Line of Credit vs. Conventional Mortgage

[David Neely]

Hello BP,

I'm negotiating on a quad right now. The company I invest in the stock market with offered me a LOC utilizing my portfolio as backing with a 2.5% variable rate, no fees. They told me that while the interest isn't claimable on tax deductions, it can potentially be used to offset capital gains, etc. The big bonus is essentially turning it into a cash buy however, meaning quick closing and no "vetting" process from the lender on each individual deal, which as we all know can be a real PITA.

Anybody see any downsides to this over a conventional loan at ~5%? (The obvious ones being that the variable rate is susceptible to rising, meaning the need to refinance if/when that time comes) and the lack of a direct tax write off). 

Not that anything on here is considered legal advice, I've read the disclaimers, but after listening to podcast 109 would this method of funding open up my stock market portfolio to possible legal action against me? I purchase under an LLC (admittedly, I haven't gone as far as 109 has suggested, but baby steps are being made).

Thanks for the feedback, as always thanks for the help!

Dave

[Kyle J.]

@David Neely Are you sure the interest wouldn't be tax deductible? I can see if you used the LOC to buy a car or something along those lines that the interest wouldn't be deductible. However, if you used the proceeds to purchase the quad as a rental, I don't see why the interest wouldn't be a deductible expense against that property. You may want to consult a tax professional. It sounds like a pretty good option though.