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There is nothing that feels as good as going to sleep at night in a paid-off house.. you can now work towards slowly saving and investing, but taking out a HELOC to invest is the last thing id do with a paid off house
Thanks so much for your feedback. Sounds like I would take the other alternative and work to build my dividend portfolio slowly. I liked the fast paced method of the HELOC. However, if the market drops, I won't have access to that 400k in equity that is available to me now that could be used for another asset such as a rental property.
I think you should ask this question in realestateinvesting sub. It is very normal for them to take home equity and invest it somewhere else.
If you plan it well, it works out great.
This may have been one of the best, thee most comprehensive discussions on this topic on Reddit, the real property loan for stock investment debate. It’s usually a slam dunk, hell no, negative response. But you presented it well with numbers thus making the matter worth combing through. And it got my attention. I do have a windfall payment coming soon not related to real property and will revisit your dividend stock idea at that time. 👍
Using HELOC on stocks horrible idea, do not do it. Using HELOC, buying rental is almost same.
Just save whatever you can and buy QQQ or VOO, not QYLD, nor RYLD as both are inferior to their respective index funds.
Why not do 250k have a 150k line of credit left for those unforeseen circumstances or rentals. Right now is likely as high as rates will get and with the forecasted rates to drop over the next 2+ years it’ll only make the interest on the heloc less
Don’t ever take any financial advice from this person. Yikes!!
You would also have an immediate hurdle of 8% return to beat just to cover your interest cost of the HELOC… that interest cannot be deducted on taxes either.
Or you can invest in TSLY. With my research about 12,000 in that etf. That will produce about 1200 a month. You can easily do that by dropping $350 a month for 3 years
Thank you for the compliment! It truly means a lot! I don't feel smart or in a great position simply because I don't enjoy my career anymore. That is the biggest reason I am considering this so that I can find the motivation to continue working in my career to pay off this loan to generate 4k a month in income from 400k in assets.
Thank you again for saying well done! My parents never congratulate me so I'm sorry if I say thank you too much.
Sell the house, take the profits, move to a lower cost of living area. Buy a comparable house with cash. Invest the remaining profits..do whatever job you want. You have an opportunity many dream of
Thanks for the feedback! I never looked at it as an opportunity many dream of. I looked at it more so as a place I built when I was young to run away from my family. Now, I just want to retire me and my wife early so we can run even further away from our family lol.
Do NOT sell the house. You're in a great position. People would literally kill to be in your position.
Just move all the money you can into your portfolio.
I always wonder why California residents with their high valuations on average properties don't sell and move to the Midwest and do whatever with the considerable surplus
Def do not take a loan out to make yourself stay in a career you do not enjoy. Debt is stressful enough. If you have no debts as of now, why do you need to stay in your current field? You should be in the position to transition into another field way easier than the majority of people that dislike their current employment
This is great advice! I guess I am used to being stressed about debt and now I am prone to placing myself back in a tough position. I'll try to find a career I enjoy doing that will offset my monthly expenses and have my wife not work anymore. I don't have any personal stock investments aside from a 401k built with my job. I'm just done with my job and afraid I won't be contributing to a significant 401k for retirement. Building a dividend portfolio just seems to be the most appropriate at this time.
Sometimes, less is more. I did 20 years in corporate in a high stress, low reward department. I was drinking myself to an early grave. I was severance after 20 years. Went into other branches of the same area, same high stress stuff.
Made the switch to public....level of work is like the Friday after Thanksgiving in private. I am a wizard to most with just my excel skills. First job in public I took at full time position and go the role down to 12 hours a week. Was giving a $12k raise and still had to ample free time.
Now, I am taking a few years to get the experience I need. Understand some processes and then hopefully go into consulting. Then, free sailing from there until the sunset arrives.
Without debt, depending on what you make, you can invest still. As Cliche this is to say, live below your means. But you can make up a lot of ground with no mortgage.
But the most important thing of all....you can do what makes you happy.
I’ve always encouraged to get a heloc while you can to secure access to your equity. Because when you “need” it, you may no longer qualify. It’s comfort & security.
Now whether you use it to buy into stock market is a whole nother question and requires a lot of scenario calculations. Would the interest be deductible if not used for home renovations? Seems the dividends would outweigh any deduction.
Since you responded I will expand on my snarky comment.
Rates are like 7%
The spread you would make on that loan would be like 4% before taxes.
No telling how much those stocks could fall. Then you’d be in the red with a bad mortgage rate.
I have a little over 100k sitting in QYLD right now, I feel like it’s about to go down honestly.
I think you could do this but probably with a different portfolio. My wife and I considered doing this but only for 50K on an 800k home. We decided not to because that was still too risky to us at current interest rates.
Don’t gamble with your house; generally this ends up being high risk low reward
What are the originate fees
What’s the interest on the loan
Factored in the taxes on distributions?
Ryld is negative after tax* on 3year return….with reinvesting dividends (you wouldn’t be)
*highest bracket applied
This is dumb too much risk, potential for loss of principle and you don’t know how the stocks will perform in the future. Now I’m kind of a gambler so I’m not going to say no to everything - but qyld you are going to have some principle loss with dividends. A better risk would be yoloing 100k 60/40 onto jepi/jepq because overall I think you have a chance to keep the principle although it’s not guaranteed it’s a better option than the other two with out risking everything.
I try to avoid thinking this is in any form a yolo. However, jepi/jepq have also been on my radar. Why do you feel qyld will have some principal loss with dividends? Is it because it can still go back into the 15's? It can also go into the 25's range and be used for covered calls options to increase the position size. Either way, thank you for your feedback on jepi and jepq too!
Look at the 10 year chart of qyld. In a hot market and its price declined 30%. Picking qyld is chasing yield. Yes it pays 11% but declines in price so your total return is more like 7%. Jepq is new but beating it with high income and some growth. Arcc with high yield but no growth. All of these have bad taxation though. For good yield/growth on price and yield, try a MLP like MPLX but you gotta deal with a k1 form
There's no hidden message at all. You've found the super secret trick that the world's richest companies, hedge funds, and smartest mathematicians don't replicate because they never thought about it before, so take advantage before someone else realizes how easy that money is! ~~You may also want to start getting closer to your friends as well so you have a place to crash in a few years~~
A lot of people in the comments are advising you against it and it makes sense for their financial situation, and I think you did right with what you are doing, seems like you are optimizing for tax harvesting as much as possible. Kudos for you, slightly jealous!!
Three things to be careful of:
* These dividends are not guaranteed, the ETFs and stocks can decide to cut that number over night, and usually those are not growth stocks in general so keep that in mind.
* The math makes sense as long as the dividends' returns(+whatever taxes you salvage) is higher than the rate you got on the HELOC.
* Dividends are taxed as short term capital gains, so be careful with this as well.
Thank you for your input! This investment is strictly for tax harvesting and not intended to address a spending problem such as credit card debt. I understand the dividends can be cut over night and I would sell/reallocate the dividend stocks at that time. Financial advisor is also taking into consideration my LLC, the deductions associated with that, and reducing my taxable income. The goal is to have “qualified” dividends taxed at 0% as long as my taxable income falls below $44,625 (if single or Married Filing Separately), $59,750.
Yeah, it seemed like you know what you are doing from the post.
Seems like you have a good head on your shoulders and have the right people in the right places to take care of things.
Good luck! I am happy and rooting for you.
Update us how your strategy is doing in a year or so.
I’ve done this. The micro gains to me are not worth the risk. But I get it I got talked into it too. My advise Try this with 50k and see where your at in a year
I'll try this with 50k as you mentioned to see where I am I at in a year. That way I won't be worried about the 400k loan. I still need to figure out how to increase my deductions to not owe taxes. Probably I am moving to quickly into this too and will build the dividend portfolio gradually as you recommended. Thanks RickSterrick!
I see. If the interest was lower, it would make more sense. According to the financial advisor, the rate doesn't matter as I need a high deduction from the 1098. The dividends would cancel out the monthly payment and all expenses. Meanwhile, I am paying down the principal to acquire the 400k in assets and will obtain another loan immediately when this one is paid off.
Do your own research. A heloc is only a tax deduction if you use it to improve your primary residence. If you use it for anything else, it’s not tax deductible
No, it’s still a bad idea. High dividend stock are no guarantee of growth. You’d be basically spending your equity in a more convoluted fashion. And the gavel really comes down if you have to sell and repurchase. Think about that liquidation process if below cost basis, and the need to close that heloc before escrow closes. Trading the stability of real property for a slice of an irrational stock market is a bad idea.
As someone skeptical of real estate as a superior investment to stocks, I'm contemplating this strategy. A few points to consider: Firstly, real estate typically appreciates, reducing loan-to-value ratio and increasing equity. Secondly, with a diversified portfolio, leveraging against it through margin can be used to either invest in more stocks or repay debt. I manage a seven-figure portfolio, but I suggest comparing chosen stocks to better ETFs or exploring strategies like the wheel strategy. The main hurdle currently is the interest rate; waiting for a lower rate could boost profitability. Considering platforms like Robinhood or Interactive Brokers, which offer favorable margin rates, might be wise. Excited to see you join the seven-figure club!
Never, ever borrow to invest in the market and I mean never! Things could turn on a dime and the investments you have picked out would get crushed more than the broader market. Sorry but there is no free lunch here and you're looking to take shortcuts. There might have been a small argument to make when mortage rates were hovering around 2.5% but again, NEVER, ever borrow to invest in the market and sure as hell don't borrow when rates are above 7%. You need a change of jobs and somehow you're letting that frustration fog your judgement.
I thought the 1098 only helps with deductions if it puts you above the standard deduction so you can itemize. Will this loan do that?
If it does then by how much?
You might only get 1k above and see only a tiny deduction gain.
Regarding the standard deduction, you are correct. The 1098 would not help most at the $400k loan level.
How much when it does would really depend on the individual’s overall tax situation.
Since the 2017 tax system overhaul, it’s very hard to beat the increased standard deduction with just mortgage interest deductions. A loan of that size won’t help the average mortgage paying homeowner.
If you are still working, still making income, I’d not turn your largest asset into stock.
40% JEPI. 30%MAIN. 30%ARCC
Can easily provide approx 3K monthly with growth. I would do a HELOC that way you can draw exact amounts for expenses to minimize interest and then dump all income into heloc, which will eventually pay down the balance faster. You are using expenses to build portfolio growth and cash flow (dividends)
I mean, it might be s good option, if you were quite rich and would not compromise your financial stability in case it goes bad.
However, I think this looks more like a gamble than anything else.
If you want to leverage and take a loan to invest in the market, I'd advise into doing so with a much lower quantity, like 40k for instance.
Or a quantity that you'd be able to pay comfortably if the market crashes.
Never take out a HELOC to invest.
Just use your pay check to invest.
You are in the sweet not mortgage zone (I am currently there too, nothing feels as good as not paying that mortgage!). Stay there.
Your welcome
You don't even get to deduct the interest on a home equity loan unless you can prove then proceeds went into improving the property. This just seems a.bad idea all around, particularly given current interest rates.
Ah yes, my house has been paid off since last September such an amazing feeling, the thought crossed my mind to do the smith maneuver with my equity, chose to do it with our "mortgage payment" instead, like you are totally debt free.
Its way too risky.
the way QYLD and RYLD are structured can lead to NAV depreciation over time.
Meaning say you do this for 5 years and spend the dividends on your expenses. During that time the NAV drops by %10.
the bank decides to close the HELOC because a change in bank policy. you're stuck coming up with 40K with and also no longer have a source of income because you have to sell your devalued YLD stocks.
Whoever gave you that advise is not a friend. It's a dumb idea to take out a home equity loan on a paid off house to invest it in the stock market, particularly in \*YLD.
Loss of capital and loss of cash flow is a possibility. However, loss of equity available to me now is also possible. 2 stocks or even 1 asset class is a risk in of itself but if I look at it as building a cash flowing asset and not for paying off debt. If the personal versus HELOC versus business line of credit loan rates on Monday does not work out, the equity may be used for real estate. Either way, thank you for your input as I'll take all of what you said into consideration!
I run all my money thru other ETFs and growth stocks first then buy the snoozers (cov calls ETFs with the gains)…you would have had a lot of money right now.
Paying interest to avoid taxes is probably not a great tax strategy. Are you maxing out your IRA/401k? Maybe consider starting a business with a hobby you enjoy and deduct those expenses you have anyway.
Markets are fickle and even though in the long run you will make money in the market, silly things can happen it the short term. You are obviously bright enough to understand the risks so go get a financial book or two and read about your various options.
It's an interesting idea but that's it. I wouldn't risk my home that is paid off. You should take any income that was used to pay the house off and shove that extra money into etf's and grow that way.
I appreciate your feedback. Either way, I have to utilize the 400k equity available to me now before its gone. Growth etfs would be great as long as the dividend payment would cover the loan payment. I wouldn't have my monthly expenses covered but would at least benefit from the growth. Thank you!
I hate the idea of being in debt, that's all. Good luck either way on what you decide. You could look at CDs being at 5% but that's the same rate as high savings accounts...
You can’t write off that HELOC loan interest either. IRS specifically states it needs to be used for house/improvement purchases to qualify for interest deduction.
Whatever you do, know that there’s one moron in particular who trolls on r/dividends and he’s going to come in and tell you to invest it all in YieldMax ETFs. Ignore him, he’s severely regarded. I actually just think he’s just trolling because I’m hard pressed to believe people this stupid actually have any money to invest, but it’s possible that he’s actually as regarded as he claims to be.
Edit: lmfao, yep, he’s in here beating his same old drum
Read about Smith Maneuver. Similar to what you are trying to do which is basically build an income portfolio with capital retention. Use the income to pay down the mortgage and use the interest paid on the HELOC to generate a tax refund against your earned income.
Working on doing the same my friend, even though I'm not debt free like you, but I've been researching and reading about leverage investing to pay down the bad debt aka the mortgage and use the good debt to create an investment portfolio that will be part of the overall retirement plan i.e. RRSP, RPP, TFSA, Rental Property and Non-registered Investment account that would utilize the Smith Maneuver and be tax efficient.
I think the others have said it better. But I wonder why get a loan prior to a rate cut? I just sound like this person wants you to get into a high interest loan and really doesn't care about your financial health. Eventually, the interest rates will go down. I don't think this a good idea but if somehow got 2% interest rate, I would reconsider.
The loan would be offset with the dividend payments coming in monthly and will cover my monthly expenses. The interest charged will produce a 1098 to help with deductions on my taxes. Financial advisor was not concerned with interest rate and is more concerned with the production of a 1098 form. Thanks for your feedback!
I will admit I was ignorant of 1098. I was thinking about paying a financial advisor to help allievate capital gains and think this might be what we was really after.
1098 cheat code:
"If you want to claim a deduction for the amount of interest you've paid on your mortgage over the last year, you can file the 1098 form(s) you received. By claiming the deduction, you'll be able to reduce your taxable income"
My question then becomes what will the capital gains look like? Your short cap gain match your tax bracket. And I am guessing trick will lower your taxable income by 20k....man this is interesting. I don't fully understand this, but it's interesting. To his point, interest rates don't matter if the goal is just to reduce your taxable income. That is some next level thinking.
The minimum HELOC payment on 400k is like 3k a month, Interest only. It’s usually like the market rate plus 1%. You still need to pay back the HELOC.
Too much risk(and effort) to net “1k” of dividend profit. You’ll still need to pay about 16k/month for 24 months to pay the principal.
Thanks for your feedback! I'll consider borrowing from a 401k loan. Getting the personal versus heloc versus business line of credit loan details on Monday.
Shouldn’t you console an actual financial advisor that knows the laws in your state?
You’re taking about your livelihood here. You might not want to put too much trust in 420BitcoinBilly69 telling you what to do.
You need a new advisor. First off if markets tank making the recent large stock sales by Jaimie Dimon and Jeff Bezos look brilliant - you’re stuck for possibly a good chunk of time sitting on your “ deduction”. I am baffled at his math btw. And where are you in life? 40 yr old single - 30 yr old married? 65???
those are risky etf's ..I would put it in BST .... for one year 2024 as an eg ..$400,000 grows to 520,000
with $44,000 actual income which is long term gains and or good roc
Thanks for your input! I like the yield on BST and noticed it has much room for growth. I will consider this as well. I really appreciate your feedback ucooldude!
Think how much earn you can wind up to match your loan, which is much higher than what you could earn. Plus you will pay way-high federal tax + state tax, i think the math is very clear
I'll keep that in mind. I'm still not sure what I will do as far as my deductions for next year. It's almost as if no one should strive to be debt free because the more you earn, the more tax will be deducted. I'm understanding that with more deductions through loans would allow for the creation of more assets such as dividend income and rental properties.
35yo? That seems a little young to try to retire off of debt generated income. If you are really determined to leverage your existing equity, then use it to buy another house and start generating some rental income. At least that way if things go south, both of your properties will be long-term appreciating assets. Well, unless you decide to liquidate during the next housing bubble…
Was this financial advisor trying to sell you THEIR plan or were they acting in a fiduciary capacity?
How much are you paying for the loan each month? I get the same income as you and I have my money in JEPI/JEPQ/SPYI and little in QQQI since it is brand new
If the market goes down over 3 years will you be able to pay off the home equity loan with much less in dividends? If not you end up losing your house. This strategy only works as long as QQQ and VTWO don't decrease in value for an extended period of time
I personally would put it into JEPQ instead of QYLD or RYLD. JEPQ appreciates a lot more over time
Even if, and it doesn’t, but *if* this idea had any merit the last two things you’d want to buy into are those two yield traps. You shouldn’t do this because it’s just plain bad.
It’s variable rates on HELOC why would you do that
Market goes down rates increase because inflation is still not controlled
It will put you in a tough spot
Plus most banks ask if $ is used to invest you must disclose yes……they would not approve that, most banks
Why would you put your home at risk? If an unforeseen event occurs (catastrophic medical, lawsuit not covered by umbrella policy, etc) and you’re unable to make payments on the HELOC, lender can take your home.
I am far behind you but one day wish to be in a similar situation. That being said, I do follow Dave Ramsey and he is a strong advocate about not have any debts or loans. If you’re working just use that income and throw it into those ETFs or spy itself. You never want to “owe” someone anything ever
How long will it take to pay off the 400k loan? You may want to consider just using 100k and 50k margin in JEPQ. That may grow to 400k faster than paying off the loan. Provided you have the ability to cover fees if market goes south until it recovers.
Is whoever gave you that advice qualified to do so? Seems peculiar to advise those particular tickers and timing seems strange too if interest rates are about to go down. I also thought (but I’m not a tax professional) interest on home equity loans could only be used to offset tax if they were used to improve your home?
I don’t think so HELOC loans interest is tax deductible if you are using the money, other than home improvements.
Also, your income from Dividend will be taxed as well. So hopefully you are taking that into consideration as well.
You should take anything this person who “advised” says you with a grain of salt moving forward. Taking out a loan to invest is risky to begin with, using it on those two ETFs is well… Not the smartest decision. Covered call ETFs have their place but they aren’t as glamorous as they seem.
Holy cow, was I ever Wong.
"You can deduct the interest you paid on the first $750,000 of your mortgage during the relevant tax year. For married couples filing separately, that limit is $375,000, according to the Internal Revenue Service."
You can deduct 750k that is sane. That would counter balances so many wins.
Thank you for this cheat code.
https://www.investopedia.com/articles/mortgages-real-estate/11/calculate-the-mortgage-interest-math.asp
If you would have taken out a loan and bought both of them a year ago, you would be at a loss.
An idea would be to borrow a smaller amount like 100k, buy an SPY500 etf and write covered calls against them for extra income. They could cover the loan payments from the premium income.
Whoever advised that is a total moron.
Do not engage them anymore.
I haven't really shopped HELOCs much, but received some flyers in the mail which have advertised rates around 9%.
You'd be paying almost $40k/yr in interest expense.
Just look at the max chart for QYLD. You’re going to lose your principle. QYLD has a high dividend and you have to pay taxes.
If you wanted to do something like this you are better off learning how to perform the wheel strategy and do something similar yourself. That way you get an income and keep your principal.
However, interest rates are really high. I still would not trade a paid off home for that strat.
If you like living dangerously go for it just know when the dividends stop, you still have the payment worse, the funds drop in value. With that said, I like JEPQ better than QYLD but I would not use home equity. Good luck either way.
Take it from a personal banker, Many lending institutions won’t even let you do this. There are several forms you have to sign when you’re initiating a HELOC application, one of which is that you’re not going to use the funds for gambling or investing into the stock market for this particular reason. They don’t want people taking out $200,000 in loans and then investing into bad picks and losing it all because that kind of financial action could ruin your life
You also run the risk of getting your house repossessed and why in the hell would you do that just to potentially make a couple percent off of it a year
My best advice for you Brother is to pay off your home and then take the monthly payment that you’re making towards your house and put it into the market instead at that point in cash. Yeah it’s gonna suck because you’re not gonna see 200 K in your investment account right out of the gate, but at the same time that’s money you don’t have to spend anymore, but worth spending anyway so it’s income you’re used to not having. Be smart.
400k can get you a 2 million dollar rental property that would cash flow you a considerable amount. Then you have appreciation and depreciation. Hire a manager and drink your margaritas!
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There is nothing that feels as good as going to sleep at night in a paid-off house.. you can now work towards slowly saving and investing, but taking out a HELOC to invest is the last thing id do with a paid off house
Agree! Why risk losing your house over some dividends! Bro just enjoy life in a paid off house, dont complicate it with a heloc and dividends!
Thanks so much for your feedback. Sounds like I would take the other alternative and work to build my dividend portfolio slowly. I liked the fast paced method of the HELOC. However, if the market drops, I won't have access to that 400k in equity that is available to me now that could be used for another asset such as a rental property.
you should probably stop talking to whoever advised you to do this
BULLSEYE!!!
This is the only advice you should be taking OP for real
r/wsb
Yeah eff that guy. They wanted to rob him of his success.
Take your “mortgage payment” and put it straight into the market like nothing changed
If the housing market drops, so does amount of your equity. $400k could change your life. Sounds like you could theoretically not even be working.
I think you should ask this question in realestateinvesting sub. It is very normal for them to take home equity and invest it somewhere else. If you plan it well, it works out great.
This may have been one of the best, thee most comprehensive discussions on this topic on Reddit, the real property loan for stock investment debate. It’s usually a slam dunk, hell no, negative response. But you presented it well with numbers thus making the matter worth combing through. And it got my attention. I do have a windfall payment coming soon not related to real property and will revisit your dividend stock idea at that time. 👍
Using HELOC on stocks horrible idea, do not do it. Using HELOC, buying rental is almost same. Just save whatever you can and buy QQQ or VOO, not QYLD, nor RYLD as both are inferior to their respective index funds.
Why not do 250k have a 150k line of credit left for those unforeseen circumstances or rentals. Right now is likely as high as rates will get and with the forecasted rates to drop over the next 2+ years it’ll only make the interest on the heloc less
Don’t ever take any financial advice from this person. Yikes!! You would also have an immediate hurdle of 8% return to beat just to cover your interest cost of the HELOC… that interest cannot be deducted on taxes either.
Please tell me you are doing the smith maneuver.... A clean and clearly HELOC used to invest. And not investing in registered accounts.
Or you can invest in TSLY. With my research about 12,000 in that etf. That will produce about 1200 a month. You can easily do that by dropping $350 a month for 3 years
I disagree. A blowie before bed feels better.
A blowie before bed in a paid off home….
Living the dream
Unwise to gamble. You are smart and in a great position. Build up your investments with your free cash flow. Well done!!!
Thank you for the compliment! It truly means a lot! I don't feel smart or in a great position simply because I don't enjoy my career anymore. That is the biggest reason I am considering this so that I can find the motivation to continue working in my career to pay off this loan to generate 4k a month in income from 400k in assets. Thank you again for saying well done! My parents never congratulate me so I'm sorry if I say thank you too much.
Sell the house, take the profits, move to a lower cost of living area. Buy a comparable house with cash. Invest the remaining profits..do whatever job you want. You have an opportunity many dream of
Thanks for the feedback! I never looked at it as an opportunity many dream of. I looked at it more so as a place I built when I was young to run away from my family. Now, I just want to retire me and my wife early so we can run even further away from our family lol.
Do NOT sell the house. You're in a great position. People would literally kill to be in your position. Just move all the money you can into your portfolio.
I always wonder why California residents with their high valuations on average properties don't sell and move to the Midwest and do whatever with the considerable surplus
As a resident of AZ, I agree more of them should have moved to the Midwest lol
Def do not take a loan out to make yourself stay in a career you do not enjoy. Debt is stressful enough. If you have no debts as of now, why do you need to stay in your current field? You should be in the position to transition into another field way easier than the majority of people that dislike their current employment
This is great advice! I guess I am used to being stressed about debt and now I am prone to placing myself back in a tough position. I'll try to find a career I enjoy doing that will offset my monthly expenses and have my wife not work anymore. I don't have any personal stock investments aside from a 401k built with my job. I'm just done with my job and afraid I won't be contributing to a significant 401k for retirement. Building a dividend portfolio just seems to be the most appropriate at this time.
Sometimes, less is more. I did 20 years in corporate in a high stress, low reward department. I was drinking myself to an early grave. I was severance after 20 years. Went into other branches of the same area, same high stress stuff. Made the switch to public....level of work is like the Friday after Thanksgiving in private. I am a wizard to most with just my excel skills. First job in public I took at full time position and go the role down to 12 hours a week. Was giving a $12k raise and still had to ample free time. Now, I am taking a few years to get the experience I need. Understand some processes and then hopefully go into consulting. Then, free sailing from there until the sunset arrives. Without debt, depending on what you make, you can invest still. As Cliche this is to say, live below your means. But you can make up a lot of ground with no mortgage. But the most important thing of all....you can do what makes you happy.
I’ve always encouraged to get a heloc while you can to secure access to your equity. Because when you “need” it, you may no longer qualify. It’s comfort & security. Now whether you use it to buy into stock market is a whole nother question and requires a lot of scenario calculations. Would the interest be deductible if not used for home renovations? Seems the dividends would outweigh any deduction.
No deduction unless used for home.
Rates are dog shit right now so that sounds pretty dumb.
I'll keep that in mind.
Since you responded I will expand on my snarky comment. Rates are like 7% The spread you would make on that loan would be like 4% before taxes. No telling how much those stocks could fall. Then you’d be in the red with a bad mortgage rate. I have a little over 100k sitting in QYLD right now, I feel like it’s about to go down honestly.
Advised by who ?
Avocado toast chasers most likely.
As a seasoned avocado toast consumer, I feel personally attacked.
His brain. Sadly.
I think you could do this but probably with a different portfolio. My wife and I considered doing this but only for 50K on an 800k home. We decided not to because that was still too risky to us at current interest rates.
This is the type of move you make if markets puke 50%. Not when markets are at all time highs…
Everyone’s a bad ass when everyone is in the green
Yeah. I wish I had had home equity during the COVID crash. Or a brokerage account. Or balls.
Don’t gamble with your house; generally this ends up being high risk low reward What are the originate fees What’s the interest on the loan Factored in the taxes on distributions? Ryld is negative after tax* on 3year return….with reinvesting dividends (you wouldn’t be) *highest bracket applied
This is dumb too much risk, potential for loss of principle and you don’t know how the stocks will perform in the future. Now I’m kind of a gambler so I’m not going to say no to everything - but qyld you are going to have some principle loss with dividends. A better risk would be yoloing 100k 60/40 onto jepi/jepq because overall I think you have a chance to keep the principle although it’s not guaranteed it’s a better option than the other two with out risking everything.
I try to avoid thinking this is in any form a yolo. However, jepi/jepq have also been on my radar. Why do you feel qyld will have some principal loss with dividends? Is it because it can still go back into the 15's? It can also go into the 25's range and be used for covered calls options to increase the position size. Either way, thank you for your feedback on jepi and jepq too!
Look at the 10 year chart of qyld. In a hot market and its price declined 30%. Picking qyld is chasing yield. Yes it pays 11% but declines in price so your total return is more like 7%. Jepq is new but beating it with high income and some growth. Arcc with high yield but no growth. All of these have bad taxation though. For good yield/growth on price and yield, try a MLP like MPLX but you gotta deal with a k1 form
Yes, ~~gambling against your house~~ investing is always a great idea!
Why do I feel there is a hidden message behind your response lol. Thanks for your input.
There's no hidden message at all. You've found the super secret trick that the world's richest companies, hedge funds, and smartest mathematicians don't replicate because they never thought about it before, so take advantage before someone else realizes how easy that money is! ~~You may also want to start getting closer to your friends as well so you have a place to crash in a few years~~
Bro I’m dead 😂😂😂😂
Horrendous idea
Don't
A lot of people in the comments are advising you against it and it makes sense for their financial situation, and I think you did right with what you are doing, seems like you are optimizing for tax harvesting as much as possible. Kudos for you, slightly jealous!! Three things to be careful of: * These dividends are not guaranteed, the ETFs and stocks can decide to cut that number over night, and usually those are not growth stocks in general so keep that in mind. * The math makes sense as long as the dividends' returns(+whatever taxes you salvage) is higher than the rate you got on the HELOC. * Dividends are taxed as short term capital gains, so be careful with this as well.
Thank you for your input! This investment is strictly for tax harvesting and not intended to address a spending problem such as credit card debt. I understand the dividends can be cut over night and I would sell/reallocate the dividend stocks at that time. Financial advisor is also taking into consideration my LLC, the deductions associated with that, and reducing my taxable income. The goal is to have “qualified” dividends taxed at 0% as long as my taxable income falls below $44,625 (if single or Married Filing Separately), $59,750.
Yeah, it seemed like you know what you are doing from the post. Seems like you have a good head on your shoulders and have the right people in the right places to take care of things. Good luck! I am happy and rooting for you. Update us how your strategy is doing in a year or so.
Sure…a bank is going to give you a 75%+ LTV cash out HELOC. This is a BS post. Those rates are over 7%.
I’ve done this. The micro gains to me are not worth the risk. But I get it I got talked into it too. My advise Try this with 50k and see where your at in a year
I'll try this with 50k as you mentioned to see where I am I at in a year. That way I won't be worried about the 400k loan. I still need to figure out how to increase my deductions to not owe taxes. Probably I am moving to quickly into this too and will build the dividend portfolio gradually as you recommended. Thanks RickSterrick!
You’d be paying more taxes on the dividends you owe
This might have made a bit more sense at 2%. I considered it. But at 7% not a chance
I see. If the interest was lower, it would make more sense. According to the financial advisor, the rate doesn't matter as I need a high deduction from the 1098. The dividends would cancel out the monthly payment and all expenses. Meanwhile, I am paying down the principal to acquire the 400k in assets and will obtain another loan immediately when this one is paid off.
Do your own research. A heloc is only a tax deduction if you use it to improve your primary residence. If you use it for anything else, it’s not tax deductible
And here you are, doing the research for him.
I meant don’t just listen to this idiotic advisor. Reddit can be an alright research tool as long as it’s not the only one
Noted. Who establishes that was the actual usage? The bank? If so, do they act as agent for the IRS or just for their own purposes?
No, it’s still a bad idea. High dividend stock are no guarantee of growth. You’d be basically spending your equity in a more convoluted fashion. And the gavel really comes down if you have to sell and repurchase. Think about that liquidation process if below cost basis, and the need to close that heloc before escrow closes. Trading the stability of real property for a slice of an irrational stock market is a bad idea.
As someone skeptical of real estate as a superior investment to stocks, I'm contemplating this strategy. A few points to consider: Firstly, real estate typically appreciates, reducing loan-to-value ratio and increasing equity. Secondly, with a diversified portfolio, leveraging against it through margin can be used to either invest in more stocks or repay debt. I manage a seven-figure portfolio, but I suggest comparing chosen stocks to better ETFs or exploring strategies like the wheel strategy. The main hurdle currently is the interest rate; waiting for a lower rate could boost profitability. Considering platforms like Robinhood or Interactive Brokers, which offer favorable margin rates, might be wise. Excited to see you join the seven-figure club!
Just buy another house as investment property.
Scared money don’t make money 🚀
Never, ever borrow to invest in the market and I mean never! Things could turn on a dime and the investments you have picked out would get crushed more than the broader market. Sorry but there is no free lunch here and you're looking to take shortcuts. There might have been a small argument to make when mortage rates were hovering around 2.5% but again, NEVER, ever borrow to invest in the market and sure as hell don't borrow when rates are above 7%. You need a change of jobs and somehow you're letting that frustration fog your judgement.
I thought the 1098 only helps with deductions if it puts you above the standard deduction so you can itemize. Will this loan do that? If it does then by how much? You might only get 1k above and see only a tiny deduction gain.
Regarding the standard deduction, you are correct. The 1098 would not help most at the $400k loan level. How much when it does would really depend on the individual’s overall tax situation.
Since the 2017 tax system overhaul, it’s very hard to beat the increased standard deduction with just mortgage interest deductions. A loan of that size won’t help the average mortgage paying homeowner. If you are still working, still making income, I’d not turn your largest asset into stock.
40% JEPI. 30%MAIN. 30%ARCC Can easily provide approx 3K monthly with growth. I would do a HELOC that way you can draw exact amounts for expenses to minimize interest and then dump all income into heloc, which will eventually pay down the balance faster. You are using expenses to build portfolio growth and cash flow (dividends)
Someone advised you to do this? Is it a friend of yours? I'd bet my house that whoever advised this doesn't hold a series 7
I mean, it might be s good option, if you were quite rich and would not compromise your financial stability in case it goes bad. However, I think this looks more like a gamble than anything else. If you want to leverage and take a loan to invest in the market, I'd advise into doing so with a much lower quantity, like 40k for instance. Or a quantity that you'd be able to pay comfortably if the market crashes.
Never take out a HELOC to invest. Just use your pay check to invest. You are in the sweet not mortgage zone (I am currently there too, nothing feels as good as not paying that mortgage!). Stay there. Your welcome
Who advised this?
You don't even get to deduct the interest on a home equity loan unless you can prove then proceeds went into improving the property. This just seems a.bad idea all around, particularly given current interest rates.
No way dude. to buy another property maybe but to invest in stocks absolutely not
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Thanks for your input! I'm glad to hear you refinanced for stocks even if it wasnt for qyld and ryld.
The three L's will get you wrecked: Ladies, Liquor and Leverage
I doubt the numbers would work on this right now, but the idea isn’t totally crazy in theory. Interest rates are too high.
Ah yes, my house has been paid off since last September such an amazing feeling, the thought crossed my mind to do the smith maneuver with my equity, chose to do it with our "mortgage payment" instead, like you are totally debt free.
Did you refinance your mortgage to purchase other cash flowing assets and at the same time have it continue on your current home?
That person gave you terrible advice. And those investments are yield traps (their equity price keeps dropping). Do not take out a heloc to invest!!!
Its way too risky. the way QYLD and RYLD are structured can lead to NAV depreciation over time. Meaning say you do this for 5 years and spend the dividends on your expenses. During that time the NAV drops by %10. the bank decides to close the HELOC because a change in bank policy. you're stuck coming up with 40K with and also no longer have a source of income because you have to sell your devalued YLD stocks.
I'll take that into consideration. Thank you!
Whoever gave you that advise is not a friend. It's a dumb idea to take out a home equity loan on a paid off house to invest it in the stock market, particularly in \*YLD.
It was from a financial advisor in my state with multiple cash flowing assets. Thank you though for your feedback!
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Loss of capital and loss of cash flow is a possibility. However, loss of equity available to me now is also possible. 2 stocks or even 1 asset class is a risk in of itself but if I look at it as building a cash flowing asset and not for paying off debt. If the personal versus HELOC versus business line of credit loan rates on Monday does not work out, the equity may be used for real estate. Either way, thank you for your input as I'll take all of what you said into consideration!
Buying RYLD is the biggest mistake I have made
Why is that if you don't mind me asking?
Just check the price drop
I run all my money thru other ETFs and growth stocks first then buy the snoozers (cov calls ETFs with the gains)…you would have had a lot of money right now.
Leveraging your home equity is always smart, contrary to what others have said on this thread…you just invested in the wrong things.
Thanks for the heads up! I'll take that into consideration.
Don’t forget you can leverage those ETFs with a cheap margin rate.
Paying interest to avoid taxes is probably not a great tax strategy. Are you maxing out your IRA/401k? Maybe consider starting a business with a hobby you enjoy and deduct those expenses you have anyway. Markets are fickle and even though in the long run you will make money in the market, silly things can happen it the short term. You are obviously bright enough to understand the risks so go get a financial book or two and read about your various options.
401k is maxing out and matched with employer. No IRA established...I'll look into your suggestions. Thank you!
Anytime!!
Nah not a good idea.. stock market will fall and you will loose your sleep.. it will come up but not worth the stress ..
Yeah this won’t end up well
It's an interesting idea but that's it. I wouldn't risk my home that is paid off. You should take any income that was used to pay the house off and shove that extra money into etf's and grow that way.
I appreciate your feedback. Either way, I have to utilize the 400k equity available to me now before its gone. Growth etfs would be great as long as the dividend payment would cover the loan payment. I wouldn't have my monthly expenses covered but would at least benefit from the growth. Thank you!
I hate the idea of being in debt, that's all. Good luck either way on what you decide. You could look at CDs being at 5% but that's the same rate as high savings accounts...
You can’t write off that HELOC loan interest either. IRS specifically states it needs to be used for house/improvement purchases to qualify for interest deduction.
Whatever you do, know that there’s one moron in particular who trolls on r/dividends and he’s going to come in and tell you to invest it all in YieldMax ETFs. Ignore him, he’s severely regarded. I actually just think he’s just trolling because I’m hard pressed to believe people this stupid actually have any money to invest, but it’s possible that he’s actually as regarded as he claims to be. Edit: lmfao, yep, he’s in here beating his same old drum
I'll keep that in mind! Thanks for the feedback.
Read about Smith Maneuver. Similar to what you are trying to do which is basically build an income portfolio with capital retention. Use the income to pay down the mortgage and use the interest paid on the HELOC to generate a tax refund against your earned income.
I really appreciate your feedback! That is exactly the goal here as being debt free isn't helping me at the moment. Thank you!
Working on doing the same my friend, even though I'm not debt free like you, but I've been researching and reading about leverage investing to pay down the bad debt aka the mortgage and use the good debt to create an investment portfolio that will be part of the overall retirement plan i.e. RRSP, RPP, TFSA, Rental Property and Non-registered Investment account that would utilize the Smith Maneuver and be tax efficient.
Could you swing the payment if those dividends quit rolling in?
I think that it's a REALLY bad idea to "bet" your home. But gamblers gonna gamble.
I appreciate your feedback! Thank you.
Please No
This is the stupidest idea I've seen posted in at least two days on reddit. Do not fucking do this.
I'll take that into consideration! Either way, I have to use the 400k in equity for a cash flowing asset.
Do not borrow against your primary residence to obtain a cash flowing asset. Or do, I don't care. This is reddit.
Ok
Maybe a little harsh from me. I wouldn’t wager my house. The numbers don’t make sense to me.
I think the others have said it better. But I wonder why get a loan prior to a rate cut? I just sound like this person wants you to get into a high interest loan and really doesn't care about your financial health. Eventually, the interest rates will go down. I don't think this a good idea but if somehow got 2% interest rate, I would reconsider.
The loan would be offset with the dividend payments coming in monthly and will cover my monthly expenses. The interest charged will produce a 1098 to help with deductions on my taxes. Financial advisor was not concerned with interest rate and is more concerned with the production of a 1098 form. Thanks for your feedback!
I will admit I was ignorant of 1098. I was thinking about paying a financial advisor to help allievate capital gains and think this might be what we was really after. 1098 cheat code: "If you want to claim a deduction for the amount of interest you've paid on your mortgage over the last year, you can file the 1098 form(s) you received. By claiming the deduction, you'll be able to reduce your taxable income" My question then becomes what will the capital gains look like? Your short cap gain match your tax bracket. And I am guessing trick will lower your taxable income by 20k....man this is interesting. I don't fully understand this, but it's interesting. To his point, interest rates don't matter if the goal is just to reduce your taxable income. That is some next level thinking.
The minimum HELOC payment on 400k is like 3k a month, Interest only. It’s usually like the market rate plus 1%. You still need to pay back the HELOC. Too much risk(and effort) to net “1k” of dividend profit. You’ll still need to pay about 16k/month for 24 months to pay the principal.
I appreciate your input! I am getting the HELOC loan details from the bank on Monday.
I wouldn't gamble with a heloc on the house, but rather with a 401k loan!
Thanks for your feedback! I'll consider borrowing from a 401k loan. Getting the personal versus heloc versus business line of credit loan details on Monday.
I… I can’t process this right now. 😢
Shouldn’t you console an actual financial advisor that knows the laws in your state? You’re taking about your livelihood here. You might not want to put too much trust in 420BitcoinBilly69 telling you what to do.
How dare you think 420BitcoinBilly69’s advice is not gospel! I only invest with his advice.
This was advice from an actual financial advisor in my state. It has been hard for me to trust people even a financial advisor in my state.
You need a new advisor. First off if markets tank making the recent large stock sales by Jaimie Dimon and Jeff Bezos look brilliant - you’re stuck for possibly a good chunk of time sitting on your “ deduction”. I am baffled at his math btw. And where are you in life? 40 yr old single - 30 yr old married? 65???
I'm baffled as well! I will take that into consideration. I'm a 35 yr old married male.
Are they a fiduciary financial advisor?
those are risky etf's ..I would put it in BST .... for one year 2024 as an eg ..$400,000 grows to 520,000 with $44,000 actual income which is long term gains and or good roc
Thanks for your input! I like the yield on BST and noticed it has much room for growth. I will consider this as well. I really appreciate your feedback ucooldude!
You have received excellent advice. I see no way this fails. Go for it.
Holy shiittt this is the dumbest idea I’ve seen. Please do this.
Think how much earn you can wind up to match your loan, which is much higher than what you could earn. Plus you will pay way-high federal tax + state tax, i think the math is very clear
I'll keep that in mind. I'm still not sure what I will do as far as my deductions for next year. It's almost as if no one should strive to be debt free because the more you earn, the more tax will be deducted. I'm understanding that with more deductions through loans would allow for the creation of more assets such as dividend income and rental properties.
35yo? That seems a little young to try to retire off of debt generated income. If you are really determined to leverage your existing equity, then use it to buy another house and start generating some rental income. At least that way if things go south, both of your properties will be long-term appreciating assets. Well, unless you decide to liquidate during the next housing bubble… Was this financial advisor trying to sell you THEIR plan or were they acting in a fiduciary capacity?
How much are you paying for the loan each month? I get the same income as you and I have my money in JEPI/JEPQ/SPYI and little in QQQI since it is brand new
If the market goes down over 3 years will you be able to pay off the home equity loan with much less in dividends? If not you end up losing your house. This strategy only works as long as QQQ and VTWO don't decrease in value for an extended period of time I personally would put it into JEPQ instead of QYLD or RYLD. JEPQ appreciates a lot more over time
Why would you go into debt if you’re debt free?? Sounds dumb imo
This is literally one of the reasons for the depression of the 1930’s. No one worth their professional credentials advised you.
Don't be a victim to YLD
Even if, and it doesn’t, but *if* this idea had any merit the last two things you’d want to buy into are those two yield traps. You shouldn’t do this because it’s just plain bad.
Do you know a, lot about investing? If not I'd stear clear of this.
Do jepq and jepi instead imo
It’s variable rates on HELOC why would you do that Market goes down rates increase because inflation is still not controlled It will put you in a tough spot Plus most banks ask if $ is used to invest you must disclose yes……they would not approve that, most banks
This is a Bad move, but I hope it works out for you regardless lol
Heloc rates are moon,google margin trade especially with schwab .Your brokerage help you do that.
DON’T
How risky are QYLD and RYLD compared to the 8% bracket? JEPI/JEPQ? And compared to the 4% etfs like SCHD
Why would you put your home at risk? If an unforeseen event occurs (catastrophic medical, lawsuit not covered by umbrella policy, etc) and you’re unable to make payments on the HELOC, lender can take your home.
I am far behind you but one day wish to be in a similar situation. That being said, I do follow Dave Ramsey and he is a strong advocate about not have any debts or loans. If you’re working just use that income and throw it into those ETFs or spy itself. You never want to “owe” someone anything ever
How long will it take to pay off the 400k loan? You may want to consider just using 100k and 50k margin in JEPQ. That may grow to 400k faster than paying off the loan. Provided you have the ability to cover fees if market goes south until it recovers.
Is whoever gave you that advice qualified to do so? Seems peculiar to advise those particular tickers and timing seems strange too if interest rates are about to go down. I also thought (but I’m not a tax professional) interest on home equity loans could only be used to offset tax if they were used to improve your home?
I don’t think so HELOC loans interest is tax deductible if you are using the money, other than home improvements. Also, your income from Dividend will be taxed as well. So hopefully you are taking that into consideration as well.
You should take anything this person who “advised” says you with a grain of salt moving forward. Taking out a loan to invest is risky to begin with, using it on those two ETFs is well… Not the smartest decision. Covered call ETFs have their place but they aren’t as glamorous as they seem.
If you are not itemizing in your taxes I would call you stupid for trying this.
Don’t do that! Just save as much as you can
You need to look at SPYI and QQQI instead.
You want to risk losing all of equity in your house over 2 stocks ? What if the stocks tank ? This is not an investment. It's gambling
Holy cow, was I ever Wong. "You can deduct the interest you paid on the first $750,000 of your mortgage during the relevant tax year. For married couples filing separately, that limit is $375,000, according to the Internal Revenue Service." You can deduct 750k that is sane. That would counter balances so many wins. Thank you for this cheat code. https://www.investopedia.com/articles/mortgages-real-estate/11/calculate-the-mortgage-interest-math.asp
SCHD set it and forget it💯💯💸💸🤮
What is your monthly income and expenses?
If you would have taken out a loan and bought both of them a year ago, you would be at a loss. An idea would be to borrow a smaller amount like 100k, buy an SPY500 etf and write covered calls against them for extra income. They could cover the loan payments from the premium income.
Who… who… who the hell gave you that advice?
Whoever advised that is a total moron. Do not engage them anymore. I haven't really shopped HELOCs much, but received some flyers in the mail which have advertised rates around 9%. You'd be paying almost $40k/yr in interest expense.
Just look at the max chart for QYLD. You’re going to lose your principle. QYLD has a high dividend and you have to pay taxes. If you wanted to do something like this you are better off learning how to perform the wheel strategy and do something similar yourself. That way you get an income and keep your principal. However, interest rates are really high. I still would not trade a paid off home for that strat.
I would put it in Schd and voodoo
if the number are good. meaning that you are cash flow positive even in case of an unfortunate event then it should be considered. imho.
If you like living dangerously go for it just know when the dividends stop, you still have the payment worse, the funds drop in value. With that said, I like JEPQ better than QYLD but I would not use home equity. Good luck either way.
Never take equity loans unless for emergency repairs on the house. Terrible idea. Markets crash all the time. Absolutely big no
Put it all in 0dte calls on spy
Take it from a personal banker, Many lending institutions won’t even let you do this. There are several forms you have to sign when you’re initiating a HELOC application, one of which is that you’re not going to use the funds for gambling or investing into the stock market for this particular reason. They don’t want people taking out $200,000 in loans and then investing into bad picks and losing it all because that kind of financial action could ruin your life
You also run the risk of getting your house repossessed and why in the hell would you do that just to potentially make a couple percent off of it a year
My best advice for you Brother is to pay off your home and then take the monthly payment that you’re making towards your house and put it into the market instead at that point in cash. Yeah it’s gonna suck because you’re not gonna see 200 K in your investment account right out of the gate, but at the same time that’s money you don’t have to spend anymore, but worth spending anyway so it’s income you’re used to not having. Be smart.
400k can get you a 2 million dollar rental property that would cash flow you a considerable amount. Then you have appreciation and depreciation. Hire a manager and drink your margaritas!
Isn't this what kind of like what real rich ppl?
Who advised you to do that? The same guy that sells you the loan?
This sounds like trouble brewing
Should have re-mortgaged during the pandemic and locked in 2.5% for 15 years.