financial advice

[DS]

I realize that this thread would be more appropriate in the life after brown forum but I need as much advice as I possibly can get so I posted it in here instead.

Ok heres my situation.

I get my income tax done every year by an accountant in my area.Recently he`s been suggesting I make this move....

Take out a loan for $100,000 and leave it in the bank.
A new loan of $100,000 with a 25 year amortization annual interest rate of 8%. Invest$100,000 return rate of 10%.Monthly loan payment of $666.67 -interest gain $833.33-surplus of $166.66 to help pay the existing loan payment of $0.00

Here in Canada the loan payments are tax deductable because this is considered an investment.
Does this sound too good to be true to be real?
He told me that since I own a home and have a good credit rating plus the fact that I make over$70,000 a year,puts
me in the category of people that can take advantage of this.

Any advice? opinions?

 

[brown bomber]

is the return rate a guaranteed 10% ???? if so let me know how I can get a piece of this action..

 

[moreluck]

OR, you can borrow the hundred thousand, go to Vegas and quadruple your $$$$ !!!!!!

 

[moreluck]

BUT, What bank pays you 10 % on your money????

(In certain areas )you can borrow the hundred thousand, use it for downpayment on a couple houses.....rent them each for lots more than the mortgage payments are. With steady real estate growth your investment will increase in value and someone else pays the mortgage payments. Your interest is deductible too.

We did this in Utah and ended up with 13 properties all of which doubled in value over 7-10 yrs.

 

[upsdude]

OR, you can borrow the hundred thousand, go to Vegas and quadruple your $$$$ !!!!!!

.............and have money left over for meatballs!

 

[brown bomber]

with the problems w/ subprime mortgages...and the rates of foreclosure, I find this type of speculative investment to be highly questionable...I don't have a problem losing money on a risky proposition..but losing that money and 10X times that amount

 

[raceanoncr]

You say you are paying 8% interest per yr for 100K? You're going to make 10% if you invest?

Start at zero. You borrow 100K at 0. You make 2. Inflation is 3-4, maybe 5. You lose 1-2, maybe 3 a yr. You do the math.

I don't care if it's tax deductible. I don't need this kind of deduction.

 

[SmithBarney]

Better to invest with something that will gain value.
LAND... of course there is some speculation there as well
but in most cases LAND is a sure fire way to make $$
Find a Hotspot for land, you could make 10-15% in two years..
but I'm not a gambling man... so I just make money and stuff it away.
Find a nice mutual fund or a S&P 500, might want to look into GOLD...
always nice.

 

[DS]

You say you are paying 8% interest per yr for 100K? You're going to make 10% if you invest?

Start at zero. You borrow 100K at 0. You make 2. Inflation is 3-4, maybe 5. You lose 1-2, maybe 3 a yr. You do the math.

I don't care if it's tax deductible. I don't need this kind of deduction.

Thats the kind of advice I was looking for...
I posted this on another thread but check this out
Mackenzie Financial Burn Rate

 

[vin]

The only place you have a decent chance of making 10% year after year is in the stock market. Unfortunately there is no guarantee you will make 10%, and if you don't know what you are doing, staying on top of what you are invested in (doing your "homework" as Jim Cramer likes to say on his show) there is a very good chance you will lose money. You can borrow money to buy stocks, its called buying on margin. Not a very good idea unless you have a very good reason to believe the stock will go up since you are also paying interest on the money you borrowed. Bad things can happen if the stock goes down instead of up when buying on margin, too.

The same is true in real estate or any other investment. You just need to be in the wrong market at the wrong time and you can lose everything. Several "hot " markets here in the US (like south Florida and Silicon Valley in California) have cooled off. Many people bought several properties with the hopes of making some improvements and then "flipping" the property for a nice profit. Others bought properties with "subprime" loans with the expectation the market would continue to skyrocket. It worked for a time but those days are over and most who tried it lost everything.

My point is that it is very difficult to get a return of 10+% unless you are able to stay on top of your investments full time. In general it is also a bad idea to borrow money to try to make more money. It can be done but that can be a full time job in itself.

 

[OVERDISPATCHED]

essentially this is buying on margin. your accountant can spin it any way he wants but that is really all it is. i am a firm believer that time is money, so a little bit of money over a long period of time will net you good returns. i would not recommend this investment strategy. alternately i would steer you toward investments that give tax advantages such as bonds, more specifically municipals. maybee mutual funds that specialize in such areas. i dont know your tax situation or what your target goals are, but what are you going to lose what is the bottom line. after loan interest and average inflation of about 2.3-3% how much are you really going to be making?

 

[vin]

essentially this is buying on margin. your accountant can spin it any way he wants but that is really all it is. i am a firm believer that time is money, so a little bit of money over a long period of time will net you good returns. i would not recommend this investment strategy. alternately i would steer you toward investments that give tax advantages such as bonds, more specifically municipals. maybee mutual funds that specialize in such areas. i dont know your tax situation or what your target goals are, but what are you going to lose what is the bottom line. after loan interest and average inflation of about 2.3-3% how much are you really going to be making?

The scenario DS laid out is close to buying on margin but it is not exactly the same. A margin account is essentially a line of credit within a brokerage account where the securities (stocks, bonds, mutual funds, etc.) in the account are used as collateral against what was borrowed. If the value of the assets in the account fall below a certain level, the brokerage firm may sell the securities in the account to bring the level back up. The brokerage firm will usually try to contact you to give you the opportunity to deposit more funds or sell securities on your own. They don't have to do this however an may sell any securities in your account without notifying you to meet a margin call.

The point I was trying to make earlier was that:
Is it possible to generate a return of 10% or more year after year?
Yes it is.
Can you guarantee that you will get a 10% or more year after year?
No, and anyone who says they can is either lying or doing something illegal.

Again, it is usually a bad idea to borrow money to try to make more money. If you have money and want to try to invest it, that is fine. You can also take out a loan to buy a house, car, start a business or any number of other worthwhile ideas. A loan should not be used as an investment even if the tax laws in Canada you can do it. Another thing to consider is can you afford to make the payments on your own if whatever you invest in actually goes down in value rather than up?

 

[beentheredonethat]

I realize that this thread would be more appropriate in the life after brown forum but I need as much advice as I possibly can get so I posted it in here instead.

Ok heres my situation.

I get my income tax done every year by an accountant in my area.Recently he`s been suggesting I make this move....

Take out a loan for $100,000 and leave it in the bank.
A new loan of $100,000 with a 25 year amortization annual interest rate of 8%. Invest$100,000 return rate of 10%.Monthly loan payment of $666.67 -interest gain $833.33-surplus of $166.66 to help pay the existing loan payment of $0.00

Here in Canada the loan payments are tax deductable because this is considered an investment.
Does this sound too good to be true to be real?
He told me that since I own a home and have a good credit rating plus the fact that I make over$70,000 a year,puts
me in the category of people that can take advantage of this.

Any advice? opinions?

Not sure of the tax laws in Canada, but is there a sizable difference in taxes on investments vs earninngs? If yes that's one thing, if no, then wouldn't any savings on the 666 deduction be offset on taxes due on the 833 in earnings? There's not doubt in my mind, that the rich can get richer by doing investments. But you have to ask yourself if you have the stomache to handle it if you're investment goes belly up. I'm somewhat risky with my own money and invest in higher returning mutual funds. But I couldn't handle borrowing to make what works out to 2K per year and possibly some tax savings.

 

[DS]

A loan should not be used as an investment even if the tax laws in Canada you can do it. Another thing to consider is can you afford to make the payments on your own if whatever you invest in actually goes down in value rather than up?

There is no actual investment.I`m not spending the $100.000
I`m making more interest on it than the loan payments.
quote beentheredonethat

Not sure of the tax laws in Canada, but is there a sizable difference in taxes on investments vs earninngs? If yes that's one thing, if no, then wouldn't any savings on the 666 deduction be offset on taxes due on the 833 in earnings? There's not doubt in my mind, that the rich can get richer by doing investments. But you have to ask yourself if you have the stomache to handle it if you're investment goes belly up. I'm somewhat risky with my own money and invest in higher returning mutual funds. But I couldn't handle borrowing to make what works out to 2K per year and possibly some tax savings.
From what my accountant says its cut and dry.All the money
made from leaving the $ in the bank is a deduction,and it gets bigger over time.
Someone else mentioned inflation but I dont think its an issue here.
I asked why more people dont do this,and he said not everyone knows about it,not everyone makes over 70 grand a year,has a good credit rating and has equity on thier home.
And he said lots of people ARE taking advantage of it.

 

[raceanoncr]

DS, inflation is an issue everywhere, just not as severe as others. In some countries it's well over 20%! Here, in the US, it's about 3-4, give or take, a yr.
Better look at it a little more closely. Still don't agree with borrowing money to keep it in the bank. Invest elsewhere. You can get more of a return than just 2% in other areas.

 

[beentheredonethat]

DS, probably a typo, but my quote was changed around a little bit. No big deal, but it was different then what I said initially. It still seems like you deal is almost too good to be true, but if it is true, great, you just made a decent amount of extra money for little effort. But, I'd see if you can find someone else who does it or ask another financial advisor to see if there is any downside. Just to be on safe side. Good Luck.

 

[vin]

He actually quoted me. I don't know of any legal investment other than real estate or the stock market where you would make enough of a return to be able to make this scenario work. Even the best interest rates at an online bank (which usually have the best interest rates) are currently around 5-6%. CD rates may be a point or two higher. If you are lucky you will break even at 8%. If you are not going to deposit the money into a bank account, there is no guarantee of the return you will get, and the gains on the investment may not be enough to pay for the loan. The investment may even go down in value.

Just out of curiosity, did your accountant say how he would be able to generate this return? Is he saying he can guarantee this will work? Does he want you to sign anything other than the loan?

I'm not saying this isn't possible. I'm sure it is and others are doing it successfully, but there is also considerable risk involved. I don't know about the tax laws in Canada but it sounds like you may be able to get away with a slightly lower return than you would need here in the States to make this work. But again without more information I would advise against it and think it is a bad idea in general.

 

[brownmonster]

If it sounds too good to be true............