Photo from Pinterest via The Inside Story.
Today we have a guest post from Tyler Chromey, an investment advisor at Biltmore Capital Advisors:
Assuming you fall into the latter category, you deserve to treat yourself. If you’re considering remodeling your home, it’s time to think about how you’ll finance your reward.
One of the greatest obstacles to completing a well thought out remodeling project is the budget. In today’s economy, bills and necessities are likely your top priorities. Perhaps you seldom set aside cash for remodeling or home improvements. Our savings are just that – savings. It’s our rainy day fund, or for some of us, a means for investing in our retirement.
Photo via Juni Paus.
Have you ever walked into a friend’s home and instantly experienced a case of design envy? Those brilliantly coordinated paint colors, ornate backsplash, custom décor, or new bathroom might make you yearn to do the same in your own home. Remodeling and design can really change how we feel about our space, so it’s often a worthwhile expenditure.
Well, I’m no interior designer. Far from it. I’m a financial advisor and I wanted to introduce the idea of financing your next interior design or remodeling project through the use of margin loans. In an effort to not get too technical, and to prevent your eyes from glazing over, let me break it down for you. In the simplest terms, a margin loan is similar to a 401(k) loan but instead it’s a loan against your already existing investment portfolio (i.e. what you have in stocks, bonds, mutual funds, etc.). The general rule is you can borrow an amount up to 50% of the value of your portfolio and the rates are very attractive. In most cases, well below current 30 year fixed mortgage rates.
What makes this such a great option? If you don’t have cash available or don’t want to dip into your savings, borrowing against your portfolio will allow you to access cash without having to sell your investment. In a year like 2013, with seemingly every part of the portfolio increasing in value, who wants to sell to finance a remodeling project? Well, you don’t have to. With a margin loan, you won’t miss out on any potential further gains or worst of all, have to pay taxes.
Here’s an example: Let’s say you have $200,000 in a joint account with your spouse. You want to take on a remodeling project, but simply don’t have the funds and aren’t interested in incurring further credit card debt after buying an endless amount of gifts this holiday season. You’ve also held the stocks in your portfolio for many years and do not want to sell, thus triggering major tax gains. With a margin loan, you could borrow up to $100,000 (50%), get the cash in a short amount of time, and pay it back slowly or simply allow your investment portfolio’s income to pay the loan off.
If you’re planning a remodeling effort, call Iris Interiors for a stunning, one-of-a kind look and be sure to maximize your investment by considering a margin loan. Or of course you could use the money for other grown-up holiday presents like a new car or an amazing vacation.
Photo via Pinterest.
About the Author: Tyler Chromey is a financial advisor in the Princeton, NJ office of Biltmore Capital Advisors. He manages several client relationships and co-manages the Biltmore Select Strategy. Tyler is a member of the Investment Committee and leads Biltmore’s due diligence on money managers worldwide.
Margin loan and rate offered by an unaffiliated broker-dealer FINRA/SIPC member. Individuals must qualify for this margin lending rate through Biltmore Capital Advisors and their custodian. Rate is calculated based off the 90 day LIBOR and will fluctuate on a daily basis. Margin lending involves a certain amount of risk including but not limited to margin calls caused by a sudden decrease of portfolio assets or an interest rate spike. In the case of a margin call additional securities would be required in the account or the loan must be paid down using proceeds of existing securities or outside funds. To lock interest rates, SWAP transaction are used. Investors must have a good understanding of a SWAP and meet certain net worth minimums for these transactions to be implemented. * Rates as of December 20, 2013, 3 Month LIBOR = 0.24%.
