Any experience in using a Margin Account?

Question

I’m fairly new to the real estate game and I am looking for creative ways to finance deals. I have my father-in-law and his wife interested in investing. They are the people who have a lot of investment worth but not liquid funds. I came across the idea of having them setup a margin account from a friend who has one. Before I make the suggestion I was wondering if anyone here has taken this path and what their experience/advice is as far as a margin account.

Thanks!

Colton Hamilton · Answer

@Steve Morris

When talking to my friend he did specifically that he could borrow cash and use it for whatever he wanted and did say he could use it to buy a fix and flip house (his broker is through Wells Fargo). But you're right for the most part (everything I've read) it is mostly used to reinvest in the stock market. Thanks for the reply!

Colton Hamilton · Answer

@Matt Hurley

Thanks for linking that article! It was pretty informative for the basics. After reading the article and doing a little more research I've gathered that you can't technically borrow against an IRA or 401k. There is a thing called limited margin account, which I understand even less about, that would let you borrow a limited form against an IRA.

Steve Morris · Answer

"They are the people who have a lot of investment worth but not liquid funds. I came across the idea of having them setup a margin account from a friend who has one."

Check with your broker.  On margin funds you usually are promising stocks held in the account as collateral for a loan from the broker to buy more stocks.  Don't think they're too crazy about letting you take cash out of the account that way since if the stock/collateral dumps they can do a forced sale to get their money back.

Matt Hurley · Answer

Someone wrote an article on this:

https://www.biggerpockets.com/...

Haven’t done this myself, but I’m interested in the process. My main question is can this be done with things like an IRA or a 401k? Or does it have to be a non-tax advanced account.