Using stock market investments to finance real estate

burnt69 wrote: ↑ Also, you haven't stated whether this will be a property that you intend to rent out, for which the interest on the financing is deductible regardless. Or if it will be a personal use property, in which case, you would want to structure the transaction such that the borrowing against the property was used to (re)-purchase securities for which you could deduct the financing expense.

andrew4321 wrote: ↑ Great point about deducting the interest, thank you. My accountant actually believes that interest paid to a stock broker is deductible anyway.

BobW95191 wrote: ↑ All good points. I'd like to know how you are getting margin interest of 2.717%? I've never seen it that low but that may just be my case not sure.

JUnit wrote: ↑ Careful with the margin loans, as you could have a margin call if there is a big stock market crash. It would really suck if your brokerage liquidated your portfolio at the worst possible time. If you're going to go that route, at least have a HELOC for backup.

You would need to do the calculations to figure out how much you could sell without creating a lot of capital gains. Also depends if you have any losses to carry forward. You can also tap your TFSA and RSP (if you qualify for the HBP) for tax-free downpayment money, replenishing those accounts in future years.

If you end up selling securities with the intention of rebuying them with borrowed money, watch out for superficial losses.

renoldman wrote: ↑ Margin loans are backed by securities though, you can't withdraw the money to invest in real estate.

As a quick example, you have $10,000 cash to invest. Your broker let's you buy $40,000 of securities and you pay interest on the $30,000 borrowed ($40,000 - $10,000). The $30,000 would be charged the margin interest rate.

Or am I wrong and your broker will let you withdraw the $30K for whatever? That doesn't make sense to me as they have no clear idea about the risk of the assets you are buying. Whereas they may limit your borrowing of stock based on the risk.

Deepwater wrote: ↑ Watch the movie Margin Call before doing this.

I borrowed from my margin account at TDDI for bridge financing on a real estate transaction. It was only for a couple of months. In their President's Account, for debit balances $100k+ the rate is currently 4.25% (prime + 0.3%). It's as simple as transferring money from the margin account to my chequing account. Their per-transaction limit on web transactions is $50k; had to call in for higher amounts. TDDI did not care if I deposited $10k then bought $40k of stocks, or if I bought $40k in stocks with cash, then withdrew $30k to convert the holdings to margin. There is no minimum repayment as their would be on a LoC.

My margin account states total margin available for the account, plus margin available for each security. TD has increased the margin requirement (i.e. lowered the amount you can borrow) on many securities over the past couple of years. Your broker should have documentation on margin requirements for various classes of investments, At TDDI, blue chip Canadian stocks you can borrow 70%, limits are lower on lower quality stocks and foreign stocks.

Without other funds readily available in case of a margin call, I would not borrow more than 40% of my limit, to cover the possibility of a major stock crash of about 50%, plus a lowering of the margin availability by 10%. Just my own guideline, but how much do you want to risk a margin call and having to sell stocks after a crash?

It is my understanding that the interest in such a scenario is not deductible as an investment loan. Interest is only deductible when used for the purpose of earning investment income. There must be a direct link between the funds borrowed and the purchase of the investment. In this case there is not, since the investment was purchased before the loan, and the loan was used to purchase a non-investment property. I did some research at the time to support that conclusion, but can't be bothered to look for again.

Above is my understanding and experience with TDDI. YMMV.