Margin loan to finance real estate

A

andrew black

I am thinking to take a $500k margin loan to finance a property and I am trying to make a pro - con list. This is what I have until now:

Pros:
  • very competitive interest rate - equal or better than a mortgage.
  • no repayment constrains
  • no qualification issues (as most of my income comes from dividends & capital gains, no employment income)
  • no immediate taxes on capital gains
Cons:
  • need to monitor the margin closely to prevent a margin call
Looking for some feedback on this, maybe from people who did something similar. TIA.
 
Markets at or near ATH, home prices near ATH, margin loan against securities from one thing on ATH against another thing on ATH, nothing could go wrong there.

Generally, I don't enter a deal or borrow money unless I could pay off the entire thing. It's difficult to leverage until you build up a really huge balance, but I've never had a blow out (unless you count divorce - but even then everyone I've talked to seems to say I came out OK - wtf happened to others holy shit mine was tough.)
 
Generally, I don't enter a deal or borrow money unless I could pay off the entire thing. It's difficult to leverage until you build up a really huge balance, but I've never had a blow out (unless you count divorce - but even then everyone I've talked to seems to say I came out OK - wtf happened to others holy shit mine was tough.)
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Got your point but form risk management perspective this approach is no different than having a mortgage while using some margin on your investment account. And I believe that almost any broker requires 200% of the loan value in cash or marginable securities in your account.
 
andrew black said:
Got your point but form risk management perspective this approach is no different than having a mortgage while using some margin on your investment account.
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I guess. So you'll leverage $500k in margin to buy a house and in the case you have a margin call you'll do A HELOC? Could work.
 
andrew black said:
I am thinking to take a $500k margin loan to finance a property and I am trying to make a pro - con list. This is what I have until now:

Pros:
  • very competitive interest rate - equal or better than a mortgage.
  • no repayment constrains
  • no qualification issues (as most of my income comes from dividends & capital gains, no employment income)
  • no immediate taxes on capital gains
Cons:
  • need to monitor the margin closely to prevent a margin call
Looking for some feedback on this, maybe from people who did something similar. TIA.
More...

Don't see how rates are much better than a mortgage.
https://www.interactivebrokers.com/en/index.php?f=18069

https://www.wellsfargo.com/mortgage/rates/
 
andrew black said:
I am thinking to take a $500k margin loan to finance a property and I am trying to make a pro - con list. This is what I have until now:

Pros:
  • very competitive interest rate - equal or better than a mortgage.
  • no repayment constrains
  • no qualification issues (as most of my income comes from dividends & capital gains, no employment income)
  • no immediate taxes on capital gains
Cons:
  • need to monitor the margin closely to prevent a margin call
Looking for some feedback on this, maybe from people who did something similar. TIA.
More...

I do something similar but you would rather have your liabilities to have a longer term than your assets require. So you would rather have a mortgage on the property funding your brokerage account.

A margin call against an illiquid asset is how many firms (including GE and citadel) nearly went under in 2008
 
newwurldmn said:
I do something similar but you would rather have your liabilities to have a longer term than your assets require. So you would rather have a mortgage on the property funding your brokerage account.
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That would work as well but I can foresee two major issues:
  • selling securities to pay for property would trigger a large capital gains tax bill
  • mortgage qualification might be an issue as I do not have regular employment income. Margin loan qualification is asset based.
 
andrew black said:
I am thinking to take a $500k margin loan to finance a property and I am trying to make a pro - con list. This is what I have until now:

Pros:
  • very competitive interest rate - equal or better than a mortgage.
  • no repayment constrains
  • no qualification issues (as most of my income comes from dividends & capital gains, no employment income)
  • no immediate taxes on capital gains
Cons:
  • need to monitor the margin closely to prevent a margin call
Looking for some feedback on this, maybe from people who did something similar. TIA.
More...
an interest rate spike will upset your scenario. you could be forced to liquidate bothyout stock portfolio and real estate portfolio at exactly the wrong time in business cycle.
 
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