SBLOC: extra cash by borrowing against assets

[mrmage]

Maybe I'm misunderstanding this, but the loan referenced is against real estate rather than against investment securities, correct?

If not, please elaborate upon whether such a loan is one which allows for (non real estate) collateral to produce gains that cover and outpace the interest rate. While also allowing to not make payments on the principle.

If there is another type of loan available using TSLA shares as collateral, and that allows it to continue growing, I'd like to know more about it.

@EL0NTRK said he wanted a loan to purchase real estate, but would not qualify for a mortgage based on income. Banks can also qualify loans using assets instead of income, which are called asset depletion loans. Asset depletion mortgages are just the usual mortgage, except the qualification for the loan is based all or partially on assets instead of just income.

Unlike SBLOCs, which may force liquidation of stocks or reduce margin available for trading, mortgages (asset based or income based), don't affect what someone does with their assets, including stocks and options, because the bank's collateral is the real estate after the loan is granted.

TLDR; Asset depletion loan for a mortgage = competitive interest rates, same terms as a mortgage, does not affect liquid assets so investors can continue to manage assets like stocks, options, etc however they like.

 

[EL0NTRK]

@EL0NTRK said he wanted a loan to purchase real estate, but would not qualify for a mortgage based on income. Banks can also qualify loans using assets instead of income, which are called asset depletion loans. Asset depletion mortgages are just the usual mortgage, except the qualification for the loan is based all or partially on assets instead of just income.

Unlike SBLOCs, which may force liquidation of stocks or reduce margin available for trading, mortgages (asset based or income based), don't affect what someone does with their assets, including stocks and options, because the bank's collateral is the real estate after the loan is granted.

TLDR; Asset depletion loan for a mortgage = competitive interest rates, same terms as a mortgage, does not affect liquid assets so investors can continue to manage assets like stocks, options, etc however they like.

Yes, i like to take out sbloc for buying a new house but i want to avoid paying 20 to 25% down payment of asset based mortgage since it defeats the sole purpose of avoiding selling tsla.
I believe there exists sbloc with really low interest rates if you have high enough portfolio, say 5m to 10m range.
https://mobile.twitter.com/jasondebolt/status/1331743491085373440?s=07

 

[2daMoon]

Yes, i like to take out sbloc for buying a new house but i want to avoid paying 20 to 25% down payment of asset based mortgage since it defeats the sole purpose of avoiding selling tsla.
I believe there exists sbloc with really low interest rates if you have high enough portfolio, say 5m to 10m range.
https://mobile.twitter.com/jasondebolt/status/1331743491085373440?s=07

As you are in Texas, check out Prosperity Bank, who offers a Stock loan. Here's a link.
Stock Loans | Prosperity Bank

Probably worth checking other local banks and comparing interest rates as well.

 

[Artful Dodger]

Yes, i like to take out sbloc for buying a new house but i want to avoid paying 20 to 25% down payment of asset based mortgage since it defeats the sole purpose of avoiding selling tsla.
I believe there exists sbloc with really low interest rates if you have high enough portfolio, say 5m to 10m range.
https://twitter.com/jasondebolt/status/1331743491085373440?s=07

Jason DeBolt on Twitter: Nov 25, 2020
"I have to borrow at least $400k, which is what I'm looking for to finance part of my house down payment. If I borrow over a million, the rate can go down to 1.5% or lower."

Jason DeBolt on Twitter: Nov 25, 2020
"This is for a $4.5 million equity balance in my main brokerage account, 100% $TSLA."​

Okay, thar's gold in them thar hills!

Worth investigating, IMO. I'd consider also getting a pre-approved HLOC just in case a flock of black swans flies overhead, and the SLOC gets margin called. Should be easily done if the asset purchased is real estate, and not used due to the higher interest rate unless required. Then it provides interim financing while markets stabilize.

Cheers!

 

[MP3Mike]

Here are links to a few offerings from different brokers:

• Securities Based Lending - Collateral Lending | TD Ameritrade
  
• Pledged Asset Line® | Schwab Bank | Charles Schwab
  
• Loan Management Account (LMA) Solutions from Merrill Lynch
  
• E*TRADE Line of Credit
  
• Interactive Brokers Margin Rates (I couldn't find information on a normal SBLOC offered by them.)

Notes:

• Most of them set a single rate based on the worth of the assets they are secured against, while IB sets the rate based on how much you have borrowed in tiers. (So with IB you always pay the highest rate for the first $100k.)
• TD Ameritrade and Charles Schwab are essentially the same company but have different rates.
• E*TRADE currently lets you borrow up to 55% against TSLA.

Also, you can use them against each other. For example find the broker with the lowest rate for the worth of your assets and ask your preferred broker, if it is different, to beat or match the rate.

 

[Artful Dodger]

6 Popular Uses for SBLOCs | gsselect.com

"Individuals can get flexible, convenient financing for a wide variety of uses through securities-based lines of credit (SBLOCs) backed by their non-retirement investment portfolios. Revolving SBLOCs enable users to borrow, repay and re-borrow on their schedule, paying interest only on the amount they use. Here are six ways that financial advisors see clients using these borrowing arrangements."​

1. Real-estate bridge financing
2. A financial safety net
3. Home renovation
4. Postponing realization of capital gains
5. Capital for personal or business investment
6. Cost-effective and flexible personal borrowing

Good article, with much more detail under each of the 6 topics. Worth the read IMO.

Cheers!

 

[EinSV]

I can see why it might be convenient to use one of these loans for short-term purposes but what's the advantage versus pulling money out of a mortgage (through a refi or otherwise) if you don't plan to pay the loan back relatively quickly?

You might get a slightly lower rate, but mortgage rates are extremely low right now at least in the U.S. and you can lock in low rates for long periods of time. If I understand it correctly you also take on the risk of a margin call, which could be catastrophic if it happened at the wrong time.

 

[Nocturnal]

There's a reason for that. It's because most people don't really understand risk or know how to fully mitigate it.

The rules don't ensure that at all. We don't let average Joes invest in private equity. When I became an accredited investor I didn't have to take a test, or ensure that I knew a stock from a hole in the ground, I just had to have enough money. It's also odd that I'm being "protected" from myself by not being allowed to leverage an IRA for collateral, but I make too much money to contribute to an IRA. Our tax code and financial system in general are a mess. People should be protected from each other, not themselves. I could take all of my money out to tomorrow and buy lottery tickets no problem, but I can't take a loan against that money? That's arbitrary at best.

 

[mrmage]

Yes, i like to take out sbloc for buying a new house but i want to avoid paying 20 to 25% down payment of asset based mortgage since it defeats the sole purpose of avoiding selling tsla.
I believe there exists sbloc with really low interest rates if you have high enough portfolio, say 5m to 10m range.
https://mobile.twitter.com/jasondebolt/status/1331743491085373440?s=07

Sounds like he's using an SBLOC for down payment and mortgage for the rest.

https://twitter.com/jasondebolt/status/1331744986786775042

 

[TSLA Pilot]

As you are in Texas, check out Prosperity Bank, who offers a Stock loan. Here's a link.
Stock Loans | Prosperity Bank

Probably worth checking other local banks and comparing interest rates as well.

Checked out their webpage, but no interest rate info.

Any ideas on what those might be?

 

[EL0NTRK]

E*TRADE currently lets you borrow up to 55% against TSLA.

Great list. Can you show me where it states you can get 55% against TSLA?
I'm going to call them tomorrow to get the process going. It's crazy all the different rates, rules.
I would go with the one that has the lowest rate per portfolio value.

Can anyone explain how the interest rate is adjusted? Once a month, a year? etc

 

[MP3Mike]

Great list. Can you show me where it states you can get 55% against TSLA?

When you start the process to signup it lets you preview what they will let you borrow and shows the details per stock. (Assuming of course you already hold the stocks with them.)

Can anyone explain how the interest rate is adjusted? Once a month, a year? etc

I think for E*TRADE it is weekly:

Your interest rate will increase or decrease based on changes in LIBOR which may change weekly (every Monday, or the following business day in event of a holiday). The latest rates can be found in the Wall Street Journal.

 

[TSLA Pilot]

I can see why it might be convenient to use one of these loans for short-term purposes but what's the advantage versus pulling money out of a mortgage (through a refi or otherwise) if you don't plan to pay the loan back relatively quickly?

You might get a slightly lower rate, but mortgage rates are extremely low right now at least in the U.S. and you can lock in low rates for long periods of time. If I understand it correctly you also take on the risk of a margin call, which could be catastrophic if it happened at the wrong time.

In our case, with large 401k deductions from my salary (to fill it up ASAP toward the annual cap), we may not be able to fund, say, a $1m home purchase as our income ratios may be insufficient, plus the mortgage app process is both exasperating and intrusive. As an example, we will likely turn our current home (fully paid off) into a rental property to generate some $3k/month, but that revenue won't be included in the mortgage app (to help with the ratios/approval odds) as it doesn't exist yet.

Having a SBLOC would allow us the flexibility to buy land and build our own home, or just buy a new home outright, without the hassles an inflexibility of a mortgage: it creates cash from a large amount of TSLA asset value, although in our case a LOT of it is in IRA and 401k assets so it can't be used for a SBLOC in the first place. The whole thing is a bit frustrating, frankly, but we refuse to sell any shares for obvious reasons . . . .

I may have to study up on options.

 

[EL0NTRK]

My case would be unique and I would love to hear inputs on whether there are better options than SBLOC for our case.
We are looking at a 2M house as a YOLO, dream home which is a few months from completion.
Our investment in TSLA has grown significantly over the years and like many here, can retire.
Unfortunately, our income as self-employed (we own our business) would not qualify us for this house based on the Income/debt ratio.

With SBLOC, we can use our TSLA to draw installment for this house at a low rate of 2% or so if we shop around.
The way I see it, it's cheaper than a traditional mortgage (which we don't qualify for anyway) and in 5 years, we would pay 10-15% of the 2M in interest only while TSLA would outpace these in return.
End game is we will liquidate a portion of our TSLA to pay off the loan and at that time, the number of shares used for this will be much lower than what we have to do now if we don't use SBLOC.

 

[TSLA Pilot]

My case would be unique and I would love to hear inputs on whether there are better options than SBLOC for our case.
We are looking at a 2M house as a YOLO, dream home which is a few months from completion.
Our investment in TSLA has grown significantly over the years and like many here, can retire.
Unfortunately, our income as self-employed (we own our business) would not qualify us for this house based on the Income/debt ratio.

With SBLOC, we can use our TSLA to draw installment for this house at a low rate of 2% or so if we shop around.
The way I see it, it's cheaper than a traditional mortgage (which we don't qualify for anyway) and in 5 years, we would pay 10-15% of the 2M in interest only while TSLA would outpace these in return.
End game is we will liquidate a portion of our TSLA to pay off the loan and at that time, the number of shares used for this will be much lower than what we have to do now if we don't use SBLOC.

Pretty much what we're doing, and for the same reasons.

Note that in many/most cases your current broker will match or beat another broker's interest rate: all you have to do is ask . . . . When you're talking 7- and 8-figure accounts, it appears that will be a Big Deal account and normal rules can be waived, if you ask.

The problem for us that much of our TSLA holdings are in IRA or 401k accounts. What isn't in those is worth "only" about $5m+, but $1.1m is margin balance, for a net value of ~$4m in that "trading" account.

Thus, we may have to wait a bit to get that 21% margin balance to a lower percentage. My problem is that it is SO hard to not buy TSLA when it's "on Sale" from a GLJ appearance on CNBC or the like. I was thrilled to buy another few hundred thousand dollars worth at under $800 each recently as that was another to-good-to-pass-up "Sale." (The reason our portfolio value is so high is because the market's short-term volatility is a gift for long-term investors

Please keep us posted on your progress as we've had no real solutions with TD Amertitrade. (Having said that, it appears that links provided earlier suggest that Schwab might be a better option once the merger is completed?)

We'll keep trying; it shouldn't be this friggin' hard to borrow against these major assets, but such is life. A true First-World problem . . . .

 

[EL0NTRK]

I just want to call up these brokers and ask some questions but it seems like the phones line and online chat are very busy. 70 min on hold from Etrade. I open my account online while I wait. There seems to be an option to move the whole portfolio from Vanguard to them. I will have to see if they allow me to specify the ticker and number of stock I want to transfer.

From the site, TD Ameritrade seems to have the best rate at 1.5+ 30d libor which is at .12 now so it's 1.62% APR for a 3M+ holding with them. ETrade has much higher rate at 2.7% APR for upto 5M account. That means i have to call to get them reduce the rate, another hassle.

Please keep us posted on your progress as we've had no real solutions with TD Amertitrade. (Having said that, it appears that links provided earlier suggest that Schwab might be a better option once the merger is completed?)

I'm going to open a TD ameritrade account today and attempt to move my fund there. It takes a few business days at least and then I will have to ask for a LOC.
What problems you have at TD? Why you think Schwab is better? Their rate is higher for what I can tell.

 

[2daMoon]

I was poking around looking for good rates for comparison. Here's the best I have found so far.
Interactive Brokers Margin Rates

Using their calculator, IBKR Pro gets 1.247% "Blended" Margin interest rate with $300K as the sample calculated upon.

This is for a margin account, rather than a Line of Credit, but I suppose it would be functionally the same.

Anyone have experience with transferring to IB? (... if Fidelity doesn't take the bait and match IB's rate)

 

[EL0NTRK]

I was poking around looking for good rates for comparison. Here's the best I have found so far.
Interactive Brokers Margin Rates

Using their calculator, IBKR Pro gets 1.247% "Blended" Margin interest rate with $300K as the sample calculated upon.

This is for a margin account, rather than a Line of Credit, but I suppose it would be functionally the same.

Anyone have experience with transferring to IB? (... if Fidelity doesn't take the bait and match IB's rate)

I look at IBKR first but the only thing they got is margin acount. It spook us a great deal because I read horror stories that they will immediately liquidate your pledged account instead of giving you a few days to cover it like the usual LOC account.
The rates are very tempting but I don't know if I will give up peace of mind for a 1% difference.

 

[2daMoon]

I look at IBKR first but the only thing they got is margin acount. It spook us a great deal because I read horror stories that they will immediately liquidate your pledged account instead of giving you a few days to cover it like the usual LOC account.
The rates are very tempting but I don't know if I will give up peace of mind for a 1% difference.

I think that this is true for any loan that uses stocks as collateral. If the value of the asset drops below some set amount they want to be covered. Read the terms of the contract for the details, but it makes sense this would be the case.

Potential for a margin call is a bigger and more likely problem if the account holder is trading using margin up to their borrowing limit and things go South fast.

In my case I plan to mitigate that possibility by limiting the percentage of the account I'll borrow from, to ~30% or less. This leaves plenty of wiggle room. I have no plans to trade on margin, even if that is the type of loan I end up with.

 

[EL0NTRK]

There is also the difference between margin and non-purpose LOC. I'm not sure anyone will check but you can only use fund from margin to trade and fund from non-purpose to any other reason, except trading.
If you are certain you will not reach the % limit for margin call, it may be worth the saving but keep in mind that IBKR has a tiered rate whereas other will give you rate based on the size of your pledged portfolio.
I guess you can open a few accounts since it's fast and easy and move around as you see fit.
I have the opposite of you where all of my TSLA is in a regular brokerage account so my #1 goal is to minimize capital gain. That's a blessing in disguise since we have not sold much for a few years.
Another 5 or 10 years would be a different story. We will never be able to enjoy all of those tendies before we die anyway.