1Semana·

Money for Nothing ?!?

Today I’d like to discuss an idea @GoDividend —his so-called “Bauspar-Hebeldepot.” Perhaps some of you have already read his posts on this topic (most recently about two months ago). I find the strategy remarkable for two reasons.

1) This is a very unusual idea. Namely, borrowing at a low interest rate through a home savings contract and investing the funds in securities that pay higher dividends. If the setup works out—and I think it certainly can—you’ve built up some nice leverage from borrowed capital.

2) He’s following through with this even though he’s pretty much the only one with this investment idea, and very few—if any—others here in the forum are pursuing this approach.

Here’s the link to his post https://getqu.in/U6H5wA/

The principle is actually very simple. He pays 2.1% per year in interest on the money borrowed through the home savings loan (in his case, 17,000 euros). He invests the borrowed money in securities such as $WINC (+0,33 %) with a projected distribution of nearly 10%. He takes the difference of just under 8% as a risk premium to account for the possibility that the security’s price could fall and that he’ll have to make up the difference between the security’s value and the loan amount at the end of the loan term.

If the scheme works out, he earns 8% on 17,000 per year (approx. 1,360 euros gross) without investing any of his own money (return on equity = infinite).

Why am I bringing this idea up? I’ll have three land registry entries become available in about two months, and I’m currently considering whether I can use them in a similar way. I don’t have a home savings loan, but I could take out a loan at standard interest rates for real estate financing—e.g., 100,000 at approx. 4.1%–4.4% p.a. Admittedly, I’d need securities with high distributions (and taxes would also eat into that). But it would be a way to generate some additional returns. I think 3% per year on 100,000 would be realistic. With a 10-year loan term, that would add up to a decent amount. Do you think the risk is worth it? Would you do something like this?

22 Comentarios

Wealth-Accelerator@Wealth-Accelerator

1Semana

I've done deals like that myself. But with 1% financing.
I think over 4% is way too much for the risk involved.
I'd say 2.5% is the upper limit for the interest rate on debt financing.

Just my opinion 😊

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NichtRelevant@NichtRelevant

1Semana

@Wealth-Accelerator Thanks for your take on it. Unfortunately, those 1% days aren't in sight just yet. 😉
We'll see. Maybe it's just a crazy idea.

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Wealth-Accelerator@Wealth-Accelerator

1Semana

@NichtRelevant Yeah, I don't think we'll see interest rates this low in the next few years.

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Dividendenopi👴@Dividendenopi

1Semana

If you want to earn 3% net while paying a loan interest rate of 4.4% in the worst-case scenario, you’d need a gross dividend yield of a good 10%... Not even I could pull that off 🤭😂 At least not if I want to sleep soundly. In my opinion, the effort and risk aren’t worth it for such a relatively low return.

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NichtRelevant@NichtRelevant

1Semana

@Dividendenopi You're probably right. On the other hand: I'm just going to invest everything in $UKW and $CHPY!!!! 🧨🧨🧨🧨

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Markus@alemaorecifense

This was exactly the strategy that kicked off my “new beginning” in 2014–15:
Three 10k so-called unsecured loans (i.e., without collateral) at 2.1%, 2.4%, and 2.8% through P2P lending. Then in 2016, another 20k at 1.8% from a 100,000 BSV (the rest for the purchase and renovation of a condominium). That was tremendous leverage—absolutely crucial, especially in the beginning. But it was only possible because we owned our home!

You will NOT get 100k for a strategy like that! The funds must be intended for residential use AND this must be documented for approximately 80% of the total amount!

Also, there are two things you mustn’t lose sight of:

- the huge discrepancy between the nominal and effective interest rates (due to origination and administration fees) and
- the financing timeline: At the beginning, you pay interest on the pre-financing loan and make savings payments; in other words, the principal isn’t actually paid down until after about 6 or 7 years—until then, you’re paying interest on the total amount. The total monthly payment is still manageable at this stage. Upon allocation, it tends to double because the principal repayment then increases to about 10%. Example: the 100,000 mentioned above:
- Since 2016: €200 savings installment, €71 interest, 0.15% interest on the balance.
- Starting in November ’26: €200 savings installment and €275 interest,
- Allocation in August ’28; repayment installment then €700 through 2041.

With traditional real estate financing, this doesn’t matter—the interest is tax-deductible. But for personal experiments, the math looks quite different!

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NichtRelevant@NichtRelevant

@alemaorecifense Hmm, in my case, it wouldn't be a home savings contract, but rather a refinancing with three unencumbered land titles as collateral. The bank has the apartments as collateral and, in addition, the rental income from the apartments as an assignment (in case I fail to make the annuity payments). I’d say the apartments have a combined market value of about 250,000, so there would be little risk for the financing bank.

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Markus@alemaorecifense

@NichtRelevant Banks are pretty strict about granting real estate loans these days—I went through the whole process last fall. I refinanced 333k, but I was only able to scrape together 30k... 😬

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NichtRelevant@NichtRelevant

@alemaorecifense You're right—it's all gotten more complicated.
But it's nice to see that there are still other people out there who are into investing in bricks and concrete. 😉

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Gehebeltes-EFH@Gehebeltes-EFH

Residential use is not mandatory. Some banks allow unrestricted use of the funds.

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🏊🏻‍♂️ • 🚴• 🏃‍♂️ Endurance Life@MozartsGeist

1Semana

That suddenly casts the good old home savings plan in a whole new light. 🤔

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Donkey Diktator@DonkeyInvestor

1Semana

Unfortunately, I missed that post. I think the idea from @GoDividend is good. I'm thinking about it now, too. Yours would be too risky for me.

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NichtRelevant@NichtRelevant

1Semana

@DonkeyInvestor 2.1% is, of course, significantly better than 4.x. On the other hand, if necessary, I still have the real estate itself as an asset, which I can liquidate when the loan matures if I have to. It wouldn’t be ideal, but this arrangement wouldn’t immediately ruin me even if things went badly. Maybe it’s just nonsense. I’ll think it over.

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AI sagt@GoDividend

1Semana

@NichtRelevant Well, 4.x is certainly a big number. I don't know if I would have taken that risk. Of course, the "leverage" is much smaller there.

What kinds of stocks would you invest in to pull off a project like that successfully?

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NichtRelevant@NichtRelevant

1Semana

@GoDividend I haven't committed to it yet—I'm just considering it for now. The land registry entries won't be released for about two months, and only after that could I take out a new loan against them.

Of course, the three apartments generate rent—so the investment yields a return even without any additional arrangements. But with the loan and the investment in securities, I’d get a little extra on top of that, since the rent would still be coming in. I might even be able to use the rent to cover the loan payments, which would give me much more freedom in choosing which securities to invest in. For example, I could invest in a broadly diversified global ETF and, to put it simply, bet that the global ETF will outperform 4.x% per year over the loan term of, say, 10 years.
Alternatively, one could invest in a portfolio of securities with high distributions. Perhaps a mix of $WINC and $TDIV, supplemented by a small number of individual stocks with high dividends.

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Solitair@Solitair

1Semana

I've thought about that, too. With Scalable, I was offered 250k at 3.6%. But that rate is variable.
A home savings plan at around 2% is, of course, more tempting. But don't you have to prove that the funds will be used for housing-related purposes, or whatever it's called?

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NichtRelevant@NichtRelevant

1Semana

@Solitair I can't say for sure about how building savings plans work—I've never had one myself. But I'd say that they only start reviewing applications once the withdrawal amount reaches a certain threshold.

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Get_Rich_or_Die_Tryin@Get_Rich_or_Die_Tryin

1Semana

@NichtRelevant In theory, the building society (regardless of which one) is entitled to require proof of residential use starting with the first euro. Internally, however, building societies usually have de minimis thresholds where a confirmation from the advisor (intermediary bank, broker, or building society field representative) via a checkbox is sufficient. These thresholds vary from building society to building society and are generally based on the loan amount (not on the total savings amount, since, theoretically, one could save 100% of the total amount without ever taking out a loan).

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NichtRelevant@NichtRelevant

1Semana

@Get_Rich_or_Die_Tryin There’s the expert speaking (Weren’t you at the bank?!? 😏). Hmm, okay, so if you’re unlucky, you’d have to submit receipts. So, theoretically, there’s a risk involved in the process.

In “my” hypothetical scenario of raising capital through the land registry, however, that wouldn’t be necessary if you’re allowed to use the loan freely. Unfortunately, interest rates aren’t quite as low as they used to be right now.

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Dave@GhostOpossum

I'm planning to do the same thing. A few years ago, when I wasn’t quite sure what I wanted to do with my assets, I took out a youth home savings plan, which secured me a loan of 10k at 1.75%. I’ll invest the entire amount, as well as the other half (equity).

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Keineui@Keineui

And suddenly everyone's smarter than the market. LOL
Anyone who thinks something like that is a sure thing also believes in Santa Claus.

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NichtRelevant@NichtRelevant

@Keineui Well, I don't know if it's smarter than the market. But the general market should actually be able to outperform the building savings loan interest rate of about 2% over a 10 (?) year period. With "my" 4.x%, it would be more difficult.

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