Talk some sense into me? (or not!)

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jackal981
Posts: 28
Joined: Fri Jan 21, 2011 9:06 pm

Talk some sense into me? (or not!)

Post by jackal981 »

Background: Age= 40/35. Decent income (high 6 figure, stable,) good net worth, no debt, live below our means by a significant margin, 90% bogleheads (firmly believe in factor investing). We have investments outside of what I am discussing here which should meet my long term needs if I choose to retire.
I am figuring out a good way to work on 2 major decisions in the near future:
1. Buy a house if the prices return to earth or else rent for a while and retire in a few years from primary job.
2. Currently own two businesses: One of them likely to grow in the next 5 years, both funded heavily with sweat equity (One is profitable but won't be growing in the foreseeable future, the other one which hopefully would scale has just been started and is the one this question pertains to.)

Planning to use Interactive Brokers.

Consideration 1: Pertains to home purchase
1. Invest an amount 2-3x the planned downpayment of the house to IB in either vanguard total US-VTI/International-VXUS (60/40) or the new DFA ETFs (Core US/Core Ex US) that would launch mid June.
2. If we want to buy a house, we would borrow the downpayment on margin, secure a mortgage and pay off the margin ASAP with real time cash flows. Pros and Cons I thought of:
A. Good if stocks go up more than real estate, bad if margin rates skyrocket or home prices shoot up more but the dangers are sunk costs anyways (since parking money in a CD won't do any good and if margin rates go up, mortgage rates are also likely to go up). So to me, the main danger is if stocks collapse but real estate goes up and I was thinking this risk is acceptable given my circumstances.
B. Unlikely I would be able to deduct the interest expenses from my taxes: But the margin rates at IB without tax benefits seem to be less than the regular mortgage rates after tax benefits especially given the current standard deduction.
Any thing else I should consider?

Consideration 2: For the 2nd business, I would open a business account at IB.
A. I would fund it with 2-3x foreseeable annual expenses and have it invested in a broad market portfolio as above. The business is an LLC, taxed as a sole-proprietor for now. I would match gross proceeds to expenses to the extent possible and if I need a margin, I would use the IB business account. The goal again would be to pay off the loan asap. My understanding is that the interest paid here is tax deductible as a business expense, and that any money I make is taxed based on how the investments would be taxed had I held it in a personal account: Is this accurate?
B. Major con: Debt is bad (but most entrepreneurs agree selective use of debt is a good idea). The second con is potential excess liability to business assets but not sure if I can do this any other way that was ensure the opportunity cost is not > the benefit.


Do you see anything else that could be better optimized? I deploy heavy tilting on external accounts- I do believe in factor investing but would it make sense to diversify across firms (use vanguard/ Avantis just because they are not DFA?) just in case.

Thank you for reviewing my questions.
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