Can I profit with an 8% cost of funds?

[Snidely Whiplash]

A family member has made available several million dollars at an 8% cost (interest only) over a very long term (years). I'm wondering if there might be a relatively easy / minimal risk way for me to profit with access to money with those terms. And I thought if anyone might have any ideas, this would be the place.

 

[Fermion]

Will there be problems if you don't pay it back? I can't see any low risk way to earn more than 8%....heck I can't see any medium risk way to earn that much.

 

[Senator]

Yes. take as much as you can, and go to Las Vegas. The Roulette wheel will give you a 1-1 return if you bet black, or red. Hopefully you can avoid the '0' and '00' that are green.

Once you win a few times, you can pay back the debt. It's really that easy.

 

[REWahoo]

Anything I can think of is either high risk, illegal or both.

 

[zinger1457]

Sounds like the family member could use the help of a good financial adviser. Handing over large sums of money to other family members to invest for them is a recipe for disaster in so many ways.

 

[marko]

Not sure I understand your question.

Are you saying that they will lend you several MM at 8%? If so, that sounds like a deal for them. For you...not so much.

 

[Totoro]

Are we talking USD 8%?

If principal needs to be returned and it needs to be legal, no. If either of those criteria can be relaxed, sure.

Plenty of ways.

 

[Fermion]

If you had access to $500m then I could make a pretty guaranteed greater than 8% return but it won't work with less. A mining company where I have purchased some junk bonds (12.5% coupon) has the bonds trading at 44% of par (so essentially they are paying 28% or so).

The company is struggling, like all mining companies are (they mine copper and gold) however they do make just enough to cover the interest payment, taxes, and other expenses. They have about $200m cash on hand, and $900m in bonds, with the common stock worth $100m. They have revenue from the copper and gold of around $380m a year with a operations cost of $270m a year.

Ok, so the plan is to slowly buy up the bonds at 40% to 50% of par with a good portion of the $500m while setting up a few entities to also buy up the common stock. When you own 25% or so of the common stock and 80% of the bonds, announce a plan to refinance the bonds at 8%. You will have turned the $500m into about a billion.

 

[calmloki]

In thirty odd years of buying and running rentals I think the only time we borrowed for less than 9% to buy property was when we financed our home to get a better rate than "commercial". Don't know that it would scale well - we were very hungry and willing to do a lot of work to make the borrowed money pay off. Investing millions in one fell swoop and hoping to do little work? Probably pretty tough, but I'd be doing hard money loans like mad and banking the 2-4% difference.

 

[growing_older]

So you are providing the "risk free" return of 8% for a long term loan. No thanks.