Author Topic: Odd way to hedge against a home loan?  (Read 1184 times)

akajoe87

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Odd way to hedge against a home loan?
« on: December 05, 2019, 07:04:00 PM »
Does anybody hear think wealthfront worth it? I seen this video earlier https://youtu.be/x_d8vHNptX0
So this kid took out a cash out refinance and used wealthfront to hedge his loan while he was remodeling. Does this sound feasible?

ChpBstrd

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Re: Odd way to hedge against a home loan?
« Reply #1 on: December 05, 2019, 08:18:25 PM »
1) I guess I'm old, but it's weird to see people getting excited about 1.8%. In my day, online savings accounts paid 5.5% and the only reason people didn't FIRE on that alone was greed and ultimately unfounded fears of inflation. So we piled into stocks in 2006.

2) It's a valid point if you are taking a cash-out refi to do a remodel, and you must get all the cash out at once but you spend it over the course of months, it should earn some risk-free interest. The interest received offsets some of the interest paid, but I wouldn't call this "hedging". My questions are: What kind of business are you running if you are doing $100k remodels? Given that most remods (e.g. a kitchen or bath) cost $10k-30k, why not use your excellent credit to get a 0% credit card and pay zero interest? Or, more likely, why not get a Home Equity Line of Credit (HELOC) where you draw from the loan on an as-needed basis to avoid paying interest unnecessarily? See: https://www.moneyunder30.com/how-home-equity-loan-work

3) He looks high. I'm evaluating financial advice from a dude on YouTube who looks high. Guess I'm old if I even notice that. But he's talking six-figure remods, so that's an argument in his favor.

akajoe87

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Re: Odd way to hedge against a home loan?
« Reply #2 on: December 06, 2019, 04:19:45 AM »
He does kinda look chilled out lol. I知 just needing to redo my bathroom and kitchen. It will be about $40,000. I got about 690 credit but I do have a lot of house equity. So when I watched this it gave me an idea. The bank said a cash out refinance was my best bet. I will definitely see what else is out there.

MTBmustachian

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Re: Odd way to hedge against a home loan?
« Reply #3 on: December 06, 2019, 01:26:36 PM »
He does kinda look chilled out lol. I知 just needing to redo my bathroom and kitchen. It will be about $40,000. I got about 690 credit but I do have a lot of house equity. So when I watched this it gave me an idea. The bank said a cash out refinance was my best bet. I will definitely see what else is out there.

Hmm, refinancing your home to remodel your bathroom and kitchen to the tune of $40k, with a 690 credit score? I think you missed some of the MMM basics here...

This sounds like a bad idea.

akajoe87

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Re: Odd way to hedge against a home loan?
« Reply #4 on: December 06, 2019, 03:46:00 PM »
What I知 thinking is upgrade using the learn and then sell the house later. I知 thinking the 40,000 may make me 40,000. My market is doing fairly well right now. Mr. Money mustache may not think it痴 a good idea but using a little leverage may pay off

MTBmustachian

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Re: Odd way to hedge against a home loan?
« Reply #5 on: December 06, 2019, 03:49:38 PM »
I知 thinking the 40,000 may make me 40,000.

So you're going to make a gamble with a possible return of... 0%?

akajoe87

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Re: Odd way to hedge against a home loan?
« Reply #6 on: December 06, 2019, 04:02:19 PM »
No. Put in 40,000 will increase the value by 80,000.

MoneyQuirk

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Re: Odd way to hedge against a home loan?
« Reply #7 on: December 10, 2019, 01:34:55 AM »
Anything below about 5% I'd just put into stocks, so long as I'm comfortable with everything else in life.

BicycleB

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Re: Odd way to hedge against a home loan?
« Reply #8 on: December 10, 2019, 03:55:47 PM »
Whether such a thing is reasonably safe (aka, "hedged") depends on whether your income outside of this proposal is:
1) substantially higher than your expenses outside this proposal, and
2) well insulated from external factors that could damage your ability to get the presumed 80k profit.

In other words, investing in the financial markets is not a real hedge for a remodel-and-sell home loan, but job income might be. What's your savings rate?

If my credit score was 690, my cash reserves would be low. In that case, I'd use a money market fund to store the loan cash while doing the project, if I were going to do the project. Heck, my score's 100 pts higher and I don't have big cash reserves.

Good luck though. My block is full of flips. I had a flip-oriented agent reviewing my house yesterday. Planning to hold in unstylish condition, though, it looks like. At least until I have a stronger income to hedge any expensive upgrade projects!

PS. Re Wealthfront per se, my guess is that it's not very valuable except in specialized situations that involve high taxable income. Vanguard is probably better for most purposes. One of their strengths is relatively efficient, reliable money market funds that would be good for stashing flip cash. Though having flip cash at all is only wise if you are truly likely to get substantial flip profits. Even then, it's wise to have a backup plan (a "hedge"...not Wealthfront) to cover deals that go wrong.
« Last Edit: December 10, 2019, 03:59:40 PM by BicycleB »