helloeveryone wrote: ↑Tue Jun 15, 2021 9:47 pm
sureshoe wrote: ↑Mon Jun 14, 2021 12:48 pm
fatcoffeedrinker wrote: ↑Mon Jun 14, 2021 12:41 pm
jhsu802701 wrote: ↑Mon Jun 14, 2021 12:25 pm
If you have to get a home equity loan to buy a used Porsche, that means you cannot afford one.
This is a common rerfrain from earlier posts as well. The way I read the OP, he doesn't "need" a loan, but there may be tax advantages to borrowing versus selling appreciated assets. Some BHers keep a lot of cash around. I am not one of them (and seems like OP is similar). I literally invest every dollar, and all of my bonds are in tax-deferred, so if I have to sell taxable assets, there will probably be some capital gains hit. If I wanted to buy an expensive car (or expensive anything), I would have to make the same choice. Getting a loan would not be out of "need." It is just spending the funds in the most economically advantageous manner.
For what it's worth, I needed ~$100k cash in a short pinch and triggered a capital gains event. It simply didn't occur to me to withdraw on margin, which I already had lined up. Ended up paying an extra $5-8k in tax, can't remember... just know I was annoyed at my shortsightedness. So while it's fun to mock and judge people, I assume they have some level of intelligence.
This is Boglehead, not DaveRamseyHead.
What does withdraw on margin mean? (is that same as getting HELOC as OP describes?)
No, this is quite different than a HELOC.
I have a couple hundred thousand in a brokerage account, most of which has ran up substantially. I was buying a house, and because I was closing on the new property before my old property was going to close, I needed $100k cash (or so). But, I didn't have anything liquid - so what's a boy to do?
Stupidly, I sold $100k of stock. This triggered capital gains taxes. At the same time, the market continued to run up, so I missed out on a few percent point gains. Furthermore, I dragged out reinvestment a couple more months just because I didn't want to drop $100k in at once, so I did $25k/month over 4 months... and the market kept climbing. All-in-all, just a bad decision made in haste.
What I SHOULD have done, and just didn't consider, was withdraw $100k cash from my brokerage account. This would have effectively caused my brokerage to lend me the money on MARGIN. So to simplify, let's say I have $250k in VT ETF and no cash right now. I have no margin. What would happen is I would have still had $250k in VT, but a -$100k cash balance that the brokerage loaned me at 5% interest (or whatever their margin rate is). Then, 1-2 months later when my house clears/etc, I re-deposit the money back into my brokerage and the cash balance goes back to $0. I pay interest on whatever time period I had the negative balance. The big advantage, particularly for a bridge type loan, is that it doesn't trigger any sort of capital gains event.
The danger is, of course, the market takes a dive and I have the dreaded "margin call" where I have to come up with the money to meet margin requirements or they start selling VT to make up the minimum requirements.
Compare this to a HELOC (which I'm literally getting ready to open), and I'm opening a credit line against my house, qualifying for credit, etc. The collateral is my home. Foreclosing on the house if I don't pay is a lot tougher. Which is why getting a HELOC is more complex than getting margin. Both have their purpose.