Let us suppose you had an asset that could keep working for you just as it is now — but could also serve as your own personal “bank”?
With our A. B. Nicholas LeverageLine, that is how you can look at it. In fact, many of our clients are using it for exactly that purpose. As their own bank so to speak, a line of credit they can draw on that is typically not reported to credit bureaus as an asset-based transaction.
Let us say you have a stock portfolio of $100,000 in value. Let us further say we’ve offered you a line of credit, managed 100% by and through one of the major public U. S. brokerage and banking giants we have partnered with in our network, with about a 75% loan-to-value, or $75,000. Lets say the interest rate is 4.6%.
Let’s further say you intend to use the cash to fix and flip homes, and to build up a large inventory over time by repeating the process of buying homes, fixing them up, then reselling for a profit. Since you can use LeverageLine financing for any legal purpose other than the repurchase of marginable securities, you are free to spend as you wish.
Your typical fixer-upper might go for, let us say $50,000 in this example. The cost of fixing up might be perhaps $10,000. Thus, every fix and flip you invest in this way cost you on average $60,000.
From your A. B. Nicholas line of credit, managed by and through let us say one of our partner firms, you withdraw the $60,000 you need. You purchase the property, buy the supplies to fix it up, and a month later have completed the fix up with a property that it ready to re-sell. Let us say the new property is now on the market for, perhaps $85,000 and that you sell it after two months on the market.
Drawing down your $60,000 at 4.6% interest in our example, your cost for that money will be $230 per month that the $60,000 is outstanding and not yet paid back. Since we have estimated it takes three months (one to fix up, two to put on market and sell) to recover that loan principal for payback from the sale, your cost of funds would be in our example $230 X 3, or $690.
Upon reselling of your property for $85,000 in our example, you will then repay the principal owed on the credit line ($60,000). In addition, you will have paid the $690 total interest by paying $230 per month — although you are also free to pay nothing in real time by placing that interest-owed back on the principal owed so that your principal repayment would be after three months, $60,000 + $690 = $60,690.
Either way your profit from this method would be $85,000 – $60,690 for a total profit of $24,301.
Your line of credit is back to $75,000, ready to draw again just like a credit card. Ready to repeat the same process.
And all that without a single trip to a conventional bank, without, credit/FICO scores, without delays, without putting liens on your house or other property.
Just like being your own banker… and while all that has happened, your original stock portfolio asset with some prudent management by yourself, may have gone up in value, perhaps even allowing you to tap MORE money from your line of credit. In fact, if you put some of that $24,301 profit back into eligible securities, you could be INCREASING your available cash from the line. For example:
If you original line had a stock portfolio value of $100,000 at a 75% LTV, as in our example here, you’d be eligible for a line of $75,000 to use in your fix-and-flip investment plans.
But if you purchased, let us say, $24,000 worth of quality stocks, bonds, ETFS, etc (any non-IRA, free-trading, U. S. marginable security valued at $5/share with an average trading volume of at least 250,000 shares per day over trailing four month period) – your portfolio would now be worth $124,000 and at 75% loan-to-value you would have $93,000 to draw from in your fix and flip program. That would be a leap from $75,000 available to invest to $93,000 – an increase of $18,000.
Since your loan structure is in place, any rise in your portfolio value — whether because your stocks have been well-chosen and have risen in value, or by increasing/adding new securities — will be reflected in an increase in borrowing power at the same great terms as prior.
Imagine if you continued this system over time.
- Your borrowing power can increase if your stock portfolio increases in value.
- You would always know what your interest rate is ahead of time.
- You would choose when to repay the principal, since there is no maturity day for our standard variable rate line.
- Your can still trade within your stock portfolio guaranteeing your line, allowing you control of your assets (note: trading activity that potentially reduces the value of the portfolio while the account is active needs approval from your lender in advance).
- Because of all this, you’d be creating a strong financial relationship as a client of a major U. S. banking giant thanks to your credit line relationship, which, if maintained, can then be parlayed into conventional business financing or business credit down the line.
We created this financing structure to be a client-informed vehicle to help franchise and business buyers get the financing they needed during the great recesssion when banks were closing down their windows to conventional financing and even the SBA stopped taking new applications. Today it is a powerful financing tool for investors via a network of specialized lenders, that can handle portfolios up to $100M with ease.
We’re America’s Portfolio Lender. Let us show you why.