Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Almost free cash
Old 07-28-2021, 02:55 PM   #1
Dryer sheet wannabe
 
Join Date: Jan 2011
Posts: 18
Almost free cash

It is still possible to open an equity line of credit at 2.75% (eg. Citizen's Bank with .5% discount). I am thinking about opening a line of credit for anywhere between 100K and 250K and then investing that money in a basket of some fairly aggressive dividend ETFs (eg. PGX, SPYD, QYLD, et al) that pay monthly.

Assuming, I borrow 250K against my house, the monthly payout on this equity line would be $572.92. The monthly dividend would be approximately $1040. The monthly payments would be automated, so everything would require very little maintenance.

The equity line has a floating interest rate and a fairly high cap, but would plan to pay off the equity line if the interest rate hits 4.5%. Other than the obvious risks on investing the money in dividend ETFs, this seems like a win win situation. What am I missing ?

Thanks for your input.
Bossman is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-28-2021, 03:02 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 12,098
They could call your HELOC at any time. How are you going to pay off say a 50% call ?

Of course they would call when things are really bad, like the market tanks 40% and they make the call the next day.

Other than those bad things, it's an aggressive play. I did it during one of the recessions to smaller amount, sold it all off a few years later for 50% net gain in my money.
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is online now   Reply With Quote
Old 07-28-2021, 03:06 PM   #3
Dryer sheet wannabe
 
Join Date: Jan 2011
Posts: 18
I was not aware that a HELOC can be "called" as it has a 15 year payback period. But, I will pose the question as that would definitely increase the risk associated with this play.

Thanks!
Bossman is offline   Reply With Quote
Old 07-28-2021, 03:09 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2013
Posts: 5,546
I think it would be safer if you took your home's equity and "invest" in crypto currency...that is where the REAL returns are!
__________________
FIRE'd in 2014 @ 40 Years Old
ExFlyBoy5 is offline   Reply With Quote
Old 07-28-2021, 03:17 PM   #5
Full time employment: Posting here.
 
Join Date: May 2008
Location: Austin
Posts: 652
It is basically a common type of investing with leverage, generally with a variable interest rate, the interest rate can almost certainly be expected to go up based on current rates. It requires having an extremely high risk tolerance, and decent timing at least (such as right after a bear rather than a long bull market).

Not something I'd recommend for anyone right now, even with a very high risk tolerance. I most certainly wouldn't characterize it as free, it is just leveraged investing, you can end up like Buffett (uses his companies as leverage), or you can end up like Lehman (which funnily enough used the same type of leverage, just other's mortgages along with a mix of their own, all with bad timing). Of course, you won't go bankrupt due to the much stricter individual lending standards, unlike those on Wall Street, but you can certainly lose an arm and leg.
plex is offline   Reply With Quote
Old 07-28-2021, 03:27 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 12,098
Just to be clear to OP, I did it after a big bear when stocks were cheap, so I guessed they had to go up instead of down.
Still was a gamble.
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is online now   Reply With Quote
Old 07-28-2021, 03:48 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 7,111
Do you have somewhere to live if the day comes where you can't pay off the HELOC? Do you have enough liquid assets to pay off the likely deficiency judgment? Have you explained this idea of yours to your spouse, including the risks, and gotten approval to proceed?
__________________
Ignoramus et ignorabimus
OldShooter is offline   Reply With Quote
Old 07-28-2021, 03:56 PM   #8
Thinks s/he gets paid by the post
corn18's Avatar
 
Join Date: Aug 2015
Posts: 1,312
I don't think I would ever take a HELOC to invest. But I did take the cash from the sale of our last home and invested it in our 60/40 portfolio instead of paying cash for the next house. Got a 30 year 2.75% fixed rate mortgage that I just refi'd to 2.25% 30 year fixed rate @ zero cost. Technically similar. Emotionally different. That move has netted me $102k in paper gains. Yeah me.
__________________
Don't do something, just stand there!
corn18 is offline   Reply With Quote
Old 07-28-2021, 04:06 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Location: St. Charles
Posts: 2,960
Quote:
Originally Posted by corn18 View Post
I don't think I would ever take a HELOC to invest. But I did take the cash from the sale of our last home and invested it in our 60/40 portfolio instead of paying cash for the next house. Got a 30 year 2.75% fixed rate mortgage that I just refi'd to 2.25% 30 year fixed rate @ zero cost. Technically similar Identical. Emotionally different. That move has netted me $102k in paper gains. Yeah me.
FIFY.

There is no difference what so ever in taking a mortgage on a new house, that could paid with proceeds from the last, and taking a second, or HELOC on the original house.

Now, if it was a downsize, sure invest the left overs. If it is bigger house, sure, take a mortgage.

I am making no judgement on what you did, but there is no difference between taking a mortgage on the existing house to invest, and taking a mortgage on the new house so you can invest.
__________________
If your not living on the edge, you're taking up too much space.
Never slow down, never grow old!
CardsFan is offline   Reply With Quote
Old 07-28-2021, 04:23 PM   #10
Thinks s/he gets paid by the post
corn18's Avatar
 
Join Date: Aug 2015
Posts: 1,312
Quote:
Originally Posted by CardsFan View Post
FIFY.

There is no difference what so ever in taking a mortgage on a new house, that could paid with proceeds from the last, and taking a second, or HELOC on the original house.

Now, if it was a downsize, sure invest the left overs. If it is bigger house, sure, take a mortgage.

I am making no judgement on what you did, but there is no difference between taking a mortgage on the existing house to invest, and taking a mortgage on the new house so you can invest.
Agreed, except most HELOCs are variable rate. Inflation will kill ya. I'm betting inflation will be at or above 2.25% average over the next 30 years. In fact, the 10 year break even rate is 2.41%, so I am making money as we speak. Deflation is a risk, though. But I can refi again to mitigate that.
__________________
Don't do something, just stand there!
corn18 is offline   Reply With Quote
Old 07-28-2021, 05:45 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2013
Posts: 5,546
Quote:
Originally Posted by CardsFan View Post
There is no difference what so ever in taking a mortgage on a new house, that could paid with proceeds from the last, and taking a second, or HELOC on the original house.
Not entirely true. As mentioned, a HELOC can be closed/called at any time and that has happened in recent history. That doesn't really happen with a primary mortgage.
__________________
FIRE'd in 2014 @ 40 Years Old
ExFlyBoy5 is offline   Reply With Quote
Old 07-28-2021, 05:53 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Location: St. Charles
Posts: 2,960
Quote:
Originally Posted by ExFlyBoy5 View Post
Not entirely true. As mentioned, a HELOC can be closed/called at any time and that has happened in recent history. That doesn't really happen with a primary mortgage.
Fair enough. I have never had a HELOC so know little about them. So, everything I said applies if I call it a re-mortgage to a new rate with a cash out, right?
__________________
If your not living on the edge, you're taking up too much space.
Never slow down, never grow old!
CardsFan is offline   Reply With Quote
Old 07-28-2021, 06:32 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 5,721
Quote:
Originally Posted by Bossman View Post
It is still possible to open an equity line of credit at 2.75% (eg. Citizen's Bank with .5% discount). I am thinking about opening a line of credit for anywhere between 100K and 250K and then investing that money in a basket of some fairly aggressive dividend ETFs (eg. PGX, SPYD, QYLD, et al) that pay monthly.

Assuming, I borrow 250K against my house, the monthly payout on this equity line would be $572.92. The monthly dividend would be approximately $1040. The monthly payments would be automated, so everything would require very little maintenance.

The equity line has a floating interest rate and a fairly high cap, but would plan to pay off the equity line if the interest rate hits 4.5%. Other than the obvious risks on investing the money in dividend ETFs, this seems like a win win situation. What am I missing ?

Thanks for your input.
You're missing two things.

The first is risk, which others have mentioned.

The second is taxes, which I don't think have been mentioned yet. You'll have federal and possibly state income taxes on the dividends as you go along, and you'll also (hopefully) have capital gains taxes when you go to sell the investments.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
Old 07-29-2021, 06:49 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Jul 2013
Posts: 1,223
Quote:
Originally Posted by plex View Post
Not something I'd recommend for anyone right now, even with a very high risk tolerance.
+100
mrfeh is offline   Reply With Quote
Old 07-29-2021, 07:03 AM   #15
Thinks s/he gets paid by the post
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 3,544
I have considered doing this before, but did not feel you could invest to beat the cost by a large enough margin to justify the risk. If you invest very conservatively you can't lose much or make much. And rate rise kills you.

I would not find the risk/reward compelling.
Montecfo is offline   Reply With Quote
Old 07-29-2021, 07:54 AM   #16
Full time employment: Posting here.
 
Join Date: Oct 2013
Posts: 527
You don't have any cash available to do this instead of paying interest on a HELOC?
freedomatlast is offline   Reply With Quote
Old 07-29-2021, 08:06 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 7,111
William Bernstein on the subject of retirement saving: “Make no mistake about it: The object of this particular game is not to get rich – It’s to not get poor.”
__________________
Ignoramus et ignorabimus
OldShooter is offline   Reply With Quote
Old 07-29-2021, 08:08 AM   #18
Full time employment: Posting here.
 
Join Date: Aug 2012
Posts: 953
Quote:
Originally Posted by OldShooter View Post
William Bernstein on the subject of retirement saving: “Make no mistake about it: The object of this particular game is not to get rich – It’s to not get poor.”
+1
finnski1 is offline   Reply With Quote
Old 07-29-2021, 08:26 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2013
Posts: 5,546
Quote:
Originally Posted by CardsFan View Post
Fair enough. I have never had a HELOC so know little about them. So, everything I said applies if I call it a re-mortgage to a new rate with a cash out, right?
Sho nuff!
__________________
FIRE'd in 2014 @ 40 Years Old
ExFlyBoy5 is offline   Reply With Quote
Old 07-29-2021, 08:50 AM   #20
Thinks s/he gets paid by the post
 
Join Date: Jul 2007
Location: St. Louis
Posts: 1,415
To risky for me.
FANOFJESUS is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Debt-free (almost), no kids, wife is 54, I'm 52 SAinMinn Hi, I am... 17 09-15-2019 11:33 PM
RV Rentals , One Way , Almost Free Lakewood90712 Travel Information 9 11-07-2018 12:10 PM
Almost famous for almost a day Marquette Other topics 1 06-17-2008 09:08 PM
Almost free tax software, etc. cute fuzzy bunny Other topics 3 01-11-2005 09:07 AM

» Quick Links

 
All times are GMT -6. The time now is 10:47 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.