# Getting a loan to invest



## runner39 (Mar 11, 2010)

I am able to get a loan at 3.5% interest (up to $60,000) and looking to invest it. Considering I could much better than 3.5% with even a low-med risk investment, looks like a good oppurtunity. Any thoughts?


P.S. buy BMO soon


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## dogcom (May 23, 2009)

There are a ton of risks out there that could sideswipe a stock portfolio. Look at the problems in Europe and the debt problems in the US. Also what if the longer bonds can't be contained and start to head much higher. Read the speech by Mark Carney he is not very happy with all the debt Canadians seem to be carrying around with them.

On the other hand we are in recovery mode and companies do have a lot of cash to deploy and so on. So we could go much higher from here but then again things can blow up here at any time especially with complacency creeping into the markets.


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## Four Pillars (Apr 5, 2009)

Lots of thoughts:

http://www.moneysmartsblog.com/leveraged-investing/

And the final article:

http://www.moneysmartsblog.com/the-leveraged-investing-plan-investing-loan/


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## DavidJD (Sep 27, 2009)

Go for it. But that means not all at once. It should take months to spend $60K on good investments and at good buy-in opportunities. Also invest in several equities (diversified).

If this is a new undertaking (trading) you should get an account with low fees. TDW now has $10 trades if you have over $50K.

There are lots of REITS etc that pay well above 3.75% and remember the 3.75% you can write off. Your dividends should be able to cover interest and make some payments to the $60K loan. 

Start slow.


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## furgy (Apr 20, 2009)

runner39 said:


> I have about $90,000 and need to produce around $300-400 of weekly income through investments, any ideas to how I could achieve this.
> 
> Thanks


Did you blow the first $90,000 already?

Look back at your previous investments and see if they're producing over 3.5%.

What would you be securing the loan with?

I wouldn't be risking my home in these volatile markets.


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## slacker (Mar 8, 2010)

$90000 principal, with $300-$500 weekly income ... That's about ...

Looking for 17% to 23% yield? One would need to take on substantial risk to get that kind of return ....


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## runner39 (Mar 11, 2010)

furgy said:


> Did you blow the first $90,000 already?
> 
> Look back at your previous investments and see if they're producing over 3.5%.
> 
> ...



no didn't "blow" any money, but thanks for your concern, no one likes a smart ***

I agree the market is volatile but something like XIU or CDZ is producing over 3.5% with growth and dividend


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## furgy (Apr 20, 2009)

runner39 said:


> no didn't "blow" any money, but thanks for your concern, no one likes a smart ***
> 
> I agree the market is volatile but something like XIU or CDZ is producing over 3.5% with growth and dividend


No , not being a "smart ***" , but two months ago you had $90,000 to invest , now you're looking to borrow another $60,000 to invest.

I can't help but wonder why you would need to ask , it just makes sense to look at the last $90,000 you had invested , and see how that's performing lately.


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## the-royal-mail (Dec 11, 2009)

Thanks furby. I thought this was a familiar question.

I think this is a bad idea. There is no guarantee you could get returns greater than 3.5% and if the market takes a dive you'll lose a lot and still have to make monthly payments. To put yourself in debt and having to make monthly payments for this type of investment is a very bad idea IMO.

You should be saving your money first, THEN invest it.


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## rassmy (May 7, 2010)

My experience, in borrowing to invest, is very successful. I borrwed $80K from my HELOC back in April 2009, my balance now is arround $220K. I was able to buy many dividend stocks at deep discount back then, like BMO, FTS, BNS, TRP, ENB, RioCan, FCR,PWF, etc.. I made between 100% to 140% on some stocks, plus the dividend, so now I am getting abour 650$ monthly dividends. All the dividends and some of the capital gains are paying down my mortgage (NOT the loan), loan is tax deductible and the mortgage is not, I am predicting to pay off my house in 4 years (have $140K left), so after 4 years, I will end up with just $80K loan.

Here are some tips and advises:
1- Take your time to buy stock at discount, don't jump and buy at any price. 
2- Dont borrow more than 30% of your available equity. 
3- read and learn the investment terms like PE ratio, payout ratio, book value,etc..
4- stay focus on your strategy, like dividend paying stocks only.

Hope this help and good luck.


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## dogcom (May 23, 2009)

You did very well rassmy with that timing.

The way to get rich is to take the risk and go for it the way you did. But I don't think there are very many people who can borrow and go against the grain and be able to buy and hold and sleep at night for very long after the destruction in 2009 ended. 

Also the way to get poor is to take the risk and fail and things don't go the way you had hoped and the trend continues to go down. I have read there are many great value buys in Japan but no one wants to buy no matter what the price is.


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## HaroldCrump (Jun 10, 2009)

dogcom said:


> I have read there are many great value buys in Japan but no one wants to buy no matter what the price is.


Japan is a graveyard from an investment perspective.
That country has gone nowhere in last 20 years.
I recall that in my graduate economics classes, the professors used Japan as an example of stagnation.
Not much seems to have changed since then.


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## dogcom (May 23, 2009)

Haroldcrump my example is to point out that value may not express itself in time for you to be right as you sweat under the leverage. Or you are wrong and the value is not really there like you thought it was and that is why it or everything is down. I believe the best value investors tell you that people sell for a reason and your reason to buy should be better then their reason to sell.


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## the-royal-mail (Dec 11, 2009)

Just because ramsay was lucky and bought a bunch of stocks at the low point in the market, does not mean that taking out huge personal loans for investment purposes is a good idea.


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## HaroldCrump (Jun 10, 2009)

the-royal-mail said:


> Just because ramsay was lucky and bought a bunch of stocks at the low point in the market, does not mean that taking out huge personal loans for investment purposes is a good idea.


Agreed...there is a common saying that _Do not confuse a bull market with investing skill_.
I'm not saying that rassmy isn't a skilled investor - just that a 100% annual rate of return is next to impossible to produce every year.
At that level, the forces of regression to mean are at their strongest.


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## furgy (Apr 20, 2009)

rassmy said:


> My experience, in borrowing to invest, is very successful. I borrwed $80K from my HELOC back in April 2009, my balance now is arround $220K. I was able to buy many dividend stocks at deep discount back then, like BMO, FTS, BNS, TRP, ENB, RioCan, FCR,PWF, etc.. I made between 100% to 140% on some stocks, plus the dividend, so now I am getting abour 650$ monthly dividends. All the dividends and some of the capital gains are paying down my mortgage (NOT the loan), loan is tax deductible and the mortgage is not, I am predicting to pay off my house in 4 years (have $140K left), so after 4 years, I will end up with just $80K loan..





rassmy said:


> I am mainly holding a Canadian banks in my portfolio. Thanks


"Beside my core holdings of canadian dividend stocks, list made of (BCE, FTS, BNS, RY, PWF, TRP, SLF, REI.UN, FCR, CPG). All these stocks bought them a year and half ago, made 20% capital gain and still collecting juicy dividends.

Recently I decided to increase my energy holdings, I added Encana (ECA at $28.85) and CNQ ($33.85).

For international, last week I jumped on VISA at 66$ and Microsoft 24.80, these 2 stocks are value stocks for long term dividend growth."

WOW!!!!Besides your core holding of canadian dividend stocks "( I am mainly holding a Canadian banks)" , you also have BCE , FTS , BNS, RY , PWF ,TRP , SLF , REI.UN , FCR ,CPG , BMO , Riocan , ENP , FTS , and all bought at the bottom!!!

Wow , what a lucky guy , pretty good for a seven post wonder.

But then , everyone was borrowing to invest in April/09 wrent they?

You should talk to runner39 , he did really well too , he invested $90,000 , then forgot how it was performing and started a thread to ask if he should borrow another $60,000 to invest , because he wasn't sure if the first $90,000 was making money or not.

Get real people ,.


_http://www.canadianmoneyforum.com/showthread.php?t=5730
Quote:
Originally Posted by runner39 
I have about $90,000 and need to produce around $300-400 of weekly income through investments, any ideas to how I could achieve this.

Thanks
Did you blow the first $90,000 already?

Look back at your previous investments and see if they're producing over 3.5%._


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## the-royal-mail (Dec 11, 2009)

LOL furgy. Good reality check. hehe

I think some people are good story tellers.


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## marina628 (Dec 14, 2010)

I have about $320,000 equity in my home but I don't think I could ever be comfortable to get a loan to invest in the markets .I have in past taken small rsp loans under $5000 and then used my tax refund to pay it down .Good luck Runner and the rest of you who can handle that risk ,I am a low baller compared to most I guess !


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## Argonaut (Dec 7, 2010)

Four Pillars said:


> Lots of thoughts:
> 
> http://www.moneysmartsblog.com/leveraged-investing/
> 
> ...


Curious about these articles because there are no dates on them. Did you manage to sell before the 08/09 crash? If so, great timing.

Your ideas of leveraged dividend investing is something I've thought about as well. I would probably look to the S&P Dividend Aristocrats list on the NYSE for all of my choices though. These are companies who have increased their dividends for an absurd 40-60 years in a row. 

It's even more valuable now because we see who managed to still increase during the recent crash. Coke, P&G, J&J, McDonald's, etc. stayed in. General Electric and others were cut.


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## johnmaters (Dec 23, 2010)

*Why not Real Estate - Am i completely off course?*

I know I'm new to this forum, but with a $60K have you considered purchasing a rental property. There are still quite a few good deals out there if you want to play "landlord" including the GTA. 

I don't know your history, however I've successfully flipped properties in the past and currently hold a duplex / student rental that is yielding in $2300 + $1600 per month from the property in the oakville area. This was on an intitial $58K investment back 4 years ago. I purchased the property in June to get it ready for School Season, I rented the entire place before School even started so I didn't even need to pay for my Mortgage and Bills. After adding $22 K in upgrades in total, I've been grossing 40 - 46K average per year. Not bad for $58K investment. 

Since I prefer residual and passive streams of income, I've only recently gotten into the stock and bullion game, but I'm still betting my marbles on investment rental properties as the $ will keep flowing in monthly for years and years. So again, I wish you luck as I'm certain you know what you are doing in the bullion market. Just my 1 cent


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## Four Pillars (Apr 5, 2009)

Argonaut said:


> Curious about these articles because there are no dates on them. Did you manage to sell before the 08/09 crash? If so, great timing.
> 
> Your ideas of leveraged dividend investing is something I've thought about as well. I would probably look to the S&P Dividend Aristocrats list on the NYSE for all of my choices though. These are companies who have increased their dividends for an absurd 40-60 years in a row.
> 
> It's even more valuable now because we see who managed to still increase during the recent crash. Coke, P&G, J&J, McDonald's, etc. stayed in. General Electric and others were cut.


I started the plan early on in 2007. At that time, the bank stocks started going down. I kept buying steadily over the next two years and including dividends, ended up breaking even. Go dollar cost averaging! 

I sold it all in the fall of 2009.

As I mentioned in the final post - it was really more of a lifestyle decision - I just didn't want to be bothered with it anymore.

My advice to someone starting a leveraged plan is to start small - that way you can get your feet wet, see exactly what's involved as far as bookkeeping etc. That way if you decide it's not for you after a year or two, you haven't placed too much money at risk. If you are still positive on it, you can keeping buying.


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## runner39 (Mar 11, 2010)

furgy said:


> You should talk to runner39 , he did really well too , he invested $90,000 , then forgot how it was performing and started a thread to ask if he should borrow another $60,000 to invest , because he wasn't sure if the first $90,000 was making money or not.
> 
> Get real people ,.
> [/I]



furgy, furgy, furgy, posting on xmas day, let me guess you live alone or with your mother

I was just asking a question and although it was basically an impossible sceniro just looking for some advice from the knowledgeable posters on this forum. FWIW the first $90,000 that you mentioned is making money, my thought was that borrowing another $60,000 at 3.5% with the good possibility of making money. From my knowledge(agree lower than most on this board) of investment strategies it seemed like a good oppurtunity.

so furgy if you nothing nice to say then say nothing at all


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## Bupp (Nov 13, 2009)

If the 3.5% is a fixed rate I would go for it, if it is a variable rate then we don't have enough information to decide if this is a good idea.


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## Eclectic12 (Oct 20, 2010)

rassmy said:


> My experience, in borrowing to invest, is very successful. I borrwed $80K from my HELOC back in April 2009, my balance now is arround $220K. I was able to buy many dividend stocks at deep discount back then, like BMO, FTS, BNS, TRP, ENB, RioCan, FCR,PWF, etc.. I made between 100% to 140% on some stocks, plus the dividend, so now I am getting abour 650$ monthly dividends. All the dividends and some of the capital gains are paying down my mortgage (NOT the loan), loan is tax deductible and the mortgage is not, I am predicting to pay off my house in 4 years (have $140K left), so after 4 years, I will end up with just $80K loan.
> 
> Here are some tips and advises:
> 1- Take your time to buy stock at discount, don't jump and buy at any price.
> ...


While that's great, I noticed that you say "dividend paying stocks" but the list includes a trust. 

Specifically, RioCan - which part of it's distributions are return of capital (Roc). This means that to keep the RioCan part of the loan fully tax deductible, the RoC part of the distributions has to be re-invested or paid back on the loan.

On their website, in the investor section, RioCan lists most of the distributions as being income, foreign income or reduction in ACB (i.e. RoC). Dividends are listed for 2001 only, for the last eleven years.


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## Eclectic12 (Oct 20, 2010)

DavidJD said:


> Go for it. But that means not all at once. It should take months to spend $60K on good investments and at good buy-in opportunities. Also invest in several equities (diversified).
> 
> If this is a new undertaking (trading) you should get an account with low fees. TDW now has $10 trades if you have over $50K.
> 
> ...


Ummm ... I'd avoid the REITs. Part of the distributions are return of capital (RoC) - which are not deductible for investment loan purposes. 

This can be worked around by re-investing or paying off the RoC payments but it's a lot of bookkeeping and/or pain in the butt. Especially when a lot of former trusts have or are about to convert to a regular dividend paying stock company.


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## DavidJD (Sep 27, 2009)

Eclectic12 said:


> Ummm ... I'd avoid the REITs. Part of the distributions are return of capital (RoC) - which are not deductible for investment loan purposes.
> 
> This can be worked around by re-investing or paying off the RoC payments but it's a lot of bookkeeping and/or pain in the butt. Especially when a lot of former trusts have or are about to convert to a regular dividend paying stock company.


If you borrow money to invest (in REITs) can you not claim the interest charged on that loan?

REITs aren't required to convert.


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## Jungle (Feb 17, 2010)

As posted above, you can also reinvest the entire distribution and re-buy whole shares. Paper work for that is much easier to do, as opposed to figuring out what is ROC and dividing it up.


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## stinsont (May 29, 2009)

I took 50% of my line of credit last April and invested it primarily in dividend paying stocks. Pretty conservative investing. I had a return of 9.5% with an interest rate of 2.5%.

I plan to re-balance this portfolio into something a little more aggressive for 2011.


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## Eclectic12 (Oct 20, 2010)

DavidJD said:


> If you borrow money to invest (in REITs) can you not claim the interest charged on that loan?
> 
> REITs aren't required to convert.


I mentioned REITs as I saw RioCan in the list and I know it has return of capital (RoC) in it's distribution payments. Note that the payment is not a dividend but a distribution of many sources (ex. income, interest, RoC etc.).

The issue is RoC being paid. 

According to CRA, the RoC part is considered a sale and reduces the amount of the load that is deductible. Since trusts/REITs have RoC in their distributions, this part has to be either re-invested or paid back on the loan.
The other factor is that since RioCan is paying monthly, it could be tedious.

Some links:
http://www.milliondollarjourney.com/how-return-of-capital-works.htm
http://www.jamiegolombek.com/printfriendly.php?article_id=802

Note that is it good to keep checking the company web sites as I've seen other companies such as a mutual funds pay RoC as well. 

As for the trust conversions to a dividend paying companies - this make things easier. Dividend payers typically don't pay RoC so the interest deductability stays at 100%.


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## Eclectic12 (Oct 20, 2010)

Jungle said:


> As posted above, you can also reinvest the entire distribution and re-buy whole shares. Paper work for that is much easier to do, as opposed to figuring out what is ROC and dividing it up.


I'm interested in how you are doing this for REITs.

If it is a DRIP, my broker only does partial units which leaves a remainder. I suppose the whole unit is likely to cover the RoC portion.

I'm curious but not concerned as the one trust I have leveraged was preparing for conversion to stock. When I checked their investor section, they had stopped paying RoC before I bought.


Though for those affect, this strategy is much simplier ... *grin*


Thanks for pointing it out.


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## Savingmoney (Dec 28, 2009)

I would be scared to borrow to invest, i don't want to be losing money i don't have.


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## Jungle (Feb 17, 2010)

Eclectic12 said:


> I'm interested in how you are doing this for REITs


I don't own any REIT stock, but I think Frugal has Riocan in his SM portfolio. Maybe he could chime in?


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## RealizedReturns (Oct 16, 2010)

I've borrowed to invest as part of a Smith Maneuver scheme. I had some gains and sold the lot to pay off the loan when the mortgage portion was nearly gone.

I ended up upgrading homes and did not repeat the scheme since a lot had changed in my life (marriage, kids, etc) and just wasn't motivated enough to take the risk. Now, I find myself wanting to set up a HELOC for investing, not sure how much I'd go in to it for.


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## andrewf (Mar 1, 2010)

I'd suggest leaving the Riocan distributions for a given year in your account until you receive the tax information. Then you can withdraw the income portion.


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## Eclectic12 (Oct 20, 2010)

Jungle said:


> I don't own any REIT stock, but I think Frugal has Riocan in his SM portfolio. Maybe he could chime in?


Hmmm ... so you don't have a strategy that re-invests the whole distribution.

As I say, I'm aware of the stock, REIT or Trust DRIPs that will re-invest the distribution into full plus fractional shares/units but usually this requires registering at least one share directly with the company.

Most brokerage DRIPs deal only with whole shares and in some cases, pocket the discount the company DRIP offers.

So at the end of the day, there would be a remainder - though as long as the RoC wasn't too high, it probably doesn't matter.


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## Eclectic12 (Oct 20, 2010)

andrewf said:


> I'd suggest leaving the Riocan distributions for a given year in your account until you receive the tax information. Then you can withdraw the income portion.


Hmmm ... this will keep the RoC in the account but it does not deal with the RoC making part of the loan no longer tax deducible.

It's looking to me that the least amount of work is to have as much of the RioCan distributions used to buy more RioCan units via a DRIP. 

There are several advantages:
a) no commission to pay.
b) the 36% of the distribution that is income should outweigh the small remainder that whole shares leaves.
c) the DRIPs purchases may add to the Adjusted Cost Base (i.e. ACB), delaying when the ACB hits zero and the RoC becomes a capital gain to be reported on the yearly tax return.

Re-calculating the ACB is still required but it looks like this would keep the loan closer to, if not fully deductible.

Then too, looking at the 2009 distribution info, RioCan seems to have a high RoC amount. Of $1.38 per unit, $0.87 is reported as RoC.


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