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Updated over 1 year ago on . Most recent reply

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Yair Zarmon
9
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5
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Margin Loan for Real Estate Investing. Is it worth it?

Yair Zarmon
Posted

Hi All,

I'm a newbie investor and very much looking forward to kickstarting my career in RE. Your help here will be greatly appreciated, and remembered!

I have been listening to David Greene and read a few of his books on the BRRR method. Purchasing an investment property in cash and refinancing it based on its ARV makes a lot of sense and is aligned with my long-term goals.

My situation is as follows:

1. I have a stock portfolio currently valued at $500k+, and an all-cash purchase means that I'll need to sell some shares and pay long-term capital gains tax (15%). 

2. I do not have a sufficient amount in savings to complete an all-cash purchase without selling shares (I'd be looking at properties valued at roughly $100k-$150k).

I can do the following:

1. Sell $180k worth of shares (this will roughly net $150k after capital gains taxes) to put an all-cash offer on an investment property and start the BRRR route.

2. Take out a margin loan at X interest rate, maintain the current stock portfolio without selling shares, and put an all-cash offer on an investment property.

Given the factors I mentioned above and today's economy climate, would it make sense to take out a margin loan to finance my initial purchase? Is the interest in a margin loan much lower than a traditional mortgage? How would leveraging a margin loan affect refinancing of the same property?

I look forward to hearing your thoughts :)

  • Yair Zarmon
  • Most Popular Reply

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    546
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    Denver McClure
    • Financial Advisor
    • Dallas, TX
    446
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    546
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    Denver McClure
    • Financial Advisor
    • Dallas, TX
    Replied

    Hey @Yair Zarmon, I'd highly recommend utilizing the Margin loan. It's a strategy I've personally used against my taxable portfolio for real estate, and one that we build for our RE investing clients. 

    Yes, some margin rates are cheaper than a traditional mortgage. The brokerage we use has a starting rate of 6.83% on the high end, and 6.17% on the low end. Most other brokerages have margin rates around 13% currently, so you'll want to make sure your portfolio is at the right place first. Keep in mind that margin interest is also tax-deductible if used on an income producing property. 

    Typically you can borrow up to 50% of your portfolio value, however you really need to ensure that the assets in that portfolio are focused on stability, not individual stocks that may be too volatile. For example, it would be better leveraged against VOO rather than TSLA, or SCHD over ARKK. You'll typically get the cash within 1-3 business days and there won't be any type of credit checks, income checks, or premium payoff requirements. Margin loans are interest only, so you'll want to design a portfolio that earns healthy dividends/interest to subsidize that cost if possible. 

  • Denver McClure
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