Author Topic: Am I an idiot?  (Read 2171 times)

Running With The Bulls

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Am I an idiot?
« on: June 26, 2017, 07:31:57 PM »
I am a 28 year old, saving 23% of gross pay in a 401k with a match and additional savings to an after tax brokerage account, for total savings rate of about 40-45% of gross salary. I have been planning to build a portfolio of 4-6 low to mid class single family rental properties over the next 10 years or so as an additional avenue for building retirement equity / income.

I am planning to acquire the first property within the next 18 months and have been thinking about pledging my brokerage account as collateral on the loan in lieu of the cash down payment. How I imagine this would work is that I would pledge a brokerage account with approx. 30k in assets to a loan financing 100% of the purchase price. That would give the loan about a 65% LTV when the value of the assets and the property are combined. This would give me about a 10k or 33% downside protection to which the assets in the account could decrease and the LTV would still remain adequate.

I understand the risks of structuring this transaction this way (margin squeeze, tie up cash long term,...), but see the ability to keep the funds invested and generating returns while serving as a "down payment" as very favorable. Am I missing something or will this approach generate long term asset appreciation through stocks and help me build equity in the rental at the same time, without giving up one or the other?

Silverado62

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Re: Am I an idiot?
« Reply #1 on: June 27, 2017, 06:57:07 AM »
Do you already own the home you live in? If not, I'd buy that first. Best interest rates and loan products. Then after a couple of years buy another to live in and convert yours to a rental. Then keep going. That's how I did it, "laddering up". Yes, my family lived in 8 homes in 18 years, and I did purchase straight investments as well, but it all started with that first one.

If the Brokerage account is extra, left over money, then I would cash out what you want to use and use it instead of borrowing against it. But I like to keep things dead simply and not try to get smart or tricky with money like that. Even if it makes sense "on paper".

Running With The Bulls

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Re: Am I an idiot?
« Reply #2 on: June 27, 2017, 08:31:52 AM »
Yes we do own our current home and have a low fixed rate locked in long term. I have considered turning our existing home into a rental and maybe potentially buy a duplex as our next home to live in one side and rent out the other. After we were ready to move on after that we would have 3 rental units with one transaction.

Cwadda

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Re: Am I an idiot?
« Reply #3 on: June 27, 2017, 08:44:25 AM »
See if you are eligible for an FHA mortgage. 3.5% down on a 2-4 unit multi family property that you owner occupy for 1 year. I went this route, it's been worth it.

Running With The Bulls

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Re: Am I an idiot?
« Reply #4 on: June 27, 2017, 09:54:43 AM »
Banks might not be interested, but I work in commercial lending and think I might be able to use one of my connections to Ben able to get this type of structure for the financing, specially since I would keep borrowing in the future from them.

I just thought it might be worth thinking about doing it this way if it I should possible to get financing since I wouldn't have to give up potential future gains by cashing out

J Boogie

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Re: Am I an idiot?
« Reply #5 on: June 27, 2017, 03:58:32 PM »
Not huge on market timing per se, but I think this might be a good time to pull cash out of equities as you scope out a good deal on a rental property.  I also wouldn't rule out duplexes, especially in nicer areas (if neighborhood quality is a concern).

srad

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Re: Am I an idiot?
« Reply #6 on: June 28, 2017, 03:16:30 PM »
You are making this too complicated.  There are no better loans out there than a 30 year mortgage on an owner occupied home. its like 4% right now. So save up for a down payment for your next home and turn your current one into a rental.  Or, if you have a lot of equity in your current home, sell it and buy an owner occupied and a small rental. That equity is tax free...