Buy, Borrow, Die: Anybody here who actually tried this?
https://youtu.be/-hqEIseS_e0 Idea is to use your assets as collateral and borrow against them for low interest rather than selling and incurring capital gains etc. Wondering if this is a good strategy and anybody here does this regularly? I have few 100k in robinhood and other brokerages. Contemplating some crypto buys in the range of 10-20k. Wondering if I should be leveraging my stocks to get some low interest debt. I am not gonna over leverage. I only intend to get some 30-40k at a time which I can just payback anytime if the need arises. Disclaimer; I have done little to no research and just contemplating this idea. Looking for pointers. I know crypto is volatile, planning to implement this idea during the next bear cycle.
YouTube
I am already doing this but I have taken 30 percentage leverage .
Care explaining your strategy, what you leverage and where do you do this?
Just thoroughly understand the risks you are taking on. Anyone who says you shouldn’t do this should also say why you should only buy a house for cash
It's not quite the same thing. House prices are not as volatile as stock prices and you have to pay to live somewhere whether its rent or mortgage so the expense is going to happen either way AND most people would not buy a house with a mortgage without an expectation of a monthly income to make the payment. That said, I also am not against leverage for equity purchases as long as the risk is managed....
u can always just bankrupt if necessary so why not borrow more, it works by over leveraging, paying back is not winning strategy
I intend to only keep 30-40k in floating debt at any point of time. I always have that cash and I feel comfortable having that debt. My crypto dollar cost averaging has netted me some 20-30% profits, trying to do bigger buys during bear cycle rather. I have missed each bear cycle by trusting my weekly dca but at the end of the day, I have always seen poor results for years now.
Yeah...i do this by turning on margin and withdrawing it sometimes for stuff instead of selling
I do this in minor ways. For example, taking out fixed interest rate debt on real estate and paying back as slowly as possible. I’ve looked at the PAL with Schwab, and then buying some Bitcoin with the money. So long as I can easily serve the interest payment and am taking a very low debt to equity ratio I think I’ll turn out winning.
So how long do you take to close these loans out? The problem I am seeing with this strategy is, if you have a cap (in my case lets say 40k). I have to wait till I close this loan out or else I am over leveraging.
I can close the loan whenever I choose. For example, if BTC doubles in price of the next few months, I can pay it then. Or if it doubles in prices over the next 4 years, I pay it off then. Obviously the sooner BTC rises, the better return I get.
Look up Bill Hwang, guy lost 20 billion in two days because he leveraged too much and the banks collected.
He was at 500-800% leverage
I mean, that’s why I specifically said I intend to keep the leverage very low. But, not sure if this strategy even works without over leveraging.
How does one borrow against their stocks??
Talk to your brokerage. https://www.schwab.com/pledged-asset-line
Everyone who buys a house with mortgage does this implicitly. Funds are borrowed against assets and not paid back for a long time. The activity you describe takes place on massive scale across the entire financial and economic system. Companies who issue debt do it. Government who issue bonds with no intention of ever getting out of debt do it too. The cost of selling assets to raise capital in terms of opportunity costs and taxes is far more expensive than the cost of borrowing. This concept is what the entire financial system is built on and not exactly a secret…
I agree with this. However I do think debt is sort of a secret for 95% of the population. Most don’t understand how to use it strategically in the way corporations do. IMO, every individual should have at least 20-30% of their net worth in low interest debt. I wish I would have known this sooner in life. Been investing for 10+ years with zero debt. Could have juiced my returns so much more, at relatively low risk since I have the income to back any margin calls or interest payments.
What are ways to get low interest debt? Only one i can think of are home and may be car loan.
Didn't watch the video, but the point of buy/borrow/die is to use margin loans to sustain spending through death to avoid capital gains taxes This is quite common at the very high end where spending is so much lower than NW the increased risk they are incurring is negligible, while avoiding/deferring lots of tax The issue for the rest of us is that the risks are more real - as interest rates rise, the payments go up on the full borrowed amount. So if you have decades worth of spending piles up in loans, this can get quite significant - as the ltv ratio goes up, there's always a risk of margin call if there is a crash - tax law can change. If they get rid of the cost basis step up, much (but not all) of the benefit is eliminated I have not done this as I'm not too comfortable with many decades of increasing loans at variable rates. Perhaps when I'm in my 70s...
Buy/borrow/die and margin spending to avoid taxes is no different than using debt in any other context anywhere in society at any time. Why sell productive asset and incur costs when you can fund more cheaply through borrowing? Buy/borrow/die just a specific manifestation of a concept seen everywhere but the implication catches people by surprise ie you can die without paying off debt but that’s the case with any borrowing by any entity
True, but the key is to accumulate enough to only leverage a few % of your nw. Your loan will keep going up but so will your nw and the leverage should always be in that ballpark %. If there is a crash, your leverage % will increase but not enough to kill your nw. So if you leverage 5% with a margin interest rate of 2% lets say. Your new investment or your nw should only appreciate the 2% sum over the loan period to cover the cost and usually you can take an action before it goes to margin call since its a low % of your nw. You will usually beat 2% with any conservative investments these days. By this time, your nw would have grown and you can get more 🤑 for the same %. The key is the BUY phase where you have enough to actually only leverage a minor % to live on.
When this house of cards finally collapses it’s going to be epic
People are saying this from 6 years .
6 years is not a long time