December 1, 2012

Be Like Zuck! Buy a house and pay 3/4% interest


The secret to being rich is to start off rich.  Don’t believe us?  It’s true, and it’s how Mark Zuckerberg bought his house in Palo Alto.  Let’s hear from Burbed reader nomadic, who alerted us to this excellent opportunity. To go bankrupt!

Here’s the letter I got in the mail offering super-low interest rates on a loan secured by a stock portfolio.  The beauty of it is that the interest rate goes down the higher the loan amount – the opposite of what working stiffs get when they want a super-jumbo loan to buy a house in the RBA.  (Then again, the larger the stock portfolio, the smaller the risk?)

This must be how Zuck got his ultra-low interest rate on his mortgage.  Interesting that they don’t mention a mortgage in their “average loan rates” example.

121130-margin-zuckerbergThe headline above doesn’t say pay three to four percent interest.  It says pay three quarters of a percent interest.  Let me repeat that.  You can buy a house at 0.76 percent interest.  All you need is a sufficiently healthy stock portfolio to borrow at least $3.5 million against. 

Whoops.  All you need is an investment portfolio at this particular online brokerage.  For loans under $50K, you need to have twice that in your brokerage account.  With this firm.  But!  Remember about rich people getting richer? The more you have, the more you save. The more you have, the more you 121130-margin-callcan borrow, too.  If you “qualify” and have an account over $100,000, you could borrow against 85% of your assets.

Remember how well things went when anyone who could fog a mirror could buy a house for nothing down? This is an even better idea! Borrow against your investments, and if the underlying value drops, then you have to pay some of the money back immediately, or sell assets to cover it. Good thing you’ll have a bunch of equity in your new house that you could borrow against to pay back your brokerage account you borrowed against in the first place.  This sounds like a perpetual equity motion machine.

Open your portfolio, open your wallet, open your eyes, and we’re opening this thread to any topic you wish.

Comments (8) -- Posted by: madhaus @ 5:09 am

8 Responses to “Be Like Zuck! Buy a house and pay 3/4% interest”

  1. SEA Says:

    Occupy Wall Street, and join the 1%.

  2. nomadic Says:

    I like how these guys are truly “glass half full” optimists. The accompanying letter had this nugget under the heading “What are the upsides?”

    There may also be an advantage if the market falls a great deal and some of your portfolio is automatically sold on the way down in order to maintain the required minimum equity for your margin loan.

    Sure saves you the pesky trouble of putting in stop loss order on your stocks, eh?

  3. Bruce Says:

    Makes for sensational reporting, but its not really a loan in the way most people think of loans.

    For most people, you’re borrowing money to buy your house because you’re not remotely even close to being able to buy it outright.

    Here in these margin accounts, the bank is just loaning somebody their own money back. A fraction of their own money, and for a fee, when if they wanted the person could have just bought the house a minimum of 2x over in the first place. Not much of loan in the conventional sense.

  4. madhaus Says:

    #1 – if you join the 1% they cut your legs off?

    #3 – that’s the point. If you don’t need the money, they’ll loan it to you much more cheaply than if you do. What’s the saying? “A banker is someone who will loan you an umbrella when it’s sunny and take it back at the first sign of rain”?

  5. nomadic Says:

    Bruce, you sound so disappointed. Did you think anyone would offer such a low rate to people who actually needed the money?

    This is the ultimate RBA tool. You can enjoy the rocketing price appreciation on your house while also reaping the awesome appreciation on the huge stock grants from your start-up that had a successful IPO! Double down on Silicon Valley Specialness.

  6. SEA Says:

    #4- Extra special treat for that cheap money, maybe?

  7. how to buy a house Says:

    Nice article…want to know more…

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    2. Never play cards with a man named Doc.
    3. Never post spam on a website where the editor will turn you into an object lesson after dismembering your URL. –ed.

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