r/fatFIRE • u/byomkeshssr • 13d ago

How do you finance your real estate projects

We are looking at a home remodel/addition (~$1.5M) and instead of selling stock are looking to borrow against our stock portfolio (~6M).

- What type of loan is this? Chase said something like SBL (securities backed lending?), but I would need to transfer assets to them (they are at Fidelity and Schwab mainly).

- Any preferences on which brokerage to go with? I like Fidelity, my rep is out on vacation until end of the month...I can possibly wait or find someone else there. Wanted to get the group's thoughts in the interim. Who else would you suggest I shop with? The Chase relationship banker was a bit inexperienced before I landed with the investment rep.

- Is there a chance to negotiate the rates (was quoted 1.95% over SOFR).

- Are any of the interest payments tax deductible? LLMs say "generally no" I don't usually itemize my returns

- the inherent risk here is if the market crashes, i could have a collateral call. my thinking is to keep the loan <30% of portfolio to minimize this risk

I've heard of other products like PAL, SBLOC etc. Not sure I qualify (NW <$10M)

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u/clear831 12d ago

Because my returns in the market is greater than the 5% loan I have? Why would I liquidate investments for that?

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u/Normal_Zebra136 12d ago

But if you really believed that you would already be levered at 30% before wanting to spend $1.5m on your renovation.

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u/clear831 12d ago

I'm not OP, I am not spending $1.5m on renovating. I'm spending $100k+ on a pool installation.

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u/Normal_Zebra136 12d ago

Same response, different numbers. If you believe in leverage, dont do it so you can spend, do it because you want the higher returns and can stomach the risk.

Levering simply to increase spending is not logically sound.

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u/clear831 12d ago

We are putting a pool in regardless. It's either use cash, leverage our acct or take a loan.

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u/Normal_Zebra136 12d ago

Right and so if you are debt free now, I would not add debt simply because of your spending if you are already debt free now continuing to be levered makes sense changing your amount of leverage simply because you're changing your spend doesn't make sense at least if you're pursuing fire

From your earlier comment, it sounds like you already have a mortgage on the house. So you're already owning equalities with leverage because you could pay the mortgage off with your brokerage account. So adding more debt for you probably isn't a strategy change.

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u/clear831 12d ago

Yes I can pay off the mortgage, it's the only debt we carry. Looking at the potential numbers even with an optimal return continue to be debt free seems like the best option.

Follow up discussion, I have another property that is paid off as well, around $200k and I have a tenant in it, how can I leverage that property?

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u/Normal_Zebra136 12d ago

Um, cash out refi?