Margin loan and debt consolidation advice
I was recently approved for margin borrowing at my brokerage for $480k at 5.5% interest rate. This opens up a few options which I’m weighing. Appreciate any suggestions or advice.
One of my investment properties (a SFR) has a 30 year fixed mortgage with a principle of $240k. This SFR generates $2500 monthly gross rental income.
Here are a few paths I’m considering with this newly available leverage:
I’m tempted to use part of the margin loan to pay off the principle on this SFR and own it outright, and use the cash flow to pay down the margin loan. However the spread between 5.5% and 6.5% is not that wide. And I would also lose the tax benefits of being able to deduct the mortgage interests, although margin loan interest is also deductible as investment expense? Also the margin interest is floating it moves with the FED it could rise above 6.5% very possibly if the FED raises interest rates, and there is also the risk of margin call.
Do nothing: not touch the 6.5% mortgage and not use the margin loan. If you don’t use it then no interest, kinda like a credit card with a big limit.
Not touch the 6.5% mortgage. Use the margin loan to invest in the stock market (index funds individual stocks etc)
There is a triplex in my local market which I’m considering buying which is listed at $630k and can generate $4800 gross monthly rent. I could sell some equities and use the new margin loan to buy this triplex “in cash”, then use the cash flow (realistically and hopefully conservatively generate $3600ish monthly net cash flow) to pay down the margin loan. I am pretty happy with my current property manager so managing the property shouldn’t be a big headache. If going the traditional mortgage route I can possibly get a 6.2% fixed rate mortgage.
For context, here is a picture of our total assets: liquid assets of about $5.7M (mostly index funds and stocks in brokerage accounts and 401Ks). Rental real estate worth $1.65M with $570k mortgage, mostly low interest fixed rate mortgage such as 2.99%, 3.99% or owning outright. So it’s not like I have huge leverage on my existing real estate. Single income 2 kids family I have a $200k W-2 job I estimate I’m 5 to 10 years away from retirement.
I think the big risk with the margin loan is the floating risk and margin call.
And maybe there is no right answer to this, and it is a matter of personal preferences and priorities, such as more leverage versus less leverage, real estate versus stocks, cash flow versus asset value etc.
Thank you for reading the long post. Appreciate any suggestions or advice.