What would you do with an extra $236,000 in today's video?
I am sharing what I would do with an extra
236,000 because I am in the process of selling my home.
And after I pay off my mortgage and pay
my selling fees, I'll have an extra $236,000.
I am Tiffany Thomas, millionaire and financially free real estate investor.
And if you are looking to become
a millionaire or become financially free at a young age,
hit that like button and hit the subscribe button, and we're going to dive right in.
All right.
If you haven't watched my previous two videos about me selling my property
and the numbers of selling my property, you can check out those videos.
I will leave links above and below in the description.
But this video is about what I'm doing with the profit from selling my home.
I'm under contract to sell my home for $430,000.
And of course I am going to pay off the mortgage, which is about $178,000,
and then there will be some sellers fees that I'll have to pay.
So I'll end up with about $236,000.
With that amount, I've decided to pay off one of my other properties.
I will probably put some of the cash
directly on the mortgage and then the rest.
I'm going to invest in my brokerage account and then take out a margin loan.
And by doing that,
I'll be able to completely pay off my other property
and get rid of that mortgage payment, which will save me over $1,500 a month.
Let's talk a little bit about a margin loan.
What exactly is that?
And would it be something that would be valuable for you to utilize?
A margin loan essentially allows you to
borrow money from your investments that you have in a brokerage account.
This doesn't work with a retirement
account, like a Roth IRA or a 401 or even a traditional IRA.
It's for a brokerage account.
And I had heard about margin loans a while ago, but when I was looking,
it seemed to be that the interest rates on a margin loan were pretty high,
definitely higher than a mortgage loan that you could get.
And I didn't think it would be worth it.
But when I was deciding to sell my property, I was thinking,
what should I do with the profit that I will be receiving?
And a margin loan came to mind again.
And so I did a quick Google search for margin loan to buy a property.
And Mr. Money Mustache happened to do a blog
article earlier this year about this very thing.
So I looked through his article and I'm going to reference that in my video today
because he does a lot better job explaining a margin loan than I could.
Mr. Money Mustache found a broker that has
really low interest rates for their margin loans.
To be exact. It is now at 1.58% interest rate,
which is definitely lower than a mortgage rate you could get and way lower than
a personal loan or even a HELOC a home equity line of credit.
The broker that Mr. Money Mustache found was IBKR.
It is interactive brokers and they have
one of the lowest interest rates out there on margin loans.
Mr. Money Mustache article is called
The Margin Loan How to make a $400,000 Impulse Purchase.
I'm going to leave a link to that below
in the description so you can check out more of the details if you are interested
in doing this because not isn't only a great option
for paying off a mortgage that you might already have, but it can also be a great
option for purchasing a house, which is what Mr.
Money Mustache did.
I'm going to use the example
he uses in his article because he keeps it very simple with very simple numbers.
You may have heard of buying stocks on margins.
In his example, he talks about buying
stocks on margins, so we are going to cover that and then
cover how you could buy a house on a margin loan.
You would put in $100,000 of your own
money and then you could buy an index fund or an ETF.
The example he uses is VTI, the Vanguard Total Stock Market ETF.
You use that investment as collateral to borrow an additional
$100,000 to buy more shares of VTI, then you end up with $200,000 invested.
If the stock goes up by 10% per year,
which would be $10,000 and you are borrowing the money at only 2%,
that interest rate on the margin that would cost you $2,000 and then you
would get $8,000 every year, essentially free.
But the downside of this is that you invest your $100,000,
then you borrow that 2nd $100,000 and buy the same $200,000 of shares and then
the pandemic hits and your shares suddenly go down 50%.
So now the total value is $100,000,
but that $100,000 margin loan you took out hasn't changed.
In other words,
you still owe the brokerage $100,000 and your account value is now only $100,000.
The total value of your account is now zero because you need to pay
for that margin loan, and it gets even worse because
the brokerage is not cool with us because they require a 50% maintenance margin.
So you have to have 50% in your account.
They automatically sell
half of your shares in order to reduce the loan balance to $50,000.
You've just lost 100% of your money because you own 50,000 of shares
vti. And you owe the brokerage $50,000 and you were forced to sell the shares
at the worst possible time because they were so low,
shutting you out of the possibility of a rapid rebound,
which did happen right after the pandemic hit, and he puts a note in here.
If the stock drops fast enough, you can even lose more than all of your money.
So there definitely is a risk by using a margin loan.
But if you use it smartly, then you can make money.
You can profit from this margin loan instead of losing money.
And then he goes into the example of how he is actually using a margin loan.
He says he's using his margin loan a bit
differently to withdraw cash instead of buying more shares.
And he's keeping the borrowing amount
well under that 50% threshold in order to reduce risk of another market crash.
And then he goes into sharing the steps
that he took to get this set up, which I have done as well.
So I went to IBKR dot com and set up an IBKR pro account
because that has the lowest margin loan rates that you can get.
And then I set it up as a margin account
instead of the portfolio account, which is more complicated.
And then the money I had invested at my brokerage account at Ally.
I took all of that and switched it over to IBKR. Rather than selling all of those
shares and then rebuying at IBKR, I did a direct transfer,
so there's no capital gains tax and there may be a 30 day waiting period when you
switch over to IBKR, so just be aware of that.
And then when I deposit the money that I
will receive from selling my home into my IBKR account,
I can then withdraw the amount that I want to and put that towards paying off
my other mortgage, and it will allow you to do up to 50% of your account.
But I am going to do a lot lower than that in case we do see another crash
and that way they're not going to sell any of my investments.
And that is also what Mr. Money mustache did.
He didn't take out that full 50%.
He took out a lower amount that he felt more comfortable with.
And you can transfer that money right into your checking account and then
pay for a house or you could pay off a mortgage if you already have one.
And let's talk about why margin loan interest rates are low. For a brokerage
a margin loan is an easy and automated way to safely make money off of their clients
because they are really just lending you a portion of your own money.
So as long as they set the rules
conservatively, they have your shares of guaranteed
collateral and can sell them instantly if needed.
This means they can offer rates barely
above the prime rate, and Interactive Brokers is particularly
aggressive in their margin loan interest rates.
And if this is something you are
considering doing and want to set up an account at Interactive Brokers,
I will leave my referral link below because they will give you up to $1,000
in IBKR shares if you set up a new account and deposit a certain amount.
And I will also receive a smaller amount of IBKR shares.
So I will leave that in the description
below and you can click on that to set up your account.
And a few other great things about using a margin loan is that you can have instant
access to money if you need to without selling your investments.
And of course you want to be careful
and not take out too much money, that if the stock market
does go down quite a bit, they would sell some of your investments.
So be careful with how much you are withdrawing on your margin loans.
But if you have enough in your brokerage
account, then you can take money out and even use
it for regular expenses if you wanted to because you're not paying taxes
on that money that you are taking out on the loan.
And in some instances you can write off
that interest that you would be paying on your margin loan.
Which means you wouldn't have to have a lot of money in your emergency fund
not really working for you because you have access to this margin loan.
If this is all making sense to you so far,
comment below "Making Sense." And you can also make other investments
very quickly and very easily by using this margin loan.
For example, if you needed to pay cash for a home to get the home because
there are so many offers being put on homes right now, then you can actually
get the home and use your cash to pay for it on your margin loan and then
take out a traditional mortgage loan later if you wanted to.
So this really just opens up more options for you.
And if you never have to sell your investments in your brokerage account,
then you could keep those gains that you are making but not actually have to pay
taxes on those gains because you're not selling your shares.
As long as you are comfortable with the interest rate on your margin
loan, then you can just pay a little bit of interest and continue to not sell your
shares, which may be very beneficial, because if you are actually making more
money than you are paying in that interest,
then it makes sense not to sell the shares and pay the capital gains tax,
but actually keep your shares and pay the interest rate instead.
And if you have investments that are giving you dividends,
the dividends that you're making could actually pay for the interest.
And the interest that you are paying could also be tax deductible.
So as long as you are not taking on too much risk, because if the stock market
does crash or take a really big deal that they will sell your shares and they
don't have to notify you or give you extra time to put cash into the account.
So you do want to be really careful, but this is a really beneficial way to
make your money work for you as long as you are doing it right.
And this is what I have chosen to do with the profit
I will be making from selling my house.
And I have the freedom to choose what I want to do with that because
I have been investing in real estate and in the stock market.
I've been making my money work for me,
so I don't have to work for the money all of the time.
And if you are interested
in managing your money better so that you can have more of it working for you,
I personally use a free app,
it's called Personal Capital.
And you can link all of your financial institutions to personal capital, like your
credit cards, your mortgage, your checking,
your savings, your 401k, any retirement accounts,
and then you can see your full financial picture in one place.
If you are interested in signing up
for personal capital, I will leave my referral link below
in the description and you can get a free $20 Amazon gift card by using that link.
And part of the reason I've chosen to pay off my other mortgage is because I want
to reduce my risk right now and I'm not interested in buying another property
currently, I think that will change in the future,
but this is what feels good to me right now.
It's just reducing that risk paying off that mortgage, having my expenses lower
and I can choose to do that because I am financially free.
I have chosen to invest my money and have roommates and make sacrifices,
and now I am reaping the benefits. I choose where my money goes.
So that is what I've decided to do with the $236,000.
I'm going to pay off my other mortgage by using some cash and a margin loan.
Comment below and tell me what you would do with $236,000.
And if you found this video helpful,
please hit that like button and share it with someone else who would like to hear
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And if you want to see even more content
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Thanks so much for watching.
I'll see you in the next video.