Stock Based Loans

6 Replies

Have anyone ever taken out one of these loans before? What exactly does it entail to benefit investors?

I have not but I think the benefit is that you don't have to liquidate your stock to buy a property. Risk is what happens when the stock goes down.

Oh, ok. Your basically kinda taking a lien out on your stock, if you would say?

My broker would let me borrow up to 50% of my portfolio in cash. Interest is variable but I think its in the 5-6% range at the moment. If the value of the portfolio goes down, they will make a margin call and you have to pay some back. Otherwise its interest only. I wouldn't use that kind of money for long term rentals since interest rate risk is too high. But its viable for short term flip type projects.

Anish is right, notice he said his broker, that's his stock brokerage. Banks do not lend on stock as they are barred from holding stock, if they had to take the collateral they would then be dealing in stock other than their own bank stock. Bonds rate A+ and better can be and are held by banks, so they can use those as collateral.

If you want to learn more about it, you can search the internet for "borrowing against the box".

The loans are made as to the value of the security and that ratio remains constant so if the security value goes down, the margin of change will need to be made to keep the loan to collateral value the same at all times.....basically, 50% is common from brokerages.

Hard money lenders MAY use securities, I'd think most would not be comfortable in this arena but some would be, as I was. :) 

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