Cash Buyers

[sdrealtor]

Sure. I’m packing it in for the day getting ready for my weekly wine dinner with friends. I’ll try to look at one or two more zips tomorrow

[Coronita]

[quote=deadzone][quote=pinkflamingo]Nice! I’m curious as well. What I found so far.

Startups that let you do this. Flyhomes and ribbon. General idea is you pay a little more and they get you a “cash offer”. Not 100% sure how they work.

Not really using cash in a cash offer. From reddit, “They’re providing proof of funds via assets they don’t actually plan to liquidate to purchase the home. EX: I put in a cash offer, proof of funds via my 401k. I am getting a mortgage” I’ve heard OpenDoor has a “cash backed” offer.

Loan against assets.
I’ve heard of people getting loans against their 401k and/or stock portfolios. Is this a new thing? Is it via margin loan or is there a new financial vehicle. I would like to know more about this and what happens if the portfolio falls.[/quote]

I’ve heard about these techniques (tricks) too. If this is common, what’s going to happen if we have a 30-40% crash in stock market, to all of the folks who secured these real estate loans using their 401K, brokerage account or corporate stock options as collateral? When that margin call hits, will they be kicked out of their house like a bank Repo?[/quote]

Definitely not possible with a 401k account…Not even close…

401k cannot be used as a pledged asset for a very simple reason…

1) https://www.irs.gov/retirement-plans/a-guide-to-common-qualified-plan-requirements#15

Code section 401(a)(13):

The plan must provide that benefits provided under the plan may not be assigned or alienated. In practice, the plan must not allow the assignment or alienation of any employee’s interest in the plan, other than for certain participant loans if they are provided for under the plan terms, and for certain qualified domestic relations orders.

In other words, The IRS does NOT allow 401k accounts to be used as a pledged asset to secure a loan, outside of the 401k account itself offering a loan option, which is usually limited to a low amount ($50k or your balance, whichever is lower)….

2) No lender in their right mind would accept a 401k as a pledged asset, because

https://www.investopedia.com/articles/personal-finance/040716/which-retirement-funds-are-protected-creditors.asp

Retirement accounts that qualify under the Employee Retirement Income Security Act (ERISA) are generally protected from creditors, bankruptcy proceedings and civil lawsuits. Your retirement assets are not at risk if your employer declares bankruptcy. In addition, creditors to whom you owe money cannot make a claim against funds held in your retirement account.

To be ERISA-qualified, a retirement plan must be set up and maintained by your employer (and/or a separate employee organization) and comply with federal rules regarding reports to plan participants, funding and vesting. Common types of ERISA accounts include 401(k) plans, deferred compensation plans, pensions and profit-sharing plans.

That’s why under no circumstances should you withdraw from a 401k retirement account to pay off debt even if you’re in a financial bind… In the worst case, it’s a protected asset even during bankruptcy…This isn’t rocket science and those who are financially savy also know this is the case for 401k…..

Now it is possible to borrow money against your after tax brokerage account, but as sdr said, it’s quite uncommon…few cases are done by the financially stupid people that do so at the risk of getting a margin call… But where’s prevalent is it’s done by really rich people where their pledged asset is several orders of magnitude larger than the loan amount…For example, a Mark Zuckerberg borrowed $5.95 million on a 1.75% ARM loan from Morgan Stanley, which as you know is an investment bank. So it was probably some pledge asset arrangement. Morgan Stanley was also the company that was the underwriter for Facebook’s IPO.

https://financialpost.com/technology/zuckerbergs-mortgage-deal-means-hes-essentially-borrowing-for-free

He later refinanced it to 1.05% 30 year
ARM loan from a standard bank.

Wishful thinking as this would be wide driver of people forced to sell.

[an]

[quote=Coronita]But where’s prevalent is it’s done by really rich people where their pledged asset is several orders of magnitude larger than the loan amount…For example, a Mark Zuckerberg borrowed $5.95 million on a 1.75% ARM loan from Morgan Stanley, which as you know is an investment bank. So it was probably some pledge asset arrangement. Morgan Stanley was also the company that was the underwriter for Facebook’s IPO.

https://financialpost.com/technology/zuckerbergs-mortgage-deal-means-hes-essentially-borrowing-for-free

He later refinanced it to 1.05% 30 year
ARM loan from a standard bank.

Wishful thinking as this would be wide driver of people forced to sell.[/quote]
Exactly, this is the vehicle for the wealth. Not for your average joe. It allow them to get access to liquity of their stock investment without having to sell it. It’s a win win scenario. Low risk for the lender (easy money).

[Coronita]

[quote=an][quote=Coronita]But where’s prevalent is it’s done by really rich people where their pledged asset is several orders of magnitude larger than the loan amount…For example, a Mark Zuckerberg borrowed $5.95 million on a 1.75% ARM loan from Morgan Stanley, which as you know is an investment bank. So it was probably some pledge asset arrangement. Morgan Stanley was also the company that was the underwriter for Facebook’s IPO.

https://financialpost.com/technology/zuckerbergs-mortgage-deal-means-hes-essentially-borrowing-for-free

He later refinanced it to 1.05% 30 year
ARM loan from a standard bank.

Wishful thinking as this would be wide driver of people forced to sell.[/quote]
Exactly, this is the vehicle for the wealth. Not for your average joe. It allow them to get access to liquity of their stock investment without having to sell it. It’s a win win scenario. Low risk for the lender (easy money).[/quote]

It’s goes well beyond the loan… Because of their large pledged assets, an investment bank is more than happy to given them a ridiculously low rate loan product that most normal people cannot get themselves…for the privilege of having a hand in those pledged assets, which the i-bank can do something with now…

[an]

[quote=Coronita][quote=an][quote=Coronita]But where’s prevalent is it’s done by really rich people where their pledged asset is several orders of magnitude larger than the loan amount…For example, a Mark Zuckerberg borrowed $5.95 million on a 1.75% ARM loan from Morgan Stanley, which as you know is an investment bank. So it was probably some pledge asset arrangement. Morgan Stanley was also the company that was the underwriter for Facebook’s IPO.

https://financialpost.com/technology/zuckerbergs-mortgage-deal-means-hes-essentially-borrowing-for-free

He later refinanced it to 1.05% 30 year
ARM loan from a standard bank.

Wishful thinking as this would be wide driver of people forced to sell.[/quote]
Exactly, this is the vehicle for the wealth. Not for your average joe. It allow them to get access to liquity of their stock investment without having to sell it. It’s a win win scenario. Low risk for the lender (easy money).[/quote]

It’s goes well beyond the loan… Because of their large pledged assets, an investment bank is more than happy to given them a ridiculously low rate loan product that most normal people cannot get themselves…for the privilege of having a hand in those pledged assets, which the i-bank can do something with now…[/quote]This is why the rich can keep on getting richer… they can play by a different sets of rules.

[Anonymous]

[quote=sdrealtor]
Considering 2nd or 3rd homes investors is patently false. They are the accoutrements of wealth[/quote]

accoutrement of wealth <--> Investment
as
tomayto <--> tomahto

[Anonymous]

[quote=sdrealtor]
Not common and certainly not common here. Not even a chance[/quote]

Perhaps, but you have no way of knowing. Just looks like a cash deal to the outsider.

[sdrealtor]

[quote=deadzone][quote=sdrealtor]
Considering 2nd or 3rd homes investors is patently false. They are the accoutrements of wealth[/quote]

accoutrement of wealth <--> Investment
as
tomayto <--> tomahto[/quote]

Again clueless. They are excessive expenditures and luxury items for those that can afford them.

[sdrealtor]

[quote=deadzone][quote=sdrealtor]
Not common and certainly not common here. Not even a chance[/quote]

Perhaps, but you have no way of knowing. Just looks like a cash deal to the outsider.[/quote]

Not true. Those are short term loans. They need to be refinanced into a regular loan. Those guys are just offering cash to close but want out quickly

Pledged asset loans are a different thing and for the wealthy

[an]

[quote=sdrealtor][quote=deadzone][quote=sdrealtor]
Considering 2nd or 3rd homes investors is patently false. They are the accoutrements of wealth[/quote]

accoutrement of wealth <--> Investment
as
tomayto <--> tomahto[/quote]

Again clueless. They are excessive expenditures and luxury items for those that can afford them.[/quote]
Maybe in DZ’s world, Rolex and Ferrari and yacht are also investments.

[pinkflamingo]

Interesting. Thanks for the detailed explanation.

[Anonymous]

[quote=sdrealtor][quote=deadzone][quote=sdrealtor]
Considering 2nd or 3rd homes investors is patently false. They are the accoutrements of wealth[/quote]

accoutrement of wealth <--> Investment
as
tomayto <--> tomahto[/quote]

Again clueless. They are excessive expenditures and luxury items for those that can afford them.[/quote]

So my collection of gold jewelry is an excessive expenditure? Even though it is kept in safe deposit boxes, not displayed nor worn? I guess it could fall into either category depending on perspective.

[sdrealtor]

Uhhhh anything can be bought as an investment. That doesn’t make the item an investment. You buy gold jewelry as an investment because it’sa stable store of value you can buy at a discount. That’s not reality for 99.99%. Mr T did not buy it as an investment

[Coronita]

[quote=an][quote=sdrealtor][quote=deadzone][quote=sdrealtor]
Considering 2nd or 3rd homes investors is patently false. They are the accoutrements of wealth[/quote]

accoutrement of wealth <--> Investment
as
tomayto <--> tomahto[/quote]

Again clueless. They are excessive expenditures and luxury items for those that can afford them.[/quote]
Maybe in DZ’s world, Rolex and Ferrari and yacht are also investments.[/quote]

Ferrari’s can be investments. But those are typically bought and become garage queens and never driven, and they are usually some vintage age, not something new. There are people that buy some cars and literally keep them in a climate controlled warehouse and never drive them. But again, that group of people are small, relative to the rest of the people buying Ferrari’s.

[Coronita]

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[Author]

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