376: Margin Loans: Low-Interest Lending or Risky Rates?
BiggerPockets Money Podcast
BiggerPockets
4.6 • 2.9K Ratings
🗓️ 20 January 2023
⏱️ 42 minutes
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Summary
Margin loans could be the sneakiest way to snag a low-interest rate loan in today’s Fed-influenced environment. What most investors don’t know is that you can use your stock portfolio as collateral to get massively discounted lending, but it comes with considerable risk. Carl and Mindy Jensen used this type of lending to buy their most recent real estate purchase, a medium-term rental renovation project in the same neighborhood as their primary residence.
At the time, Carl could get an interest rate so attractive that it was almost impossible to pass up. We’re talking about mortgage-sized loans with less than 2% interest! This seemed like a steal at the time, but as the market started to tank and big tech stocks like Tesla took a tumble, Carl and Mindy’s margin loan began getting hit. They faced a tough decision: either get liquidated and lose much of their stock portfolio or come up with the difference themselves.
In this episode, you’ll hear exactly how Carl and Mindy grew their stock portfolio to multiple millions in worth, the mistakes they made along the way, why they took out a margin loan, and whether or not they’d do it again. If you’ve got a sizable stock portfolio but don’t know how to get funding for your real estate deal, stick around! Margin loans could be an option for you, but you’ll need to know how to work them first.
In This Episode We Cover
Margin loans explained and the risk that comes with a low-interest rate loan
Investing in tech stocks and whether or not they’re worth it now that stock valuations are down
Index fund investing and why single stock-picking may be riskier than you think
What getting a “margin call” means, and what to do when your stock values drop
HELOCs (home equity lines of credit) and using them as a safety net for paying off debt
Carl and Mindy’s new medium-term rental and whether the headache was worth the new house
And So Much More!
Links from the Show
Find an Investor-Friendly Real Estate Agent
BiggerPockets Money Facebook Group
Finance Review Guest Onboarding
Carl's Email
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Subscribe to The “On The Market” YouTube Channel
Listen to The “On The Market” Podcast: Spotify, Apple Podcasts, BiggerPockets
Check Out Mindy’s 2022 Live Spending Tracker and Budget
Finance Friday: My Home Renovation Put Me in a HELOC Hole
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Transcript
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| 0:00.0 | Welcome to the Bigger Pagans Money Podcast where Scott interviews Carlin me about our most recent real estate investment |
| 0:07.3 | Purchased with creative financing in a changing real estate market within a rapidly rising interest rate environment. It'll be fun |
| 0:15.4 | Spoiler it will not be fun. I think what I'm hearing you guys say is look |
| 0:20.0 | We made a set of rationalized decisions that to us seem very reasonable and we borrowed |
| 0:25.3 | Against the cheapest source of capital which was this one one and a half quarter ridiculously low interest rate margin loan and |
| 0:34.1 | That that didn't work out in 2022 and you know when we talk about thinking in bets |
| 0:39.6 | This is a bad outcome good decision and this is something that you would do again and that if you did it if you do it over |
| 0:45.1 | Of course, it's 10 years 9 out of 10 years |
| 0:46.6 | This is probably going to work out as the cheapest source of capital to use the finance |
| 0:50.4 | Arunzel property in your situation and therefore it makes a lot of sense |
| 0:54.6 | Hello, hello, hello. My name is Mindy Jensen and with me as always is my steady hand co-host Scott trench |
| 1:00.6 | Thanks Mindy today. We're shaking it up as you said and having |
| 1:04.4 | If I didn't car all the podcasts, so thank you guys for coming on. Yes, Scott. It's good to see you again |
| 1:09.1 | It's been a long time. I understand your family size is increased by 50% since last time we talked congratulations on that |
| 1:15.2 | We jump into the money nerd numbers already |
| 1:17.4 | By one human we consider a cat part of the family. So it's probably just a third |
| 1:23.5 | but closer |
| 1:26.6 | What's that noise cats make when they're angry? That's pretty good |
| 1:30.3 | Scott and I are here to make financial independence less scary less just for somebody else to introduce you to every money story |
| 1:36.7 | Because we truly believe financial freedom is attainable for everyone no matter when or where you're starting |
| 1:41.4 | That's right whether you want to retire early and travel the world going to make big-time investments in assets like real estate |
| 1:45.9 | Start your own business or deal with the ramifications of good problems like getting a hundred X returns on tech stocks and |
... |
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