Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
[HI guys,
I have found another great 2 family that is an estate sale. I have a chance to pick up the property at a great price. This is an all brick 2 fam. in the heart of where all my others reside. It's really picture perfect for what I am looking for.
The mtg. process is going to be a logistical nightmare (if I can even get approved) for various reasons so I am trying to buy the house outright.
Has anyone borowed from their brokerage acct? E-trade for my example. I can borrow 100k @ 6.14% I actually do not have to make payments on it as it will just continue to accrue interest. But I do want to make payments on it and try and look at it as a conventional loan although it is not but I want to structure the payments back to it as such....
Has anyone done this before? I know there is risk involved but just want to hear others opinion on this.
I know this is an old thread but I was tempted by an e-Trade loan for similar reasons and am leaning against. It sounds like a sufficient decline in account value would allow them to call in the loan repayment.
In a traditional mortgage, your bank doesn't get to just foreclose whenever house drops in value, even if the mortgage is underwater.
Many firms might offer you the opportunity to pursue an SBLOC, including your brokerage or advisory firm, a clearing firm (a firm that maintains custody of your securities and other assets, such as cash in your account), or a third-party lender like a bank. To set one up, you and the lender execute an SBLOC contract. The contract specifies the maximum amount you may borrow, and you agree to use your investment account assets as collateral. If the value of your securities declines to an amount where it is no longer sufficient to support your line of credit, you will receive a “maintenance call” notifying you that you must post additional collateral or repay the loan within a specified period (typically two or three days). If you are unable to add additional collateral to your account or repay the loan with readily available cash, the firm can liquidate your securities and keep the cash to satisfy the maintenance call.
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
14y
I think that would scare me silly with the current economic climate -- one serious scare from Europe, incident with Iran, etc., could literally cut your account in half in a day, even if it bounces back quickly. If you have a way to do it without facing margin calls if the stock market crashes again, or have a liquid way to cover any margin call that arises, not all tied up in a house or forced sale of stock to cover, then maybe I'd consider it, but not sure how you do that unless you're 100K loan from your own brokerage account is a very small portion of what you could actually withdraw, keeping yourself well leveraged there just in case.
Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
14y
Thx Lynn,
I have been analyzing the numbers all AM and looks like I am going to sell some securities and in the end will need about 50k to make this deal work for me.
I am getting out of most of the risker holdings I have and leaving my solid blue chip dividend paying companies in place to hedge the risk.
I just don't want to lose out on this opportunity.
The scary thing is you do no have to make payments back to E-trade they just tack on the monthly interest as it accrues.....
The alternative is to try and get a Mtg which I am pretty positive my Debt/income ratios will be too risker for the lender at this point. I took on some (good debt) zero% interest rate from credit card promo offers and utilized it on a prior deal which the money isn't due intil end of March next year but it really kills my ratios.
This will be my first cash purchase and I Am looking forward to not having to answer to those pesky underwriters!
Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
14y
Just watch out for a margin call if the market tanks. I would try to refinance the property right away and use the proceeds to pay off the margin loan.
Buy & Hold Investor · Milwaukee, WI · Member since 2012 · 378 posts · 179 votes
14y
Sounds like a classic case of buying a long-term investment with short-term funds. As Lynn M. and Johnson H. pointed out you can get crushed pretty quickly due to unforeseen circumstances. Why not use hard money lending instead? It might cost more but at least that way you can structure it so that the loan will last for as long as it takes to get conventional financing in place using your 25% equity. I would consider the payments on the hard money to be insurance against getting crushed by a broker's margin call.
Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
14y
Nick L., I believe this way is cheaper than a hard money loan. Worse case is that he would have to sell his securities. It would suck to sell while the market is tanking since they will eventually go up again. If he wanted to structure this even more safely, he can just sell all of his stocks and be out of the market for a little while.
Buy & Hold Investor · Milwaukee, WI · Member since 2012 · 378 posts · 179 votes
14y
Agreed that the brokerage loan is cheaper than a hard money loan but I think it's a false economy due to the risks. The best approach might be what you suggested, just selling some stocks for a while and using the money to finance the RE purchase.
Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
14y
Well it looks like I am doing sort of a hybrid here. I have sold of a fair amount of securities today - mostly risker stuff that has a much better likeyhood of getting crushed in the market and I am long on my blue chip dividend paying stuff. Again not to say they cannot get crushed b/c they can but I am hoping to refi once I close on the purchase.
A hard money loan I think would kill me in fees and would be approx double the interest rate. I also don't think I have time to get a HML in place.
I had to compete with two other offers one was 5k below mine and one was equal to mine but the executor of the estate went with me b/c I waived my right to a home inspection.
Investor · Singapore, Singapore · Member since 2014 · 20 posts · 2 votes
11y
Hey Chris -
How'd it work out for you? Looking to do the same just so I have access to quick cash for deals. Haven't found a lot of info about borrowing from e*trade account. Any tips?
I know this is an old thread but I was tempted by an e-Trade loan for similar reasons and am leaning against. It sounds like a sufficient decline in account value would allow them to call in the loan repayment.
In a traditional mortgage, your bank doesn't get to just foreclose whenever house drops in value, even if the mortgage is underwater.
Many firms might offer you the opportunity to pursue an SBLOC, including your brokerage or advisory firm, a clearing firm (a firm that maintains custody of your securities and other assets, such as cash in your account), or a third-party lender like a bank. To set one up, you and the lender execute an SBLOC contract. The contract specifies the maximum amount you may borrow, and you agree to use your investment account assets as collateral. If the value of your securities declines to an amount where it is no longer sufficient to support your line of credit, you will receive a “maintenance call” notifying you that you must post additional collateral or repay the loan within a specified period (typically two or three days). If you are unable to add additional collateral to your account or repay the loan with readily available cash, the firm can liquidate your securities and keep the cash to satisfy the maintenance call.
I know this is an old thread but I was tempted by an e-Trade loan for similar reasons and am leaning against. It sounds like a sufficient decline in account value would allow them to call in the loan repayment.
In a traditional mortgage, your bank doesn't get to just foreclose whenever house drops in value, even if the mortgage is underwater.
Many firms might offer you the opportunity to pursue an SBLOC, including your brokerage or advisory firm, a clearing firm (a firm that maintains custody of your securities and other assets, such as cash in your account), or a third-party lender like a bank. To set one up, you and the lender execute an SBLOC contract. The contract specifies the maximum amount you may borrow, and you agree to use your investment account assets as collateral. If the value of your securities declines to an amount where it is no longer sufficient to support your line of credit, you will receive a “maintenance call” notifying you that you must post additional collateral or repay the loan within a specified period (typically two or three days). If you are unable to add additional collateral to your account or repay the loan with readily available cash, the firm can liquidate your securities and keep the cash to satisfy the maintenance call.