Investing using SBLOC

[Tarun Bansal]

Hello,

I've a concentrated stock position and looking to diversity out. I however do not want to sell stocks due to tax gains. Does anyone think it's a crazy idea to borrow against a securities based line of credit (SBLOC), to invest? I'm getting one with a variable rate of ~4%. The IRR for a target syndication investment is ~14-16%. It seems worth the risk. I just wanted to hear from this forum to learn.

Thank you for inputs!

[AJ Shepard]

@Tarun Bansal

I would talk with your syndicator operator and determine if they are going to return capital or pay profit out of the gate. It’s possible that the syndication investment in the first year could offset a portion of your passive gain. It may be a good idea to use the SBLOC for the initial deposit with the syndicator and then at the beginning of the year timeframe sell the stocks to pay the SBLOC back. This way you have the whole time value of the year before taxes are due and not have to pay the interest on the SBLOC while gaining returns from the syndication. Hopefully the syndicator that you use performs a cost segregation on the property and can offset many of those passive gains.

Additionally, you may be able to harvest your basis in the stocks and then use the SBLOC for the remainder and if the SBLOC ends up going up at some point, pay it off.

So far all of our syndications do return capital first and we do perform cost segregation’s to maximize the tax loss in the first few years.

I’m not a cpa or an attorney and can’t give legal or tax advice. If you have specific questions about your situation you should consult your own professionals. Happy to offer creative solutions and ideas.