15 ms·

By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, y

By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your holdings and possibly leave you on the hook for more. The difference is that Elon may be diversified enough to survive, while less savvy margin-surfers might not.

mixmastamyk 2y ago
Yes, margin can be dangerous at times and is not that cheap. About 6% over fed rates, or 11-13% right now. Over $500k you'll probably get a better deal.
- ywvcbk 2y ago
  It’s like people complaining about savings accounts with 0.5% interest rates. Just switch to a different broker… IBKR is +0.5% at >$200k (It starts at +1.5%)
- taxman22 2y ago
  Schwab Pledge Asset Line (PAL) is SOFR + (2.40% to 4.4%). SOFR today is 4.81%.
  - TMWNN 2y ago
    Is Schwab known for being unusually low with its rate for this product? Vanguard is 11-13%, consistent with what mixmastamyk said. <https://investor.vanguard.com/client-benefits/margin?msockid=100f2dbd312165502f483ed9306d640b https://investor.vanguard.com/client-benefits/margin?msockid...> In any case, my Amex line of credit charges 6%, and I am preapproved for an Amex personal loan for 8.98%. I presume others on HN can get comparable or better.
    - JumpCrisscross 2y ago
      > Is Schwab known for being unusually low with its rate for this product? The Schwab rate sounds high. Fidelity, for instance, charges SOFR + 190 to 310bps [1]. I haven't had an SBLOC for a few years, but I remember Stifel charging no more than 200 bps over Libor. [1] https://www.fidelity.com/lending/securities-backed-line-of-credit https://www.fidelity.com/lending/securities-backed-line-of-c...
  - mixmastamyk 2y ago
    8ish percent is good but not fantastic, after years of mortgages lower than that.
- TMWNN 2y ago
  What taxman22 says makes me wish I kept my holdings in my Schwab account. (I guess there is nothing stopping me from doing an asset transfer.) But I agree with you about margin borrowing's interest rate not being that amazing, although it is of course cheaper than most credit cards. Vanguard is, as you said, 11-13%. <https://investor.vanguard.com/client-benefits/margin?msockid=100f2dbd312165502f483ed9306d640b https://investor.vanguard.com/client-benefits/margin?msockid...> By contrast, my Amex line of credit charges 6%, and I am preapproved for an Amex personal loan for 8.98%. I presume others on HN can get comparable or better.
bdangubic 2y ago
> If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. This should be illegal of course... You cannot for the purposes of paying taxes say "hey, I don't actually have this money, this is unrealized gains" and then turn around (to brokerage house or anyone else) and say "hey, look I actually do have this 'money' - lemme borrow against it." Unrealized gains should never be taxed. However, as soon as you try to use it as realized in ANY way you should be taxed immediately.
- 1123581321 2y ago
  That does not track for me. If someone has $20k in Schwab and chooses to use their credit card instead of selling stock and paying cash, I don't think they should have to pay taxes on that or suffer a criminal penalty. Same for taking on a car loan or a mortgage.
  - creato 2y ago
    If that's what was happening you'd be right but it isn't. Credit cards have high rates and low limits for a reason: they are unsecured credit. Loans with collateral are secured by the collateral, and it makes some sense that should be considered a realized gain for that collateral (or loss for that matter).
    - deleted 2y ago
      [deleted]
    - __turbobrew__ 2y ago
      My bank will give me a 6 figure line of credit at prime+0.5% because they see all the assets I have (savings, cash, investments, mortgage). The line of credit is indirectly secured against all of the assets my bank can see. Should I be taxed when I use the line of credit my bank extends to me?
      - JumpCrisscross 2y ago
s0rce 2y ago
I used this when Chase closed my bank account because of a typo. Just borrowed cash from Fidelity to float for a month until everything got sorted.
dataflow 2y ago
This explanation never made sense to me. Say someone gives you a $1M loan. Holy cow, it's not taxed, what a loophole! But wait, this was a loan, not a gift. So don't you eventually have to pay back the >$1M later from taxed income? So you still end up paying taxes on $1M either way? How in the world does this bypass taxes? Edit: To people bringing back the "buy, borrow, die" story: (a) Yes, I saw that a couple months ago too. It was very hand-wavy in some crucial places. And there were quite a few people pointing out flaws with the reasoning. [1] [2] (b) If dying is part of the the strategy then why is it omitted so often? (My whole point with the comment here is that the aforementioned explanation is inadequate.) (c) If having enough money to pay off your collateral-secured debts until your death is a requirement for this to work then why do so many people claim "you can do it too"? Who has that kind of money sitting around? The "Buy, Borrow, Die" post explicitly said you can't get that kind of loan until you have $300M in assets. [1] https://news.ycombinator.com/item?id=41411737 https://news.ycombinator.com/item?id=41411737 [2] https://news.ycombinator.com/item?id=41410808 https://news.ycombinator.com/item?id=41410808
- lesuorac 2y ago
  You just delay selling the stocks until death. At that point your stocks (and other assets like houses) have their cost-basis adjusted to the current price. So the capital gains tax on your assets are $0 as their cost basis is the same as the price so the appreciate is $0. If _you_ sold the stocks before your death then likely there would be a large gap between the cost-basis (price you bought the stock) and the current price resulting in a large capital gains tax. So, when your estate sells the stocks to pay back the loan they pay the applicable taxes on the $0 and then uses the remaining proceeds to pay back the loan.
  - blast 2y ago
    > At that point your stocks (and other assets like houses) have their cost-basis adjusted to the current price. Is this a special provision that kicks in only on death (and not before)? How long has that been in place?
    - 2y ago
hn_throwaway_99 2y ago
I disagree the framing is deceptive. A big reason this is done is to avoid paying taxes altogether - borrow against your equity, and then when you die your heirs receive a step-up in basis, so the gains are never taxed. To make it worth while you need to have a crap ton of money, such that the interest on your loans is less than the estate taxes you'd pay. Only very, very rich people pay any estate taxes in the first place because a couple's estate tax exemption is currently over $27 million.
- creer 2y ago
  > avoid paying taxes altogether At some stage in wealth, perhaps, and not avoid but postpone. More important probably are cases where actually selling the shares means giving up control over a business, or having to settle things with the rest of the family whose "destiny" it is to hold these shares in common.
  - deepsun 2y ago
    Not postpone -- avoid. The base price of the asset is adjusted at the time of your death, so if bank sells the asset immediately, they pay no taxes. https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/buy_borrow_die_explained/ https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...
    - creer 2y ago
      There is confusion between capital gains tax and estate tax (and estate planning devices like trust law). And that matters. Is the problem capital gains tax as some people claim or is it elsewhere? In the process described, capital gains tax is not even postponed (and that write up does not provide for Peter's major expenses during life). That write up works (when it does) because of bypassing estate tax. The need for realizing capital gains is eliminated through trust, estate planning and other estate tax law (seems to me). The whole of the procedure is in that side of the equation. Not in capital gains tax law. So the question: Does this all call for a change in capital gains tax law or changes in estate planning (trusts) and estate tax law? When you use margin loan or pledged assets lines of credit, you are postponing. Which you can potentially kick all the way into estate tax (which your estate may pay if it's large enough). That write up is different still and describes working around even that estate tax. And then the question does matter of which law you are asking to change. (Besides the traditional method of making a law, any random law, thereby solving all problems for eternity - or at least gaining some voter satisfaction.)
beezle 2y ago
Keep in mind that the bench mark rate is almost always something akin to bills so is a very short time horizon. That may be great or not so great compared to what rate you might get on say a 5/10/15 yr collaterlized loan. ref: https://www.interactivebrokers.com/en/trading/margin-rates.php https://www.interactivebrokers.com/en/trading/margin-rates.p...
- throwaway2037 2y ago
  Nice link. Thank you to share. This notice bothers me a bit: > IBKR will assess a surcharge of 1% on large loan balances unless otherwise prearranged with IBKR. The 1% surcharge would apply to all balances in the highest tier. I wonder what exactly "prearranged with IBKR" means. Call them up... "I need to borrow 50M USD, and pledge my Meta stock." Them: "Hang on. <muzak> Yeah, sure." My guess, if the loan is large enough, the want to coordinate with their internal stock-borrow lending (SBL) desk to ensure proper liquidity. <<(Not A) Shill Warning>> I am continuously blown away by the institutional-like level of services (and prices) available to plebs like me. IB is really built to grow with you: From the first 10K USD saved as a 25 year old, to a 50 year old with millions in liquid assets. I still cannot believe they don't have any minimum balance for individual account. Ref: https://www.interactivebrokers.com/en/accounts/required-minimums.php https://www.interactivebrokers.com/en/accounts/required-mini... To be clear for other readers, that cost cannot be zero on their end. I don't know how it works, other than crazy levels of automation.
  - tomatocracy 2y ago
    I think it's probably more about hedge funds etc where they will negotiate bespoke terms/pricing across the board (including assessing risk which at that level might partly be based on track record, identity of the underlying investors, strategy etc).
    - beezle 2y ago
      Once the amounts get lumpy there needs to be complete assessment of counterparty risk (you). IB can't assume that you are only borrowing from them and that the collateral in your account won't first be liened by another party, etc.
petermcneeley 2y ago
If I have 1 million in some stock can I go get a 1 million loan from the bank with this as collateral? If so can I reinvest this million in the same stock again and then goto the bank again etc?
- basementcat 2y ago
  There is usually a margin requirement (25 to 75% depending on type of equity). And yes, you can.
- blasphemers 2y ago
  No. You are not allowed to use these loans for investments, you would need a different type of loan for margin trading.
- kelnos 2y ago
  Usually they will not give you the full value. Depending on how "safe" they deem the security, they might only allow you to borrow 50%-70% against it. And most (probably all) of these forbid you from using the loan proceeds to buy more securities.
dang 2y ago
Ok, we've replacing accessing billions by borrowing against stock in the title above. Thanks!
yieldcrv 2y ago
Your broker isn't letting you withdraw margin lending. You cant use it for consumptive purchases. But its true, you can find a real lender for your stocks. You dont have to be rich. Its not controversial, you have to pay it back. There are other quirks the rich have: Already post-tax assets to pay something off They are in control of the stock, they can issue more new shares for themselves or cause the corporation to do a stock buyback to pump their holdings more if market conditions are favorable. Borrow more against the increased value or just sell something and pay the taxes that year. Purchases of primary issuances are taxed differently than secondary market purchases. But who cares when you can be a neocolonialist for a year in Puerto Rico too, 0% capital gain for new positions and prorated against old ones
- JumpCrisscross 2y ago
  > broker isn't letting you withdraw margin lending. You cant use it for consumptive purchases. There is no rule prohibiting the withdrawal of margin cash. Or, for that matter, short selling and withdrawing that cash. As long as you're Reg T compliant, the Feds don't care. (If you're a family office, even better--you might get to be treated as an institution.)
  - yieldcrv 2y ago
    right, it just hampers the broker’s collection efforts and economic viability if things leave their walled garden good to know there is no statutory road block
creer 2y ago
Your brokerage will likely lend you money but you will be disappointed by the rate. It is not "very low". Not even "low". At least not where we are now in the interest rates cycle.
- christophilus 2y ago
  Interactive Brokers is 6%. Not low, but not bad.
  - creer 2y ago
    5.8 - 5.6% above 100k now indeed, and that's for margin (which you can live on OR re-invest)! Not low but improving yes! Roughly in line with a 15 yr fixed rate mortgage but not tax deductible at least if you live on it. Might be tax deductible if you re-invest.
Apreche 2y ago
There is another difference that is related to risk. Larger loans allow access to lower risk opportunities. If I had many millions in stocks, and I was greedy for more, I would borrow against it to develop residential real estate in a high rent neighborhood. Yes, there's some risk, but it's as close as you can get to buying a money fountain. I'd be very confident that the rents from the building would pay back the money I borrowed and then some. Even if I borrow against all my holdings, I can't afford to make that kind of investment. The only options I have are much higher risk. And as you said, I won't survive a failure. Therefore, while the bank would let me do it, I would be very foolish to try.
- dullcrisp 2y ago
  Wanna go halfsies on some residential real estate in a high rent neighborhood?
  - throwaway2037 2y ago
    Everything that I read about real estate investing says you should aim for middle class housing, as the return-on-investment from rental cashflow is (normally) higher that more expensive housing. To be clear: My statement is only looking at rental cashflow, not capital appreciation. To me, there are both important, but separate concerns.
  - Apreche 2y ago
    Sure, but we'll have to go thousandsies, or at least hundredsies.
- tightbookkeeper 2y ago
  Rich people having more options, and being more insulated from risk, is not news.
  - Apreche 2y ago
    It's not news to the world, but it's news to many.
jjav 2y ago
> your brokerage will lend you money at a very low rate, secured by the equity I have not found one that will offer a very low rate, have you? For example here are Schwab's rates for a loan against equity: https://www.schwab.com/pledged-asset-line/rates https://www.schwab.com/pledged-asset-line/rates For 500K-1M rate is SOFR + 3.4%, so about 8.2% For multimillionaires it gets better at SOFT + 2.4%, or about 7.2% Not bad in this market but not one I'd call "very low" Possibly there's an unpublished rate for billionaires, there usually is.
- nicolas_t 2y ago
  My bank in Hong Kong (where I live) lends in USD against bonds or stock at around SOFR. If they lend in JPY it's around 0.8%
- ywvcbk 2y ago
  Switch to a different broker? e.g. it’s just +0.5% https://www.interactivebrokers.com/en/trading/margin-rates.php https://www.interactivebrokers.com/en/trading/margin-rates.p...
  - jjav 2y ago
    The linked page is margin, not equity backed loans.
    - ywvcbk 2y ago
      Is there a difference?
      - Kon-Peki 2y ago
        Yes. In a margin loan, the "things of value" never leave the institution handing out the loan. The borrower buys stock, for example. And the institution giving out the loan has the right to sell whatever you bought to prevent losses on the loan, without your permission if certain conditions are triggered. In a loan backed by collateral, all the money can leave into some external account controlled by the borrower. To get some or all of it back requires an expensive and lengthy process that doesn't guarantee success.
theshrike79 2y ago
You can also buy art. 1) buy a painting for X 2) have it evaluated, sometimes the price is higher than X 3) put it in storage or a tax loophole between countries 4) use said painting as collateral for low interest loans Now you have money to invest, as long as you make more than the low interest loan, you're making profit.
- Shaanie 2y ago
  But then you have X money tied up in some presumably illiquid art with questionable value. Seems better to just invest the X money from the start.
  - ThinkBeat 2y ago
    but then you do not get the tax benefits discussed above. The market for "investment art" I huge and everyone involved has an upside by art appreciating in value. > The artist may get more money (since the artist only gets paid in the initial transaction the artist may only get a fraction of the value as it increases. The artist may find that later work will become more valuable as other investors want more of his art. >The gallery gets more money, and it may attract more art investors > and the auction house gets more money if it ends up there. How much art is worth is difficult to estimate on its own. I mean a white canvas painted uniformly white is worh a lot of money if a famous artist does it. It is worth entirely nothing if I do it. I expect then that the market decides the value. All investors want art to get more valuable and are in on it. As an art lover, this is such a tragic scheme. Unknown amount of art that will never been seen by the public. Locked up inside a storage facility in a big box Often the investor has no interest in the art at all, just an investment made by some form of a broker.
  - theshrike79 2y ago
    Art is like Schrödinger's cat, its value is only determined when it changes owner. If someone pays 1M€ for a piece of art, it is "valued at $1M" and you can use it for collateral for a loan at some percentage of its valuation. Will it actually be 1M€ if it needs to be liquidated? Nobody knows. It can be worthless or it can be worth 10M€ - it all depends on what the next person is willing to pay for it. But until that point it's "worth" 1M€. --- This is why there are so many empty (commercial) properties, they were valued at a specific €/m2 price and were used to take loans based on that value. Until they're rented/leased again, that is their worth and value. Could the owner get someone in the property by lowering the price? Definitely. Would that also cause a rolling cascade of loans not having enough collateral to back them up? Yup.
tomatocracy 2y ago
For very large stakes, the terms tend to be much more bespoke though - an automatic sale of collateral amounting to a large % stake is probably not in either borrower or lender's interest.
chx 2y ago
It's not at all simple what they do. https://reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/buy_borrow_die_explained/ https://reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/... Important quote: > this type of planning is generally not economically feasible unless the taxpayer has a net worth exceeding around $300M.
- creer 2y ago
  To be fair, there are very accessible options like margin loan or pledged assets which you can also keep going indefinitely - possibly all the way into estate tax which - as a "little guy" - you wouldn't owe. They are higher interest rates (to the point of not being all that interesting - depending on what you want to do.) And they don't have the same features. But if you are high assets and low income, they might still allow you to buy a house with a loan - if it's what you want.
traceroute66 2y ago
> The framing is deceptive. Indeed the framing is very deceptive. Yes, it helps to have a relationship with a private bank. But as pointed out, some brokerages will let you do it too if you are too poor to be allowed to enter through the door of a private bank. BUT The main thing that is skirted around in the article is that it still needs to go through the financial institution's credit committee. So, for example, you cannot just rock-up with a million in Tesla shares and expect a loan against them, or at least not at a sensible LTV ratio. The financial institution will want a boring portfolio with government bonds and low-risk corporate shares. Any bank that would be willing to lend against a high-risk portfolio is probably not the sort of bank you want to do business with anyway.
SomeHacker44 2y ago
This is not true: "very low rate." My brokerage starts at 12+% which I would not call low. It never even reaches prime at millions of borrowing, and I do not have remotely enough to get much better a rate.
- kman82 2y ago
  Wrong brokerage. Interactive Brokers lends at 5% on large amounts and around 6% on small amounts.
- htrp 2y ago
  you need to look at the Lombard landing products offered by banks, not margin loans on brokerage or personal loans
  - mixmastamyk 2y ago
    Interesting... https://en.wikipedia.org/wiki/Lombard_banking https://en.wikipedia.org/wiki/Lombard_banking
- dranudin 2y ago
  You can also lend money from the options market with a box spread for around 4-5%. See e.g. boxtrades.com
  - red-iron-pine 2y ago
    options are a whole different box of worms, and playing that game has a lot more risk. "but uh its a box trade it can't go wrong because bla bla bla bla" -- then things proceed to go wrong
mason_mpls 2y ago
Even if there’s risk, this is still clearly realizing market gains

mixmastamyk 2y ago

Yes, margin can be dangerous at times and is not that cheap. About 6% over fed rates, or 11-13% right now. Over $500k you'll probably get a better deal.

ywvcbk 2y ago
It’s like people complaining about savings accounts with 0.5% interest rates. Just switch to a different broker… IBKR is +0.5% at >$200k (It starts at +1.5%)
taxman22 2y ago
Schwab Pledge Asset Line (PAL) is SOFR + (2.40% to 4.4%). SOFR today is 4.81%.
- TMWNN 2y ago
  Is Schwab known for being unusually low with its rate for this product? Vanguard is 11-13%, consistent with what mixmastamyk said. <https://investor.vanguard.com/client-benefits/margin?msockid=100f2dbd312165502f483ed9306d640b https://investor.vanguard.com/client-benefits/margin?msockid...> In any case, my Amex line of credit charges 6%, and I am preapproved for an Amex personal loan for 8.98%. I presume others on HN can get comparable or better.
  - JumpCrisscross 2y ago
    > Is Schwab known for being unusually low with its rate for this product? The Schwab rate sounds high. Fidelity, for instance, charges SOFR + 190 to 310bps [1]. I haven't had an SBLOC for a few years, but I remember Stifel charging no more than 200 bps over Libor. [1] https://www.fidelity.com/lending/securities-backed-line-of-credit https://www.fidelity.com/lending/securities-backed-line-of-c...
- mixmastamyk 2y ago
  8ish percent is good but not fantastic, after years of mortgages lower than that.
TMWNN 2y ago
What taxman22 says makes me wish I kept my holdings in my Schwab account. (I guess there is nothing stopping me from doing an asset transfer.) But I agree with you about margin borrowing's interest rate not being that amazing, although it is of course cheaper than most credit cards. Vanguard is, as you said, 11-13%. <https://investor.vanguard.com/client-benefits/margin?msockid=100f2dbd312165502f483ed9306d640b https://investor.vanguard.com/client-benefits/margin?msockid...> By contrast, my Amex line of credit charges 6%, and I am preapproved for an Amex personal loan for 8.98%. I presume others on HN can get comparable or better.

bdangubic 2y ago

> If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. This should be illegal of course... You cannot for the purposes of paying taxes say "hey, I don't actually have this money, this is unrealized gains" and then turn around (to brokerage house or anyone else) and say "hey, look I actually do have this 'money' - lemme borrow against it." Unrealized gains should never be taxed. However, as soon as you try to use it as realized in ANY way you should be taxed immediately.

1123581321 2y ago
That does not track for me. If someone has $20k in Schwab and chooses to use their credit card instead of selling stock and paying cash, I don't think they should have to pay taxes on that or suffer a criminal penalty. Same for taking on a car loan or a mortgage.
- creato 2y ago
  If that's what was happening you'd be right but it isn't. Credit cards have high rates and low limits for a reason: they are unsecured credit. Loans with collateral are secured by the collateral, and it makes some sense that should be considered a realized gain for that collateral (or loss for that matter).
  - deleted 2y ago
    [deleted]
  - __turbobrew__ 2y ago
    My bank will give me a 6 figure line of credit at prime+0.5% because they see all the assets I have (savings, cash, investments, mortgage). The line of credit is indirectly secured against all of the assets my bank can see. Should I be taxed when I use the line of credit my bank extends to me?
    - JumpCrisscross 2y ago

s0rce 2y ago

I used this when Chase closed my bank account because of a typo. Just borrowed cash from Fidelity to float for a month until everything got sorted.

dataflow 2y ago

This explanation never made sense to me. Say someone gives you a $1M loan. Holy cow, it's not taxed, what a loophole! But wait, this was a loan, not a gift. So don't you eventually have to pay back the >$1M later from taxed income? So you still end up paying taxes on $1M either way? How in the world does this bypass taxes? Edit: To people bringing back the "buy, borrow, die" story: (a) Yes, I saw that a couple months ago too. It was very hand-wavy in some crucial places. And there were quite a few people pointing out flaws with the reasoning. [1] [2] (b) If dying is part of the the strategy then why is it omitted so often? (My whole point with the comment here is that the aforementioned explanation is inadequate.) (c) If having enough money to pay off your collateral-secured debts until your death is a requirement for this to work then why do so many people claim "you can do it too"? Who has that kind of money sitting around? The "Buy, Borrow, Die" post explicitly said you can't get that kind of loan until you have $300M in assets. [1] https://news.ycombinator.com/item?id=41411737 https://news.ycombinator.com/item?id=41411737 [2] https://news.ycombinator.com/item?id=41410808 https://news.ycombinator.com/item?id=41410808

lesuorac 2y ago
You just delay selling the stocks until death. At that point your stocks (and other assets like houses) have their cost-basis adjusted to the current price. So the capital gains tax on your assets are $0 as their cost basis is the same as the price so the appreciate is $0. If _you_ sold the stocks before your death then likely there would be a large gap between the cost-basis (price you bought the stock) and the current price resulting in a large capital gains tax. So, when your estate sells the stocks to pay back the loan they pay the applicable taxes on the $0 and then uses the remaining proceeds to pay back the loan.
- blast 2y ago
  > At that point your stocks (and other assets like houses) have their cost-basis adjusted to the current price. Is this a special provision that kicks in only on death (and not before)? How long has that been in place?
  - 2y ago

hn_throwaway_99 2y ago

I disagree the framing is deceptive. A big reason this is done is to avoid paying taxes altogether - borrow against your equity, and then when you die your heirs receive a step-up in basis, so the gains are never taxed. To make it worth while you need to have a crap ton of money, such that the interest on your loans is less than the estate taxes you'd pay. Only very, very rich people pay any estate taxes in the first place because a couple's estate tax exemption is currently over $27 million.

creer 2y ago
> avoid paying taxes altogether At some stage in wealth, perhaps, and not avoid but postpone. More important probably are cases where actually selling the shares means giving up control over a business, or having to settle things with the rest of the family whose "destiny" it is to hold these shares in common.
- deepsun 2y ago
  Not postpone -- avoid. The base price of the asset is adjusted at the time of your death, so if bank sells the asset immediately, they pay no taxes. https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/buy_borrow_die_explained/ https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...
  - creer 2y ago
    There is confusion between capital gains tax and estate tax (and estate planning devices like trust law). And that matters. Is the problem capital gains tax as some people claim or is it elsewhere? In the process described, capital gains tax is not even postponed (and that write up does not provide for Peter's major expenses during life). That write up works (when it does) because of bypassing estate tax. The need for realizing capital gains is eliminated through trust, estate planning and other estate tax law (seems to me). The whole of the procedure is in that side of the equation. Not in capital gains tax law. So the question: Does this all call for a change in capital gains tax law or changes in estate planning (trusts) and estate tax law? When you use margin loan or pledged assets lines of credit, you are postponing. Which you can potentially kick all the way into estate tax (which your estate may pay if it's large enough). That write up is different still and describes working around even that estate tax. And then the question does matter of which law you are asking to change. (Besides the traditional method of making a law, any random law, thereby solving all problems for eternity - or at least gaining some voter satisfaction.)

beezle 2y ago

Keep in mind that the bench mark rate is almost always something akin to bills so is a very short time horizon. That may be great or not so great compared to what rate you might get on say a 5/10/15 yr collaterlized loan. ref: https://www.interactivebrokers.com/en/trading/margin-rates.php https://www.interactivebrokers.com/en/trading/margin-rates.p...

throwaway2037 2y ago
Nice link. Thank you to share. This notice bothers me a bit: > IBKR will assess a surcharge of 1% on large loan balances unless otherwise prearranged with IBKR. The 1% surcharge would apply to all balances in the highest tier. I wonder what exactly "prearranged with IBKR" means. Call them up... "I need to borrow 50M USD, and pledge my Meta stock." Them: "Hang on. <muzak> Yeah, sure." My guess, if the loan is large enough, the want to coordinate with their internal stock-borrow lending (SBL) desk to ensure proper liquidity. <<(Not A) Shill Warning>> I am continuously blown away by the institutional-like level of services (and prices) available to plebs like me. IB is really built to grow with you: From the first 10K USD saved as a 25 year old, to a 50 year old with millions in liquid assets. I still cannot believe they don't have any minimum balance for individual account. Ref: https://www.interactivebrokers.com/en/accounts/required-minimums.php https://www.interactivebrokers.com/en/accounts/required-mini... To be clear for other readers, that cost cannot be zero on their end. I don't know how it works, other than crazy levels of automation.
- tomatocracy 2y ago
  I think it's probably more about hedge funds etc where they will negotiate bespoke terms/pricing across the board (including assessing risk which at that level might partly be based on track record, identity of the underlying investors, strategy etc).
  - beezle 2y ago
    Once the amounts get lumpy there needs to be complete assessment of counterparty risk (you). IB can't assume that you are only borrowing from them and that the collateral in your account won't first be liened by another party, etc.

petermcneeley 2y ago

If I have 1 million in some stock can I go get a 1 million loan from the bank with this as collateral? If so can I reinvest this million in the same stock again and then goto the bank again etc?

basementcat 2y ago
There is usually a margin requirement (25 to 75% depending on type of equity). And yes, you can.
blasphemers 2y ago
No. You are not allowed to use these loans for investments, you would need a different type of loan for margin trading.
kelnos 2y ago
Usually they will not give you the full value. Depending on how "safe" they deem the security, they might only allow you to borrow 50%-70% against it. And most (probably all) of these forbid you from using the loan proceeds to buy more securities.

dang 2y ago

Ok, we've replacing accessing billions by borrowing against stock in the title above. Thanks!

yieldcrv 2y ago

Your broker isn't letting you withdraw margin lending. You cant use it for consumptive purchases. But its true, you can find a real lender for your stocks. You dont have to be rich. Its not controversial, you have to pay it back. There are other quirks the rich have: Already post-tax assets to pay something off They are in control of the stock, they can issue more new shares for themselves or cause the corporation to do a stock buyback to pump their holdings more if market conditions are favorable. Borrow more against the increased value or just sell something and pay the taxes that year. Purchases of primary issuances are taxed differently than secondary market purchases. But who cares when you can be a neocolonialist for a year in Puerto Rico too, 0% capital gain for new positions and prorated against old ones

JumpCrisscross 2y ago
> broker isn't letting you withdraw margin lending. You cant use it for consumptive purchases. There is no rule prohibiting the withdrawal of margin cash. Or, for that matter, short selling and withdrawing that cash. As long as you're Reg T compliant, the Feds don't care. (If you're a family office, even better--you might get to be treated as an institution.)
- yieldcrv 2y ago
  right, it just hampers the broker’s collection efforts and economic viability if things leave their walled garden good to know there is no statutory road block

creer 2y ago

Your brokerage will likely lend you money but you will be disappointed by the rate. It is not "very low". Not even "low". At least not where we are now in the interest rates cycle.

christophilus 2y ago
Interactive Brokers is 6%. Not low, but not bad.
- creer 2y ago
  5.8 - 5.6% above 100k now indeed, and that's for margin (which you can live on OR re-invest)! Not low but improving yes! Roughly in line with a 15 yr fixed rate mortgage but not tax deductible at least if you live on it. Might be tax deductible if you re-invest.

Apreche 2y ago

There is another difference that is related to risk. Larger loans allow access to lower risk opportunities. If I had many millions in stocks, and I was greedy for more, I would borrow against it to develop residential real estate in a high rent neighborhood. Yes, there's some risk, but it's as close as you can get to buying a money fountain. I'd be very confident that the rents from the building would pay back the money I borrowed and then some. Even if I borrow against all my holdings, I can't afford to make that kind of investment. The only options I have are much higher risk. And as you said, I won't survive a failure. Therefore, while the bank would let me do it, I would be very foolish to try.

dullcrisp 2y ago
Wanna go halfsies on some residential real estate in a high rent neighborhood?
- throwaway2037 2y ago
  Everything that I read about real estate investing says you should aim for middle class housing, as the return-on-investment from rental cashflow is (normally) higher that more expensive housing. To be clear: My statement is only looking at rental cashflow, not capital appreciation. To me, there are both important, but separate concerns.
- Apreche 2y ago
  Sure, but we'll have to go thousandsies, or at least hundredsies.
tightbookkeeper 2y ago
Rich people having more options, and being more insulated from risk, is not news.
- Apreche 2y ago
  It's not news to the world, but it's news to many.

jjav 2y ago

> your brokerage will lend you money at a very low rate, secured by the equity I have not found one that will offer a very low rate, have you? For example here are Schwab's rates for a loan against equity: https://www.schwab.com/pledged-asset-line/rates https://www.schwab.com/pledged-asset-line/rates For 500K-1M rate is SOFR + 3.4%, so about 8.2% For multimillionaires it gets better at SOFT + 2.4%, or about 7.2% Not bad in this market but not one I'd call "very low" Possibly there's an unpublished rate for billionaires, there usually is.

nicolas_t 2y ago
My bank in Hong Kong (where I live) lends in USD against bonds or stock at around SOFR. If they lend in JPY it's around 0.8%
ywvcbk 2y ago
Switch to a different broker? e.g. it’s just +0.5% https://www.interactivebrokers.com/en/trading/margin-rates.php https://www.interactivebrokers.com/en/trading/margin-rates.p...
- jjav 2y ago
  The linked page is margin, not equity backed loans.
  - ywvcbk 2y ago
    Is there a difference?
    - Kon-Peki 2y ago
      Yes. In a margin loan, the "things of value" never leave the institution handing out the loan. The borrower buys stock, for example. And the institution giving out the loan has the right to sell whatever you bought to prevent losses on the loan, without your permission if certain conditions are triggered. In a loan backed by collateral, all the money can leave into some external account controlled by the borrower. To get some or all of it back requires an expensive and lengthy process that doesn't guarantee success.

theshrike79 2y ago

You can also buy art. 1) buy a painting for X 2) have it evaluated, sometimes the price is higher than X 3) put it in storage or a tax loophole between countries 4) use said painting as collateral for low interest loans Now you have money to invest, as long as you make more than the low interest loan, you're making profit.

Shaanie 2y ago
But then you have X money tied up in some presumably illiquid art with questionable value. Seems better to just invest the X money from the start.
- ThinkBeat 2y ago
  but then you do not get the tax benefits discussed above. The market for "investment art" I huge and everyone involved has an upside by art appreciating in value. > The artist may get more money (since the artist only gets paid in the initial transaction the artist may only get a fraction of the value as it increases. The artist may find that later work will become more valuable as other investors want more of his art. >The gallery gets more money, and it may attract more art investors > and the auction house gets more money if it ends up there. How much art is worth is difficult to estimate on its own. I mean a white canvas painted uniformly white is worh a lot of money if a famous artist does it. It is worth entirely nothing if I do it. I expect then that the market decides the value. All investors want art to get more valuable and are in on it. As an art lover, this is such a tragic scheme. Unknown amount of art that will never been seen by the public. Locked up inside a storage facility in a big box Often the investor has no interest in the art at all, just an investment made by some form of a broker.
- theshrike79 2y ago
  Art is like Schrödinger's cat, its value is only determined when it changes owner. If someone pays 1M€ for a piece of art, it is "valued at $1M" and you can use it for collateral for a loan at some percentage of its valuation. Will it actually be 1M€ if it needs to be liquidated? Nobody knows. It can be worthless or it can be worth 10M€ - it all depends on what the next person is willing to pay for it. But until that point it's "worth" 1M€. --- This is why there are so many empty (commercial) properties, they were valued at a specific €/m2 price and were used to take loans based on that value. Until they're rented/leased again, that is their worth and value. Could the owner get someone in the property by lowering the price? Definitely. Would that also cause a rolling cascade of loans not having enough collateral to back them up? Yup.

tomatocracy 2y ago

For very large stakes, the terms tend to be much more bespoke though - an automatic sale of collateral amounting to a large % stake is probably not in either borrower or lender's interest.

chx 2y ago

It's not at all simple what they do. https://reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/buy_borrow_die_explained/ https://reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/... Important quote: > this type of planning is generally not economically feasible unless the taxpayer has a net worth exceeding around $300M.

creer 2y ago
To be fair, there are very accessible options like margin loan or pledged assets which you can also keep going indefinitely - possibly all the way into estate tax which - as a "little guy" - you wouldn't owe. They are higher interest rates (to the point of not being all that interesting - depending on what you want to do.) And they don't have the same features. But if you are high assets and low income, they might still allow you to buy a house with a loan - if it's what you want.

traceroute66 2y ago

> The framing is deceptive. Indeed the framing is very deceptive. Yes, it helps to have a relationship with a private bank. But as pointed out, some brokerages will let you do it too if you are too poor to be allowed to enter through the door of a private bank. BUT The main thing that is skirted around in the article is that it still needs to go through the financial institution's credit committee. So, for example, you cannot just rock-up with a million in Tesla shares and expect a loan against them, or at least not at a sensible LTV ratio. The financial institution will want a boring portfolio with government bonds and low-risk corporate shares. Any bank that would be willing to lend against a high-risk portfolio is probably not the sort of bank you want to do business with anyway.

SomeHacker44 2y ago

This is not true: "very low rate." My brokerage starts at 12+% which I would not call low. It never even reaches prime at millions of borrowing, and I do not have remotely enough to get much better a rate.

kman82 2y ago
Wrong brokerage. Interactive Brokers lends at 5% on large amounts and around 6% on small amounts.
htrp 2y ago
you need to look at the Lombard landing products offered by banks, not margin loans on brokerage or personal loans
- mixmastamyk 2y ago
  Interesting... https://en.wikipedia.org/wiki/Lombard_banking https://en.wikipedia.org/wiki/Lombard_banking
dranudin 2y ago
You can also lend money from the options market with a box spread for around 4-5%. See e.g. boxtrades.com
- red-iron-pine 2y ago
  options are a whole different box of worms, and playing that game has a lot more risk. "but uh its a box trade it can't go wrong because bla bla bla bla" -- then things proceed to go wrong

mason_mpls 2y ago

Even if there’s risk, this is still clearly realizing market gains