an interest. Look at the alternative in doing it with cash only. Sure. You're not paying that interest with cash, but what if you could do one with cash and one with a HELOC? And now you're doing two at a time.
Ash Patel:
You know, I'm thinking all the people that rely on hard money lenders, 12, 13% interest, two points. They've probably never considered doing a HELOC. Exactly. It's just one of those things that's not on the forefront of people's thoughts. And I wonder if it's because there's not much money to be made from companies soliciting HELOCs.
Charlie Hardage:
Yeah. If you go on to some forums or meetups, I'm going to make a lot of enemies here. But I don't care. A lot of people say I have X amount of dollars in my home. Oh, do a cash out refinance. And I'm not saying that's wrong. Okay. What I'm saying with a cash out refinance is think about how much closing costs. Is that probably 3% on the entire amount. If you have a $400,000 home, 3% on 400 grand is $12,000 that you're paying in closing costs, then with interest rates being sky high today, way more than they were even 18 months ago, you're paying interest on that entire, let's say $350,000 mortgage that you have. You're paying today's interest rate on all of that money. Most closing costs with the HELOC are an appraisal fee and maybe a couple hundred dollars. With mine personally, it was just an appraisal. There's no closing costs from the actual lenders, just an appraisal that was $450. They're only making, and I say only, eight and a quarter on money that's pulled out.
So they do make a lot less money on that. So a lot of times lenders will say, oh, cash out refinance, because not only are you paying massive closing costs, but you are paying interest on that entire amount as opposed to a smaller amount on a HELOC.
Ash Patel:
I consider myself fairly savvy. I mentor a lot of people, but I'm mind blown on how much of a mental mind block this has been thinking through this. I am a commercial real estate investor, non-residential, so every one of my loans is full recourse, personally guaranteed by me. The reason I've never written a check from that equity line of credit is because it's our primary home. God forbid something happens to that. However, it's stupid because if something happens to my properties, all of it is on the table. It's all at risk. It's all personally guaranteed. So amazing how people just allow themselves to have these mental barriers and not take advantage of something that's very simple.
And to be clear, you're not selling anything here today. You're literally out here giving our listeners your opinion, your feedback, and some lessons that you've learned.
Charlie Hardage:
Yeah. Look, I love the syndication space. I love real estate so much. I use HELOCs to get into multiple apartment and self storage deals.
And we haven't even talked about this, but we are going to pay off our home in a couple of years. All together from the time we started the strategy until when we pay off our home, it's going to be about four years. And I didn't win the lottery. We didn't win an insurance settlement. We didn't do anything except to have our money work completely differently. So our net worth went from a very transparent, probably $150,000 three, four years ago to by the time next year or so, about 1.3, 1.5.
What we're going to do is get a first line HELOC on our home then when it's paid off and repeat this process and repeat this process where we're able to buy homes or investment properties with HELOCs. All the cash flow that we get goes right down to paying off the HELOC so we can use it as soon as possible and repeat this process. And hopefully in 10 years, Ash, I look back and be like, we did this with very, very little money out of our pocket. I wasn't a doctor. I wasn't an engineer. I was working at a dead end sales job.
So we just used HELOCs in our home equity that was just sitting there doing nothing. We use it strategically to get ahead.
Ash Patel:
Amazing. And you and I, Charlie, have both probably had countless conversations with people where they were really excited because their houses almost paid off. And we hit our head with our forehead. And it's like, wait a minute, why? Why would you do that?
And the misnomer is that if my house is paid off, they can never take it from me. My retort to that is always, if you miss three or four property tax payments, I promise you they're taking your house. It's going to auction. So it's a false sense of security.
Charlie Hardage:
Yes, it is. And look, I know some people will say, yeah, but if your assets completely paid off, someone can sue you for more because now you don't owe a lender that money.
Okay, sure. I'm not an insurance expert by any means. There are ways around that. If it's LLCs or trust, I don't sell any of that. I don't know too much about that. Potentially an umbrella policy. The risk of someone suing me because my home is paid off and they know, that is so minimal that I would much rather have that cash flow that I'm paying my mortgage. I would much rather have that sense of security that if all of my real estate stops paying rent today and I lose all of that, we at least have a home that's completely paid off and we can go and retire, do whatever we want. Right. I could get another job.
So I think people want to look at the worst case scenario and they'll bring it up and bring it up so much just to talk themselves out of taking a calculated risk. And heck, I was that way for years too. I didn't want to do anything. I looked at hard money lenders back when they were only two points and 10% interest. I didn't go that route because I'm like, that's so much interest. Now, if I would have thought differently seven years ago, I would have seen that. Yeah. But look at the upside of it. Don't look at, oh, it's two points and 10%. Look at, well, I could have this property that's been cash flowing for seven years or made a lot of money when I flipped it. So I think with the HELOC, it is a strategy that most people will say it's very risky. And I think it's very risky if you don't have a plan. If you are just borrowing money to go on trips or do certain things, buy big items.
Look, I don't want to talk bad about people, but if you want to do that, that's fine. But I don't do that with mine. I use mine to buy cash flowing assets that generate income, have tax write-offs and tax benefits and worse comes to worse, we sell them and make our money back typically with real estate.
Ash Patel:
Charlie, what is your best real estate investing advice ever besides using a HELOC?
Charlie Hardage:
There is nothing. No, best advice ever would be think and act like wealthy people if you want to be wealthy.
I think for me, Ash, I was in that middle-class mindset for so long that the equity in our home was sitting there. All these other ideas were sitting there, but I thought it was too risky or whatever. But if you can leverage other people's money, why not?
Ash Patel:
Charlie, are you ready for the best ever lightning round? What's the best ever book you recently read?
Charlie Hardage:
Recently read The Gap and the Gain by Dan Sullivan and Dr. Benjamin Hardy. It hit me. It's a great book.
Ash Patel:
What was your big takeaway from that?
Charlie Hardage:
I've come a very long way in the few years I've been investing in real estate, but a few months ago, I was kind of feeling down because I wanted to have a bigger portfolio and The Gap and the Gain is about look at the gain. Where were you three, four years ago and where are you now? Be thankful for that. Don't focus on the gap of where I am today and where I want to be.
So I need to be happy with what I've accomplished. I need to be proud of myself. Doesn't mean I need to give up and stop leveling up, but I need to be happy of how far I've come.
Ash Patel:
Yeah. That was an impactful book for me as well in that our goalpost is always moving and money in the bank is never a good indicator because sometimes there's no money in the bank, sometimes there's a lot of money in the bank and that's never an indicator earlier in the conversation, you mentioned that you track your net worth. Is that something you do at least once a year?
Charlie Hardage:
Yeah, a few times a year. Some of that's just the personal financial statement. But yeah, we track that and it's crazy to see just how fast that's gone up in real estate over the last few years.
Ash Patel:
Yeah, very important. So best ever listeners, even if you have a W-2 job, whatever it is, track your net worth. It's the one number that doesn't lie. It's a true measure of where you are and then set a goal on what you want your net worth to be in X number of years.
Charlie Hardage:
Love that.
Ash Patel:
Have you set the goal?
Charlie Hardage:
Not a future goal. My goals are really more aligned with my next niche that I wanna tackle and go after that, my next project. As far as net worth, I have a very, very lofty number of when I look back, it's $5 billion. Maybe that's silly. That's not net worth, that's assets that I wanna own. I don't know what the net worth would equate, but it'd be high.
Ash Patel:
What I tell people is set your net worth number. And then I don't want to know what it is, but when they come back and they're like, okay, I said it, I'll tell them now double it. Cause it takes the wind out of your sails. When you hit that number, it's like, okay, now what? Not much has changed. So make sure it's a lofty goal, like you said, Charlie. What's the best ever way you like to give back?
Charlie Hardage:
Couple things. Number one, love talking to new investors. Love talking about HELOCs, obviously. So feel free to reach out if you're interested.
My wife and I want to have a couple of charities, one more for food and helping local communities with food waste. And some people don't eat a lot and don't eat healthy. So we want them to do that. But then also I was in the military for almost five years, I'm medically retired. I do have PTSD, so I want to help veterans not feel like they're alone, whether they have PTSD or not, but help veterans just feel more of a community.
Ash Patel:
Charlie, if you would share with the best ever listeners, your podcast and how they can get ahold of you.
Charlie Hardage:
Yeah, absolutely. My podcast is called Passive Investor's Playbook. It is designed for people that are kind of where I was a few years ago, didn't want to only be in the stock market, wanted to diversify, but wanted to do it passively at first and then understand more about it and then become active. So it's geared to me four or five years ago.
The best website is hkigllc.com. I'm pretty active on LinkedIn and Facebook. There's not too many Charlie Hardages on there.
Ash Patel:
Charlie, thank you for coming back on our podcast. Thank you for your service and sacrifice in the military. Thank you for inspiring a lot of us on something that most of us knew, but just never did anything with. I'm going to take the dust off of my HELOC checkbook and see if it's still active. So thank you for your time today. You didn't come on here to sell anything, pitch anything. It was literally you had something great that you wanted to share. So again, thank you for that.
Charlie Hardage:
Absolutely. Ash. Thank you so much for having me. It's been great being back and talking to you again.
Ash Patel:
Awesome. Best ever listeners. Thank you for joining us. If you enjoy this episode, please leave us a five star review, share this podcast with someone you think can benefit from it. Also follow subscribe and have a best ever day.
Narrator:
Hi Best Ever listeners, Joe Fairless here again. And one last thing before you go, would you like to receive a short weekly email with proven tips from experienced investors, free tools and resources, and a roundup of the week's most relevant news and Best Ever content? Well, if so, join the community of nearly 15,000 commercial real estate passive and active investors who receive the Best Ever newsletter. Just go to bestevercre.com forward slash access, and you'll get the very next one. I hope you enjoyed this episode. And as always, thank you for listening and have a best ever day.
