Author Topic: How to invest borrowed cash  (Read 2128 times)

Kevin Aster Tin Obin

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How to invest borrowed cash
« on: December 22, 2021, 11:14:19 AM »
Have large amount of cash after 2 cash out refi's on rental property. Looking to save the cash for new primary residence next year or year after. How to invest? 

The cash is costing me 2.625 to 2.99% interest to have (30 year fixed). Want something safe to invest in for 1-2 years, then spend the cash on house or down payment for a house.

Started an interactive brokers account and thinking could take a loan from that for down payment like MMM did.  Or else risk most of the cash in stocks and if the market tanks next year when I need the $$ I can got another bank loan for a house.

Other ideas how to manage borrowed cash while waiting to dump it back into real estate?
 

Blender Bender

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Re: How to invest borrowed cash
« Reply #1 on: December 22, 2021, 11:48:14 AM »
This is a tough problem. You are looking for interest + inflation, to not to lose on it, for a mid term investment. Unpredictable times.
Would be possible to revert the cash back to the rental property, and take it out later? Seems like your bet is on the rental "top is in".

Stimpy

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Re: How to invest borrowed cash
« Reply #2 on: December 22, 2021, 02:30:41 PM »
So, if you have extra cash on hand due to a cash out, I'd recommend CD's, money market or bonds.   If you were going to be sitting on it for more then 2 years (think like 5) I'd just invest it.  There aren't many option for short term cash investments that aren't full of risk.   At least none I am aware of.

Not sure if your taking about taking out a margin loan and investing or if I am misunderstanding but DON'T.  Risk is too high.  Taking out a small margin loan as MMM did, at the time of purchasing a house, I see no major issues, beyond the risks that MMM already talked about.  (Which is what I think you were meaning but ya know, wanna cover all fronts.)

Kevin Aster Tin Obin

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Re: How to invest borrowed cash
« Reply #3 on: December 22, 2021, 05:53:43 PM »
Part of the predicament is we haven’t yet closed ( scheduled Friday) on the $300 k cash out refi at 2.6% and second guessing why We’re taking this loan today vs waiting a year or two. Was worried interest rates may be worse in a year and want to lock in now. But that comes at a big interest and fee expense of 6k in points, 3k closing costs. And $7.6k more in interest for the next 12 months.

brellis1vt

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Re: How to invest borrowed cash
« Reply #4 on: December 22, 2021, 07:14:50 PM »
Yieldstreet has short term notes that you can invest in (3-6 months for 3-4%.)  It's more risky then other options but it does pay better than CDs.  Investing with them has had it's ups and downs but I've never lost money with them and this is the safest investment they offer.

Kevin Aster Tin Obin

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Re: How to invest borrowed cash
« Reply #5 on: December 22, 2021, 08:20:17 PM »
Yieldstreet has short term notes that you can invest in (3-6 months for 3-4%.)  It's more risky then other options but it does pay better than CDs.  Investing with them has had it's ups and downs but I've never lost money with them and this is the safest investment they offer.

Good tip. Was not aware. Have been contributing to fund rise already.  Thank you may open yield street  acct.

theolympians

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Re: How to invest borrowed cash
« Reply #6 on: December 24, 2021, 12:42:41 PM »
Government "I" bonds?

clifp

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Re: How to invest borrowed cash
« Reply #7 on: December 24, 2021, 01:45:58 PM »
This is a tough problem. You are looking for interest + inflation, to not to lose on it, for a mid term investment. Unpredictable times.
Would be possible to revert the cash back to the rental property, and take it out later? Seems like your bet is on the rental "top is in".

I think it's reasonably likely we hit the floor of mortgage rates for the next several years.  But there is no way around it, you can not get a safe investment that will pay as much as your interest rates on the mortgage.  2 year CDs are at .3-.4%,  you could also get  TIPs bonds, which would protect you from inflation but it will cost you $5 per $100 invested, because they have a negative interest rate.

If I were you I'd just stick into the market index fund and hope for the best.

Another option to consider is Vanguard Wellesley fund. This is a balanced fund 35-40% stocks the rest bonds, with much lower volatility than the S&P (Beta = .6).  In 2008 it lost 12.5% vs 37% vs SPY.  It is averaged 7%+ over the last 15 years so well over your cost of capital.

vand

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Re: How to invest borrowed cash
« Reply #8 on: December 25, 2021, 06:08:27 AM »
There are no financial instruments that are guaranteed to preserve, much less increase, purchasing power over your 1-2 year timeframe.  Welcome to the world of financial repression.

Your choices are:
1. put it into risk-on assets to try to preserve or increase purchaing power
2. put it into "safe" assets which are guaranteed to lose purchasing power

This is by design, given where the world is today. Governments have printed so much money and increased their debt and need the inflation and negative real rates to reduce (or at least slow down the growth of) the debt burden.

Personally, knowing this, I would have left it in the properties an only refi'ed when the money was required.

chasesfish

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Re: How to invest borrowed cash
« Reply #9 on: December 26, 2021, 10:00:56 AM »
I would definitely park $40k of it into IBonds, 10k each for 2021 and 2022.

Don't get hung up on trying to beat the interest rate you're paying, you essentially just bought insurance and flexibility.  Those things aren't free.

volleyballer

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Re: How to invest borrowed cash
« Reply #10 on: December 26, 2021, 02:47:42 PM »


Another option to consider is Vanguard Wellesley fund. This is a balanced fund 35-40% stocks the rest bonds, with much lower volatility than the S&P (Beta = .6).  In 2008 it lost 12.5% vs 37% vs SPY.  It is averaged 7%+ over the last 15 years so well over your cost of capital.

This is what I do with my short / medium term "extra" money (not my emergency funds). Actually 50% to Wellesley and 50% to Wellington, with the understanding that there is still volatility exposure.

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Blender Bender

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Re: How to invest borrowed cash
« Reply #11 on: December 26, 2021, 05:38:28 PM »


Another option to consider is Vanguard Wellesley fund. This is a balanced fund 35-40% stocks the rest bonds, with much lower volatility than the S&P (Beta = .6).  In 2008 it lost 12.5% vs 37% vs SPY.  It is averaged 7%+ over the last 15 years so well over your cost of capital.

This is what I do with my short / medium term "extra" money (not my emergency funds). Actually 50% to Wellesley and 50% to Wellington, with the understanding that there is still volatility exposure.

Sent from my Pixel 4a (5G) using Tapatalk

A Conservative portfolio. Good idea as my another 5% slot SORR fighter allocation. In my case could be VCNS. Thank you!
« Last Edit: December 26, 2021, 05:42:14 PM by ArnoldK »

Kevin Aster Tin Obin

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Re: How to invest borrowed cash
« Reply #12 on: December 27, 2021, 08:50:35 PM »

Don't get hung up on trying to beat the interest rate you're paying, you essentially just bought insurance and flexibility.  Those things aren't free.

Can you elaborate on this “insurance and flexibility” further? 

Also, since locked in cash out refi, is there a bond etf/fund buying strategy to buy them now and if mortgage rates drop another percent, refi the house again and sell the bond which went up in value?  But not sure the bond play if interest rates increase one % and the bond lost value..

At the moment planning to do the 40k i bonds, maybe buy into the 2 yieldstreet short term offerings at 4% on 75k, and split the rest between fundrise and Wellesley. And keep enough for 20% down payment for a house in high interest savings if rates stay low.


chasesfish

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Re: How to invest borrowed cash
« Reply #13 on: December 28, 2021, 07:55:31 AM »
@Kevin Aster Tin Obin

Basically the strategy would be to split your money 50% into an equity index fund and 50% into individual long term US treasury bonds.

If you think long term rates are going to go down, the way you get appreciation is to buy 30 year treasuries and 30 year zero coupon treasury bonds with the money.   I like the individual bonds as opposed to ZROZ or TLT, but the ETFs can work okay.

The long term treasury strategy is more rate speculation than anything else.


Regarding insurance and flexibility:  Having more cash / liquidity is better than less.  You pay interest on that liquidity since you borrowed from a home for it.

Kevin Aster Tin Obin

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Re: How to invest borrowed cash
« Reply #14 on: April 13, 2022, 02:44:35 PM »
A follow-up post since end of last year. Have now sunk a mortgage worth into yieldstreet and fundrise and wealthfront, along with a private equity investment.  Hope this Alternative strategy holds for another 1-2 years until use it for new residence.