Real Estate Lender · New York City, NY · Member since 2011 · 54 posts · 30 votes
12y
Yes, you can get a Portfolio Line of Credit. Here is how it works at Wells Fargo:
1)It has to be an account that is part of Wells Fargo Advisors. That means you have an investment specialist who manages your account. Me personally, I have 2 accounts under the Wells Fargo Advisors tree. 1 account is for a small amount and my specialist gets 1-1.5% in fees each year for managing that account. The other account, is where 90% of my stock portfolio is. There is no yearly fee because I manage it myself. But, each trade costs $30 (I am very inactive and hold for the very long term so these fees don't cost very much.)
2)Stocks under $10 don't count
3)The interest is Prime (so, right now that money costs me 3.25%)
4)They give you a line of credit for 50% of your eligible portfolio. So, if you have $1 million in an eligible portfolio, then they give a line of credit for $500,000. Now, if u max out the line of credit, and your portfolio drops to $800,000, then u are forced to infuse capital or payday down the line of credit to keep the proper spread between the borrowed money and the value of the portfolio.
So, what I personally do, is I use the line of credit to do short term Hard Money Loans (typically 1 year loans). The HML's pay me around 14-16%. The interest costs me 3.25% on the Portfolio Line of Credit. I keep the spread.
Its a great use of capital if you can keep these things in mind:
1)Always have some extra cash around in case the portfolio drops 30-40%
2)Recognize that they key to this game is low interest rates. If Prime rate goes back to a more normal level of 6-7% then this game is much less practical because the spread is much less.
3)If you are gonna do HML's, make sure you get proper appraisals done and make sure you can really trust the people you lend too.
4)Make sure you have a solid portfolio. If you are only invested in the hottest stocks right now like TSLA, TWTR, and FB then your portfolio will fluctuate wildly. If you have a solidly diversified portfolio with a small amount of high flying stocks, and mostly safe, long-term dividend stocks like a XOM, VZ, KO, BRK-B, SBUX then you are much better off.
Rental Property Investor · Where we are parked · Member since 2013 · 584 posts · 178 votes
12y
Hi Sherrie,
I'm confused. You say you could sell the stock to pay cash for the property and pay the capital gains tax. This is true. But then you say you would get the benefit of deducting mortgage interest on the rental. When you say "pay cash" are you talking about buying the property 100% cash or "pay cash" for the down payment? If you buy it 100% cash there will be no mortgage and therefore no mortgage interest to deduct.
The down side is exactly what you said, the 15% (or more) capital gains tax! If you purchase a house for $100,000 by selling enough stock to cash out $100,000, how long will it take you to recoup your penalty of $15,000? If the cash flow (after expenses) is $500 per month it will take you 2 1/2 years just to recoup that $15,000. In my opinion, a property that doesn't start making me money from day 1 isn't a good deal.
Seems to me there are better alternatives for finding a way to purchase a property rather than paying a 15% penalty.
Rental Property Investor · Where we are parked · Member since 2013 · 584 posts · 178 votes
12y
Ah, sorry for the misunderstanding. Will a bank allow you to use stocks and bonds as collateral? Seems like they wouldn't since there's no guarantee those holdings will be worth anything down the road. They may be worth $100,000 today but they may be worth $1 a year from now. Not that I'm skeptical of the stock market or anything. :)
Ah, sorry for the misunderstanding. Will a bank allow you to use stocks and bonds as collateral? Seems like they wouldn't since there's no guarantee those holdings will be worth anything down the road. They may be worth $100,000 today but they may be worth $1 a year from now. Not that I'm skeptical of the stock market or anything. :)
Depending upon your portfolio that is distinctly possible. I have a client who utilized a loan on his securities to purchase a large building. He then refinanced it out later.
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
12y
@Sherrie P. I did a few of these loans for real estate buyers in my banking days. There are two ways to do the loan, on margin and as an installment loan through your bank. If you are going through your brokerage, then they will probably lend 50% of the current stock value (some securities, such as penny stocks excluded) through a margin account. The problem with this is that, if the stock market (value of your account) drops to the point where is to below the margin percentage limits, then you will have a margin call and have to immediately fork over a ton of cash to cover it. If you are going to use stocks as collateral, you may want to opt for an installment loan through your bank as an alternative. They will help get an account control agreement signed with the brokerage (a lot easier if the bank and brokerage are linked) and they will give you a much higher LTV with less risk of a margin call. The term will be shorter than a mortgage loan, but the real estate issues and insurance requirements won't apply as the real estate is not being used as collateral. You also will not be able to trade in the collateral account unless you go through hoops with the bank. It can be done and can be quite simple, but a mortgage broker can not do this type of loan. Use your local bank. You just have to get a lender that actually knows what he/she is talking about and not some flunky at the branch. Good luck.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
A bank may not take stock as collateral, generally but they may take government bonds, A rated or better, as that is the limitation on their holding securities in portfolio generally, that can't take something as collateral that they can't own. Bonds may fetch 80% depending on what they are. They will need possession of the qusip as well, an additional expense.
And as Wayne mentioned, borrowing "against the box" with your broker is the best way to go, less costs involved.
Better only do this for the short run, if prices fall you're short and you'd need to make up the difference. :)
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
12y
Couple of things:
Yes, the interest on the loan would be tax-deductible against the property income, as long as you have a clear trail that you immediately used the loan proceeds to purchase the property. (Don't sit on the money for a while prior to buying the property.)
The LT cap gains rate is capped at 15% this year (unless your household income is very high, something around $425k, can't recall exactly), whereas next year cap gains will likely be taxed at your ordinary income tax rate, which gets to 25% at a pretty low income tax rate. So that may be a spur to just go ahead and sell in 2013. (Plus stocks have run up 20% per year for almost 5 years now in the face of a poor economy, thanks to ridiculous Fed meddling, how long do you think that can go on?)
Rehabber · Smyrna, GA · Member since 2013 · 864 posts · 510 votes
12y
There's a guy from Merrill Lynch that attends one of my networking groups pitching exactly that. Don't know the program, but do know some of the guys in the room have done it.
My understanding is they do a loan with the stocks as collateral. 1-5% interest. Don't know if it goes over 50%.
Real Estate Lender · New York City, NY · Member since 2011 · 54 posts · 30 votes
12y
Yes, you can get a Portfolio Line of Credit. Here is how it works at Wells Fargo:
1)It has to be an account that is part of Wells Fargo Advisors. That means you have an investment specialist who manages your account. Me personally, I have 2 accounts under the Wells Fargo Advisors tree. 1 account is for a small amount and my specialist gets 1-1.5% in fees each year for managing that account. The other account, is where 90% of my stock portfolio is. There is no yearly fee because I manage it myself. But, each trade costs $30 (I am very inactive and hold for the very long term so these fees don't cost very much.)
2)Stocks under $10 don't count
3)The interest is Prime (so, right now that money costs me 3.25%)
4)They give you a line of credit for 50% of your eligible portfolio. So, if you have $1 million in an eligible portfolio, then they give a line of credit for $500,000. Now, if u max out the line of credit, and your portfolio drops to $800,000, then u are forced to infuse capital or payday down the line of credit to keep the proper spread between the borrowed money and the value of the portfolio.
So, what I personally do, is I use the line of credit to do short term Hard Money Loans (typically 1 year loans). The HML's pay me around 14-16%. The interest costs me 3.25% on the Portfolio Line of Credit. I keep the spread.
Its a great use of capital if you can keep these things in mind:
1)Always have some extra cash around in case the portfolio drops 30-40%
2)Recognize that they key to this game is low interest rates. If Prime rate goes back to a more normal level of 6-7% then this game is much less practical because the spread is much less.
3)If you are gonna do HML's, make sure you get proper appraisals done and make sure you can really trust the people you lend too.
4)Make sure you have a solid portfolio. If you are only invested in the hottest stocks right now like TSLA, TWTR, and FB then your portfolio will fluctuate wildly. If you have a solidly diversified portfolio with a small amount of high flying stocks, and mostly safe, long-term dividend stocks like a XOM, VZ, KO, BRK-B, SBUX then you are much better off.
Investor · Cincinnati, OH · Member since 2021 · 7 posts · 7 votes
4y
This is a great thread, even after 7 years! This is exactly why I love BP. I've been investing in stocks since 2015, but recently learned about the portfolio line of credit @David Ackerman mentioned. It keeps me from realizing my gains and paying capital gain taxes, while keeping my exposure to the stock market. Of course, you have to understand the volatility of your stocks and manage risk by having extra cash just in case, as David mentioned. You will have to deposit more money in your account if the value drops below certain %, otherwise your stocks will be liquidated...so make sure you understand all of your broker's requirements and rules. This can definitely be one more tool in your toolbox to purchase real estate, finance a rehab, HML, etc... Just make sure you manage your risk accordingly!