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Home Equity Loan to Buy Stock

Discussion in 'Other Off Topic Forum' started by Jerrari, Jan 18, 2004.

  1. Jerrari

    Jerrari F1 Veteran

    Jul 24, 2001
    5,458
    Michigan
    Full Name:
    Jerry Wiersma
    Anyone done this, particularly w/ a stock that you are "sure" is going to go up 15-20% in the next 18 months? I have always subscribed to the view that stocks should only be purchased w/ cash (i.e. in your savings/chk acct.) but have some friends who recently did the HEL. Just wondering some of your views. Jerry.
     
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  3. amenasce

    amenasce Two Time F1 World Champ
    Silver Subscribed

    Oct 17, 2001
    28,385
    Paris / Chicago
    Full Name:
    Andrew Menasce
    I was always told that you only play on the stockmarket with spare money...

    The question is ..how sure are you that this particular stock will +15% ...

    Good luck :)
     
  4. darth550

    darth550 Five Time F1 World Champ
    Lifetime Rossa

    Jul 14, 2003
    58,589
    In front of you
    Full Name:
    BCHC
    I only gamble with money I am willing to lose. In the stock market, "Sure" things are only those that you control!!!!!!! You have to answer your own question.

    DL
     
  5. 4sfed4

    4sfed4 Karting

    Dec 22, 2003
    231
    I have known people who have done this and swear by it.

    Their theory is based on their confidence that they can easily outearn the cost of borrowing the money.

    For instance, I have a HELOC on my house that I took out since the bank was offering them for free (and Id get a free appraisal out of the deal :D ). So, I said what the heck, even though I really didnt have a need for it (i.e. no large projects around the house upcoming like an addition, pool, etc, etc that HELOCs are sometimes used for.) The interest rate is variable, but currently sits at 4.00% if I recall. So, if I am confident (as some people are) that I can borrow that $$ at 4.00% and reinvest into something I know will make a substantially higher return than 4.00%, you can certainly make $$$ with someones elses $$. And, the paltry interest you pay on the HELOC is tax deductible, so your effecctive interest rate is something less than 3%.

    So, if one is confident in an investment and has some guts, I can see how its a viable strategy. I however tend to be like some of the other posters in that I aint got the guts to gamble the equity in the house!
     
  6. SrfCity

    SrfCity F1 Veteran

    Nov 1, 2003
    9,842
    Orange County, CA
    Don't bother. Put the $$ into something you can see, touch and feel(and control) like realestate ;)
     
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  8. 4sfed4

    4sfed4 Karting

    Dec 22, 2003
    231
    SrfCity-

    Ive been thinking about starting up and doing something like that.

    Any ideas on where I can get the basics?
     
  9. SrfCity

    SrfCity F1 Veteran

    Nov 1, 2003
    9,842
    Orange County, CA
    Yea, figure out how to buy property at wholesale to flip. Check out foreclosureforum.com, foreclosures.com,
    creonline.com.......everything you would ever want to know is there. Hope this helps!
     
  10. BWS550

    BWS550 Wants to be a mod

    Apr 1, 2002
    8,933
    NEW JERSEY
    Full Name:
    BRUCE WELLINGTON
    JERRY

    MY EXPERIENCE...........COMMERICAL REAL ESTATE IS THE ONLY WAY TO GO................

    B
     
  11. NY Joe 360

    NY Joe 360 Karting

    Nov 2, 2003
    197
    New York
    Full Name:
    Joe
    Nothing is ever "sure." The CEO could get hit by a falling meteor and die tomorrow. There could be another terrible terrorist attack in America. Anything can happen. Usually it's the thing noone expects.

    Anyway, lets say your home equity loan is 6%. Inflation is probably going to be about 3%. It might be higher if deficit spending isn't reduced.

    So your investment must do atleast 9% after taxes to break even, without figuring in taxes. Counting taxes, 10 to 11% you must do to *break even*. Of course this is all assuming your speculation is correct. Is this something worth betting your house on?

    Invest with extra money you have no real need for in the present, and don't forsee needing for 5+ years. Otherwise you might as well goto Vegas.
     
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  13. SMC

    SMC Rookie

    Nov 16, 2003
    48
    TORK

    My opinion......BAD, VERY BAD IDEA!!!!!!

    Kinda like buying that perfect, one owner, like new, high mileage 308 that has been completely sorted out with engine rebuild, tranny rebuild and more for a fantastic price, only thing is there are no records or reciepts. Owner says, "Trust me, it's a 'sure thing' the works been done, I just can't prove it to you".

    If you still bought the car cause you're a gambling man and just couldn't resist the temptation for a possible good thing, the do the HEL and buy some stocks.

    And BTW - good luck sleeping at night.
     
  14. Jerrari

    Jerrari F1 Veteran

    Jul 24, 2001
    5,458
    Michigan
    Full Name:
    Jerry Wiersma
    My use of the word "sure" was kind of tongue-in-cheek, that's why I put it in parenthesis. I meant that a guy was as sure as he could be without a crystal ball. I agree that it is not a good idea & have no intentions on doing this, I just wondered how popular this practice was.
     
  15. Agent Smith

    Agent Smith Formula 3

    Apr 20, 2002
    1,481
    I work for a bank and have seen people buy stocks with HELOCs. It's certainly not something I've ever recommended to my clients. OTOH, I've seen people take HELOC's to start a business or buy real estate. That's a smarter idea if you want to put the money to work.
     
  16. Dom

    Dom F1 Veteran
    Rossa Subscribed Owner

    Nov 5, 2002
    7,819
    Southern California
    Full Name:
    Dom V.
    I've done this.

    I have a HELOC at 4.9%. I bought shares of a REIT (HR) that has pretty consistently been paying me dividends of 7-8%. Also bought shares of a mutual fund that I've had good luck with (Vanguard Primecap).

    I don't know much about real estate, and don't have the time to deal with tenants, etc. I work full time, and most of my spare time is spent with the kids.

    Using the HELOC is one way for me to leverage my money. Yes, it is very risky. But, if you understand the risks, then why not? I've owned both the REIT and the Vanguard fund for several years, and am familar with how both work, and, I've gotten good results with them. I wanted to put more money into them, and using a HELOC was a good way for me to leverage my money (IMO).

    Before doing this, my wife and I agreed on some limits. If the value of the funds go below a certain level (15%) we will sell, and take the loss. We both feel that we can risk a 15% loss of the money (i.e., have to pay it off). Also, these are long term investments for me, I don't plan to sell for at least 5 years.

    I'd love to buy and flip properties, but housing in SoCal has gotten out of hand.

    Dom
     
  17. Dom

    Dom F1 Veteran
    Rossa Subscribed Owner

    Nov 5, 2002
    7,819
    Southern California
    Full Name:
    Dom V.
    Thanks for the links.

    Dom
     
  18. Dom

    Dom F1 Veteran
    Rossa Subscribed Owner

    Nov 5, 2002
    7,819
    Southern California
    Full Name:
    Dom V.
    Questions: Since most people here are advocating real estate

    What do you think about Real Estate Investment Clubs/groups- Is it a good way to get info/network. Or a waste of time.

    Dom
     

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