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Using property equity to invest in shares

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daniellee

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Hi,

Newbie question. Did a search but could not find an answer.

Is it possible to approach the bank to use the property equity to invest / trade in the stock market? I was told the bank will lend but only if this is done through a financial planner / managed fund.

How does one get around this? Use a Line of Credit / Equity loan?

Regards

Daniel Lee
 
Yep use a line of credit or asset line.
Make sure you only use it for tax deductible purposes to make putting in tax returns easier.

Thats how I got started.
After a while I started to see opportunities to trade, so I used the shares I bought on the line of credit as collateral for margin loans.
 

You can just apply for an investment loan or a line of credit. As long as you can service the loan they should lend up to 80% of the value of your property.
 
Watch those margin loans. Can get ugly re the family home.
 
Hi Dan

Banks don't require you to see a financial adviser if you borrow money for shares against your home.

They don't care what you do with the cash as long as you keep up your repayments.

As suggested earlier, try and set up a separate loan from your current debt to keep the ATO happy.
 
if you starting out start the hell away from margin loan, this can get ugly quick...using equity is the safest options, you never face margin call
and you sell and buy when you want as long as you keep the repayment up
banks dont care...plus much cheaper interest too..

say you own 50K on a property worth $350K, you want to take out 100K for shares

what you need to do is go to your banks and say you want to draw down some of the equity in your home and create a seperate account for tax purposes.

once all the paper work approved, they give you the cheque, you deposit into your shares account and start keeping the paper on interest payment on your new seperate account and your shares account.
 

Whatever you do, make sure that the amount you "borrow" from your house is fully tax deductible ( never done it like the above example, but it looks like the $100k would not be tax deductible ). Make sure you make a 30 minute appointment with your accountant to clarify your setup, the $50-100 invested here is usually worth many thousands in the long term. ( for example you may be better off with a margin loan at 8% than drawing down off your house at 7% )

NEVER trust a bank teller / banker with taxation advice, they are usually incompetent fools, not worth wasting your breath on.

So in all check with your accountant first so that you get maximum tax advantage.
 

It's fully tax deductible on the interest you paid as long as the 100K is in a separate account and got nothing to do with your home loan.

You repay on 2 accounts....the banks draw 2 repayment each fortnight or monthly or how ever u set it up.

This is no different from you going to the bank borrow 100K to invest and use your home as collateral

but check with your accountant to be sure..
 
Krusty the Klown said:
They don't care what you do with the cash as long as you keep up your repayments.
Click to expand...

Not necessarily,

If you set up a LOC, interest can continue capitalizing as long as you don't exceed your credit limit.

Obviously it's not a tactic for beginners, the threat of a black swan is always imminent.
 
cutz said:
Not necessarily,

If you set up a LOC, interest can continue capitalizing as long as you don't exceed your credit limit.

Obviously it's not a tactic for beginners, the threat of a black swan is always imminent.
Click to expand...

Too true Cutz

If the crap hits the fan, you could find yourself with no shares, but a bigger debt to pay off on the house or in worse case, you could lose the house (Storm financial clients as an example). Not pleasant. Think about how much the extra money from the strategy (if successful) would change your lifestyle, compared to how much a big loss would change your lifestyle. I always use this maxim in my investing. Which means no debt, diversified blue chips in my SMSF and a little bit more risk in the equities I hold outside the SMSF.
 
cutz said:
Not necessarily,

If you set up a LOC, interest can continue capitalizing as long as you don't exceed your credit limit.

Obviously it's not a tactic for beginners, the threat of a black swan is always imminent.
Click to expand...

You can do this, the CALIA loan product mentioned earlier allows this.

The CALIA loan has a margin loan built in to the facility and is only available through financial advisers.

The bulk of the Storm clients who lost their dough used this product.
 
Hi Krusty,

In my previous post I was referring to a stock standard line of credit provided by the major banks under several trade names.

No financial adviser intervention is required, the bank doesn't specify how you must use the money. Whether you invest in a Toorak Tractor or BHP, the bank doesn't need to concern itself with these fine details.
 
No worries cutz

As far as I am aware, the CALIA product is the only loan facility that is restricted to financial advisers, I think because the margin loan is built in.

I know NAB, St George and Wide Bay Building Society allow capitalising investment LOC's.

Probably a few non-conventional lenders would do so too.

Anybody know of any others?

P.S. Just curious, what is a Toorak Tractor???? I'm not a Melbournian.
 

Hi

Sounds rather straight forward. Get a separate loan from my property equity. Just like property investing. Clearly, I am not going to take out a separate loan just yet, as I am still learning about share trading and am not going to take that kind of risk. So far, I am leaning towards technical analysis; Read Alan Hull's books and his technique seems to fit my personality and objectives.

Alright. Another question I have is what is a good starting amount to invest in shares? I just signed onto the ASX newsletter and saw that they have a trading game where participants start with $50K. Is that a good amount to start with, consider diversification across several sectors as a risk management approach. Personally, I have $15K at the moment.

With such a small amount, I will be looking at paper trading for a few months first to iron out my trading strategy.

Thanks.

Daniel
 
daniellee said:
Hi

Clearly, I am not going to take out a separate loan just yet, as I am still learning about share trading and am not going to take that kind of risk.

Thanks.

Daniel
Click to expand...

Hey Daniel

It's good that you are waiting to test the water before you borrow to invest.

Be careful if you want to redraw funds from your existing home loan to invest, as taxpayers make it difficult for themselves when they do this.

If you do this, every time you make a repayment, the ATO deems that a portion of this repayment goes to pay off some of the investment component of the loan in equal proportion.

It makes it very difficult to calculate how much interest is actually deductible. That's why people like the separate loan for ease.

Good luck!!!!

Krusty
 
No one has yet mentioned a reserve.

Say you owe 50K on a house worth 350 k. The bank will alow you to borrow up to 80% so you can borrow a max 280k minus your existing 50k for a maximum borrowing of 230k.

So how much of that available 230k should you borrow?

Your reserve should be your safety net against unexpected circumstances. I generally use a minimum 20% of available funds (46k in this case) with other reserves on top for specific expenses that can be planned out.

Simple rule of investing is to protect the integrity of the assets you already own. You don't want to risk the family home, so if you are using equity within this asset, make sure you have enough reserves in place, so that if you lose your job or end up in traction for siz months you don't lose your house.

Cheers

Sir O
 
Regarding the tax deductible nature of the interest on funds taken from a line of credit/equity loan and applied to shares, is this absolutely limited to shares that produce income (dividends) or can a tax deduction be claimed on the interest if the funds were used for purchasing speculative stocks which were then sold some time later for a capital gain (as opposed to traded in the short term? Otherwise, would the tax deduction only apply if one obtained classification as a trader so that any share-related gains are classified as income? Only reason I ask is that somebody one told me that if you claim an interest deduction for line of credit/equity monies that are applied to non-dividend yielding shares (e.g. typically spec stocks) that the ATO will send a sheet asking you to show how those shares were income producing.

Would greatly appreciate it if somebody could shed some light on this.
 
-read the Storm thread first

RamonR said:
After a while I started to see opportunities to trade, so I used the shares I bought on the line of credit as collateral for margin loans.
Click to expand...

-Don't even consider the above, double gearing. You're a genius while it works until the unexpected happens and then, wipe out(and the unexpected will happen).
 
I'm not suggesting that anybody consider my question from 2 posts ago, but I would appreciate an answer to it! Thanks.
 
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