Securities Based Lending for Low Interest Rate

[Brady Morgan]

Hello,

Does anyone have experience with using Securities Based Lending for funding deals? Specifically, I am looking at partnering with an individual who owns securities (stock and mutual funds) having them take out a line of credit against their portfolio (SBLOC) at a low interest rate, and using that to purchase properties rather than using a mortgage. Considering the rates I am being quoted, I am a little surprised more investors arent talking about this. Has anyone run into problems with this sort of lending? I know these lines of credit are typically variable rate and interest only but when I am buying deals with 20-25% equity that are new construction and cashflow around $500/mo with this loan option, I feel like I have hedged against those risks fairly well. There are sometimes fees associated as well but they seem minimal and scale well since one line of credit can purchase multiple assets.

Interested if anyone else is using this lending strategy and what your experiences/recommendations are. Thanks!

[Ned Carey]

@Brady Morgan since  you are buying new construction what makes you think you are getting 25% equity. Is that because you are going to be putting down 25% or you think you are buying at a 25% discount. 

Borrowing against securities is a high risk proposition. Why is a "Partner" with the securities going to lend to you at a discount? If they are taking the risk of borrowing they would want to charge you a premium for the risk they are taking.