hi all,
I'm looking to borrow $200k or $300k against my property, to invest either directly in shares, or in an ETF.
What's the best way to go about this?
a) which bank would offer a competitively priced loan?
b) should I contact any financial advisors / accountants about setting up the appropriate structure?
thanks
*rolls dice….
Today is not the day to invest…continue eating soba slurp slurp*
Do not do this. It is not a matter of putting your money into shares and hoping for the best. Even proper stock traders are not able to guarantee you a return.
No bank in their right mind would give you a new loan against your house when you put your purpose as borrowing against shares.
Your interest rate is 4%?
Average returns on super and funds is 0-4-9%
Do you really think it is worth the risk?
This is not financial advice. You should consult a reputable financial advisor - but they are so busy now calming their clients and writing cheques for withdrawals.
If I were you, I would not do it.
To put things into perspective, I day trade and swing trade, but I have done about 14 months of learning. You only trade with money you can afford to LOSE.
To put things into perspective, I day trade and swing trade
Genuine question, how are you doing day trading this environment?
Are you liking it more with the extreme volatility than 6 months ago when there was no vol?
6 months ago was a lot easier and more predictable,
This is too much volatility so I limit my trade size. Overall trend is neither down nor up it's pretty much like gambling atm as most news is hitting the market premarket and there is no ASX premarket unlike the US.
Only benefit now is day light savings just changed in the US so the markets open 1 hour earlier.
Day trading is always better with stocks in play, it's very hard to read charts when there are such steep spikes/dips. The trouble with ASX by the time the markets are open it's already dropped for the day and I don't like trading the first 15-30 minutes.
Thanks! and are you just buying and shorting stocks? or using something more exotic (options, CFD etc?)
@cloudy: Whichever way the opportunity is, I use IG's new CFD platform as it provides flexibility, easy exchange, better system than commsec iress. Don't get me wrong, I don't need to trade on margin, I never trade beyond my equity level as that is ME. A lot of people trade on leverage, I'm not sure how they can 'trade' multiple shares at a time if they're day trading as you should be in and out in minutes. If you want to be doing $250000 trades on TSLA be my guest but I've done it before and algo trading in the US is brutal and IG doesn't give market depth even with L2 (though most trades are dark trades anyway)
If I'm really into it I'll use L2 dealer or das+interactive brokers but there's often no need as I rarely have the chance to be awake to 330am to trade. I mainly trade US shares, more diversity. I don't trade penny stocks whatsoever.
Don't do options. Just my style. I only swing trade and hold over night on bluechip stocks.
I don't know why the negative vote. Losing money can be financially and mentally crippling, I think caution is best advised.
Stop worrying about ppl saying not to do this as it's a personal choice. Plenty of money will be made by someone in this environment.
Re how to do it, it's not very hard if you have the equity and servicing capacity of suggest using an equity line. It'll cost more but allows flexibility if you buy/sell etc and will keep it clean for tax.
thanks drprox, I'll look at your suggestion over the coming weeks. Do you have any more specific details?
Your plan sounds good to me so long as you can keep your job and make the mortgage repayments.
I'd advise index ETFs over individual shares. As with the GFC it was impossible to know which companies would and wouldn't survive. Why not make it easy on yourself and not have to make those decisions and just buy the whole market? You'll sleep better at night.
This part is critical as it means your more likely to stick to your plan and not panic sell.
You'll need a mortgage brokers help. Banks can be funny with lending for shares. If you ring them up and say hey I want to access $200k of my equity to buy shares you may get the door slammed.
Yet if you say I wanna borrow $200k for some renovations they'll throw money at you. Crazy I know. A broker can help you navigate which banks are more likely to want to play ball.
thanks Meumax. I already have a homeloan that is almost paid off. The $200 or $300k could simply be a redraw, and it is a small component of the whole house value. No issues with servicing it.
I know that brokers can help… but I really want to do the DIY approach this time! haha
I would dollar average 10k a month over the next 20 to 30 months in the US s&p500 index.
But I dont have a degree so disregard.
All the historical evidence says people with multiple degrees don't do better at beating the index. Your strategy is good depending on the age of the person and when they anticipate needing to cash out.
thanks t_c
Not many people have responded to your questions. Seems like your strategy is very time sensitive.
On A: I would contact your existing bank if you already have / had a mortgage.
If you want additional leverage without a margin loan, then nab equity builder could be a good choice with low rate.
On B : On structure, unless you have plenty of family members with low tax rates or a need for asset protection then it would simplest in your name your joint with partner. Consult if you are inexperienced / feel uncomfortable
thanks for your comments, much appreciated.
I would absolutely forget EFTs in the short terms. But borrowing at a LOW RATE to purchase high quality stocks is not a stupid idea, especially for negative gearing purposes. Timing the market will be the hard part. I have no idea what a low rate translates to for these types of purchases… 5-6%? Or am I dreaming. Can you absolutely make the repayments even if things get ugly is another question.
I'm keen on buying for the long term (10 to 15 yrs +).
The Dow is going up and down 10% a day at the moment in what's believed to be the start of the pandemic, and you want to invest "for the long term"?? I've heard it all.
The only way to make money at the moment is clever day trading.
Best of luck though.
If you can service the loan, just ask the bank for a top up loan. Or you can look for NAB Equity Builder, you will pay little higher about 4.3%. Obviously with home loan you can get around 2.7 - 3%. One of the good thing about Equity Builder, you have to invest to approved list of ETFs so you cant do stupid things. Get the loan approve and when the crisis happen, you can splash the cash.
thanks, I'll look into this.
To those who say it's a bad idea, don't listen to them. I'm doing the exact same thing - will put between 400-500k in stocks.
Only advice to those who are looking to do the same - do no get a margin loan under any circumstance! The market is too volatile and if it drops you'll get closed out and lose all your equity.
With cash from a refinance you can afford to ride out the bumps and the market will eventually pick up once things settle down. If you're risk averse then invest in the large cap stocks, otherwise try your luck with some stuff that's down more than 50%.
thanks for your comments.
What are you buying if you don’t mind I ask
Hey mate, i think your idea is good in general but i would wait until the peak (probably 2-4 months away) at least until the states starts mass testing a realizing the depth of the issue.
I think the best way to go about it would be a diversified etf. Vanguard Australian Shares Index ETF is one of the best around with very low fees, you can buy it with any share trading account ASX Code - VAS … it is basically an asx300 index.
As for the loan you might want to check out https://www.nabmarginlending.com.au/investor/products/equity… currently at 4.3% with no margain calls maximum 75%lvr
Personally i would like to get in around 3500-4000 on the all ords, very hard to not see it bouncing back in a few years from those levels.
thank you jimburns4u. I will check out that NAB option.
I agree that 3500 to 4000 would be where it is heading. Anything around 4000 to 4500 I'd be happy with. Impossible to capture it though, as a home investor.
what would you say are your top 10 etfs jim?
Hey mate, I don't want to encourage anyone to buy stocks, ever (why would I want the competition?) :)
But I do want to be helpful, so I say to all nay sayers, when is it a good time to buy? 1m ago? 6m ago? The truth is, whenever people look at stocks, they always say in their head, "oh if it drops by X% or by Y dollars, or back to Z dollars im definitely going to buy it!)
But when the event actually comes to fruition (like right now), they say, oh wait, it'll definitely keep falling etc.
People always arm chair commentate. (sorry mum and dad if you're reading, coz yes im talking about you and many you know). People are always least worried when the sailing is smooth (but risk is more high because valutions are highest), and most worried when valuation at the lowest because the markets are most choppy (but prices are lower and reasonably valued). It's human emotion, we see it play out right now in our supermakets. People are not shitting any more, or using more toilet paper per poo. But why are toilet paper sales threw the roof? It's obvious, human emotions.
My guess is that in 6 months time kleenx et al, will be asking staff to go on leave etc, coz toilet paper sales will be heavily down as people go thru their stockpiles.
You can probably guess what i'll think of the markets too long term. :)
I'd put my money on 6 months to a year for the markets to get to the bottom… Time to get a job!
thanks cloudy. My opinion (and I'm no expert) is that we'll hit a low point within a month or 2, then the economy will trundle along slowly for 3 to 5 yrs.
I should also add, a few other things.
If you refinance house to buy shares, you wont get tax deduction from interest paid.
if you borrow directly to buy shares you will be able to deduction interst payments.
Additionally, no need for any fancy structures. 200k is nothing (sorry if that offends)
Don't risk money you can't afford to lose for the greed of money you don't need. (I don't think you will OP, juist for anyone else reading.)
That's not true. If you can prove that the borrowing is for investments then it becomes tax deductible.
You have to keep a record of it though. The best way to do this is to split your mortgage into two accounts if your bank permits. Alternatively, you can pro rata the interest cost based on what's currently outstanding on the property and what's been borrowed for investments.
Source: I worked in tax and helped plenty of clients do this. Also, see https://community.ato.gov.au/t5/Investment-property/Refinanc…
You’re gonna be in a world of pain when the ATO audits. Source, used to work for ATO and have plenty of friends there.
You’re not technically wrong, you are just practically killing torturing yourself if audited.
It really isn't that hard. Keep track of it on excel and you're set.
Use functions like PMT, IPMT, and PPMT to model out costs and pro rate when required.
I refuse to give up the interest deduction ability (or get a separate investment only loan which will be way more expensive) just because the ATO is too stupid to figure out how to do basic math.
@neilpatrickharris: hi, I'd love that spreadsheet (if you still have it?!)
Also, Cloudy, I appreciate your comments too. I'm willing to run the taxman gauntlet. lol
@clandestino: I did a quick google on the issue, if you have a seperate line of credit on your home loan, and use it exclusively for your shares, you should be ok.
Don’t ever put any personal expense or otherwise thru that line of credit, or else it’ll just look like a personal account.
A spreadsheet in lieu probably won’t do.
@cloudy: thanks Cloudy, I'll do some further investigations. Looks like the line of credit might be the way to go.
I don't think you'd find a bank that would agree to that loan.
TBH OP you should just open up a demo account on one of the brokerages and do 6 months of part time study before you even drop $100 in. Doing shares properly is literally like a business. Plan. Set of rules. Management. Cut your losses as you WILL LOSE. I have 2 degrees, inolved in 3 industries and I only invest what I can afford TO LOSE. My win/lose ratio is 70-30%. You must educate yourself before doing stocks, you cannot rely on the hearsay around.
Or just invest in an index fund since its very difficult to beat the index over the long term.
If you buy an index fund and spread the risk its very hard to lose over the medium/long term. Investing large % of your portfolio in a few stocks is when you increase your risk significantly.
I spoke to Westpac about doing this - it will take over a month to process and the paperwork (at least for my situation) is immense.
Good choice Op, with interest rates at near zero. This is the best time. Trust your instincts and go for it.
Just go directly to any big banks and speak to them. They will be happy to help you set this up. Dont need to go through financial advisor/accountant. Compare their rates before making a decision, plenty of choices out there.
a) which bank would offer a competitively priced loan?
Speak to a mortgage broker
b) should I contact any financial advisors / accountants about setting up the appropriate structure?
Yes.
look up debt recycling.
From a tax perspective, that's the best way you can buy stocks if you have a mortgage.
I borrow 1/2 and I deposit 1/2 of a value every month for my managed investments. I opened it with 2/3 borrowed and 1/3 my funds of a larger value. This was all done through my financial advisor. He was able to plot graphs of the average expected and best case scenario and worst case scenarios for both borrowing and not borrowing. He recommended a bank to borrow from that specialises in this and I went with them. I can claim the interest of the loan as a tax deduction.
Definitely speak to an advisor. Don’t set any of this up alone otherwise you might lose your house.
Wise words, Akya. However, I have some wise words for you too.
Make sure that you 100% understand the investments that your advisor is making for you, and also, how your advisor earns his/her$$$. I didn't appreciate this in 2007.
I'm thinking of etfs and buying put options as insurance in the short term to until things settle down.. but the timing issue is critical.. the market volatility might continue for a little while then settle down into a gradual decline… the question i have is once economic data for this period is released (it lags behind) will the damage we are experiencing now be reflected or not? Is corona a trigger to a systemic correction or is once the whole things is under wraps will everything revert to how they were..
Put it this way OP is better doing this than 1 mth ago . But if you asked me 1 mth from now would be better again . But of course nobody knows where the market will be in that time .
Um get advice, however if you are borrowing 200k wouldn't it be a good idea to buy the asset that gives the most equity?
Every rich person on the planet that wasnt born into money had to risk it all in someway or another this is probably a opportunity of a life to time bulk up a portfolio right now BUT just remember you can also lose big!
Go to the bank you bank with now. Should be an easy transaction. Seems like you have a lot of equity. I have an investment account as part of my loan and I'd like to do tge same as you plan to.
Line of credit against the house. State custodians is the lowest I've found at 2.90 percent. If anyone knows a line of credit with a cheaper rate let me know.
only invest what you can afford to loose, tha market it too volatile right now
Not sure if it's a good idea to borrow to invest. But it's not a bad idea start investing into ETF.
Instead of putting all your money in one go, maybe it's better to do a regular investment . Say put in 10k every month so you won't miss out/lose a lot when the market goes up/down.
Even if you buy the index at the wrong time, as long as you keep invested, you will generate more in the long run.
Below is a good article.
https://awealthofcommonsense.com/2014/02/worlds-worst-market…
After all this, the most meaningful response I got was "speak to a mortgage broker". Lol.
I thought ozbargain was better than this. 😘👍
If you have to ask then you shouldn't be doing it.
Equities and options trader here. Currently holding 3 month out puts on a variety of markets (Spanish ETFs, short Qantas, puts on spy, puts on asx 200). Markets are always forward looking - priced on future expectations. I’d wait if you’re planning to buy shares or really stagger the purchases to average down and build a position…guidance for most companies hasn’t changed (Apple, Microsoft have off the top of my head, AMD started their supply chains won’t be affected) - Q2, Q3 results/announcements should give the reality of the situation. Share price is volatile to guidance change.
Also the ASX is now having their employees work from home due to covid-19.
There’s a saying ‘when the shoe shine boy is telling you what stocks to buy, you’re at the top’’ well it seems all those people are now telling everyone about the cheap shares they should buy.
Out of curiosity what shares were you thinking?
I'm 99% certain that I'll put it into an ETF. However if I did put it into shares, probably CBA and Qantas.
Not CBA and Qantas. If you look at CBA then look at what's happened to likes of Barclays, Lloyds in the UK at zero interest rates.
Qantas: this isn't 9/11 you have no idea how long this will drag out.
I can't call bottom but I'd say:
CSL - everyone still needs blood
Transurban - you still need to move goods around and quickly
AGL - everyone still needs to use electricity
Woolworths / Coles - people still need to eat
thanks netjock, good points. There's always risk with everything!
Purchase parcels once per week for 52 weeks, or each week for 104 weeks. Dollar cost average into the stable bottom and on the way back up.
I have a spare cash in my mortgage Offset account that I would like to invest in Shares for a long term benefit (5-10 years or more). I know noting about share market and just not sure where to start learning. Can someone here on this forum point me to the right direction to learn Share market ABC. Considering to invest 50-100k.
Buy low, sell high. Collect dividends in between.
buy ETF, hold and forget, pocket dividends inbetween as others said.
Thanks..I'll divert my focus on buying EFTs..Just need to start researching more on that
I'd go for ETF's rather than individual shares. You don't know what's going to happen and if companies collapse you'd rather be holding the whole market and not the 2-3 companies that go under…
I don't understand the great panicked response to your post - it sounds quite reasonable to me.
You're paying mortgage rates an an investment loan, as long as you have a 2nd / 3rd source of income to help repay the loan then I'd say go for it as long as planning this as long term. If you can afford the repayments then the market activity isn't that important - you'd $200k buy might drop to $100k but does that really matter?? In 10 years time you have paid off the load and the investment might be worth 10x that amount and paying dividends.
For that 200k to drop to 100k the market would have to drop 50% from where it is now. So in total a 65% drop from the all time high.
That would be extreme, but not impossible as the great depression was around 80% down.
Thanks for the re-assurance, ScJ ! I think there's minimal risk. If I lose the whole $200k or $300k, then of course I'll need to pay it back.
Take it to Star City. All on red.
You sure I heard that place closed down.
Then take it to Sydney Harbour Casino.
oh god
There is a product provided by CommSec Adviser Services that does exactly this, called CALIA+.
I believe, however, that this product is only available through a financial adviser/planner.
apart from the lack of pricing, it looks great . ;)
Yeah i think because its an advised product, the CommSec business provides the service to advisers, and they charge you a fee, which may be greater than what commsec charges.
Bank of Melbourne/St George - they seem to be the most flexible lender.
Try contacting I've of their retail brokers.
If you PM me, I can give you contact details of the lending specialist at bank of Melbourne I used for some complicated re financing
Best approach would be to unlock as much equity as possible, keep the cash in an offset to you can have flexibility.
But weighing that up with your accountant to make sure you can claim interest deduction for borrowing to invest - a redraw function might be cleaner and easier for your accountant to demonstrate that you are borrowing to invest.
With sub 3% p.a. borrowing costs, falling stock markets, it makes perfect sense to try to seek yield for the long term through diversified investing.
Make regular purchases so you are averaging out the market - e.g. 10% of your target holding every month for 10 months.
if you are looking to borrow the money then your existing bank is going to be the quickest option as refinances take a minimum of 4 weeks and some lenders 8 weeks plus depending on their credit turnaround time. I imagine you would want the money asap to pull the trigger when you are ready. Look at the comparison sites to see what rate options some lenders are offering and negotiate through your broker to get the rate as low as possible
For us who have cash, and don't need to borrow what shares are people keeping an eye on? Unfortunately times like these are the best times to profit off markets.
While many struggle, many companies are profiting 500-1000%.
Woolworths and Coles to start. If you were a toilet paper maker best time to list on the stock exchange.
lmao everyone here seems to be an expert but I bet they haven't traded a day in their lives or have even 5k in the bank
they just look at what the media is saying
Shorted Qantas for 1 week. up 40k
who said you cant make money? Please learn how to trade before you comment.
So, how exactly did you short Qantas? Or also posting for the sake of trolling?
You know it is the internet. People can make a gazillion dollars and nobody can validate. Just red faces everywhere over some juvenile comment.
:) true.
I have thought ozb community would not be as bad as the general www population.
@[Deactivated]: I like how you just downvote me and call me out for trolling
Proof for today's trades
https://i.imgur.com/GYRW54p.jpg
Trading isn't something you teach in a day so I am not too sure on how I can show you
My point was most of the comments were going against this guy. Technically his plan could work
The advice given here was mostly negative. Trolling? I think not. The truth hurts doesn't it :)
I'll go on my way to 80k by the end of the month and enjoy a nice holiday once this Corona crap blows over.
Enjoy
@lltravel: Will take back my accusation and apologise with regard to the $40k earning.
Personal view remain the same about advices on investment and ones claim they will always win. It is a gamble. I see it daily, how confident the dealers are, and those guys have movement well into million of dollars each second.
Soon the derivates market will grind to halt with funds calling back stock. - partially what drove up the market today.
@lltravel: I can see "FLT" going to $5 or less in the next few months. It will be 6 months before people start travelling
@mshanann: I misread 'FTL' and travelling. Was wondering what does a potential Steam sale have anything to do with this topic lol
Shorted qantas from 6.88 through a CFD…it’s still open. I’m riding it into the $1 range.
Can you afford everything though if you lose your job and are unemployed for ~6 months? It's a real possibility
Alot in Oz won't survive that living from paycheck to paycheck, including many that earn above average wage and splurged on lifestyle.
I just bought some Vanguards (VAS) as it was tanking hard over the past few days. Yes it could tank more but at this point it's either a good time or a better time to buy, as i dont see the country going bankrupt any time soon.
VTS is also a pretty good option too
Where do u buy them? Vanguard website, selfwealth, commsec?
i use westpac, commsec is also another good option no idea about the others tho
ETF's are obviously great for many folks and I own many myself. That said I do have something of a concern regarding what I perceive as something of an imbalance/lag between the prices of the ETFs and the underlying stocks that comprise the ETF. I'm going to assume folks understand the basics here but it strikes me as curious that the ETFs seem to be generally very much unaffected by the price volatility than the general stocks are generally comprise it.
This is a huge generalisation as you'd need incredible knowledge and systems access to audit this but I've seen folks finding it odd that index ETFs say for the DOW200 might be up on the day here - yet the actual DOW200 had significant falls, so all things being equal you'd expect this to be almost mirrored in such an ETF.
Cut a long story short, I suspect there's a significant delay in change of the ETF's underlying assets and the corresponding ETF unit prices. I'm a rank amateur so perhaps completely wrong but I do wonder how accurately indicative of their actual portfolio value many of these ETFs are vs their actual unit prices.
The day traders are definitely loving the crazy volatility of the current markets - it's really nutty the swings throughout the day on all manner of equities. IMHO there's plenty of good value there but you need to be wary of the co's that will be directly impacted by this health crisis - often in ways not expected - but also from the potential economic fallout that could come off the back of it i.e what if this crisis leads to another issue with debt etc - FWIW I'm sitting mainly in cash waiting - but have grabbed a few 'value' holds for the long term as I am not a short term trader.
I think it is a good example. Whilst CBA is a good bank, and I already own a fair few shares, will it always stay that way? It's really not for us to say. I'm sure that Citigroup investors would have thought the same about their company!