3 ms·
Surely you can't loan into infinity and have to sell at some point to start paying off the debt.
by badpun 4y ago
Surely you can't loan into infinity and have to sell at some point to start paying off the debt.
- Invictus0 4y agoSuppose I have 100 million in my investment portfolio and a 5% interest rate. I want to buy a house for $10 million. So I withdraw 2 million in cash and get a margin loan for 2 million so I don't have to sell any securities. I take the 2 million in cash, get a mortgage for 8 million, and buy the house. On average the market returns 7%. So my $100 million portfolio is earning $7 million per year less the loan interest of 100k which comes to $6.9M. After 2 years I pay off the mortgage and repay the margin loan. I now have a house and I didn't have to pay any taxes on my securities to buy it. What if the market goes down? Well, I just wait for it to go back up again. I can easily afford to wait, my margin of safety is huge. Since the margin loan is for 2 million, and I need a 50% margin of safety by law, then the portfolio value would need to decline to 2 million (98% decline) before my loan gets called.
- jareklupinski 4y ago"...and don't call me Shirley"