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Prospect Capital Corporation Message Board

  • criminalmindscraftt criminalmindscraftt Apr 8, 2013 6:47 PM Flag

    You should mortgage your house and buy more PSEC

    Current 10 year mortgage refinance rate = 2.99%
    Current PSEC annual dividend = 12.12%
    Difference = 12.12% - 2.99% = 9.13%
    For every 100k borrowed and invested in PSEC, net annual return = 9,130
    One million dollar = 91 k annual interest income

    Buy buy buy before PSEC going back up to $12.

    Sentiment: Strong Buy

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • I do that only on a smaller scale the dividend I have is larger than the payment. And slowly as time goes on I increase the amount borrowed. Plus I have the cash to pay loan off. I also pay loan off early.It has work for me. I am my own BDC.

    • A $100K loan amortized at 2.99% over 10 years requires payments of $963/mo or $11,600/yr. Cash flow basis is equal to paying 11.6% on your loan. Taxes are not in your favor, either, as you pay tax on 100% of your dividends, but you avoid taxes only on the loan's interest. Anyone borrowing against their home to buy stocks is, well, let's just say they're less than brilliant.

    • PSEC can reduce it's dividends and go under if businesses can't cope with what Obama will be hitting them with starting in 2014. Then you have to pay for your house again!

    • Do not even consider doing this, During the last bear market this was a $6 stock and houses were cut in half. Think of the consequences if it happens again and you have all of the equity in your house invested in a stock that goes down 45% and your house also goes underwater..........good chance the div would also be cut next time arround. Risk arbitrage like this should be left in the hands of ex spirts like Jade..........

    • nonameoilworker Apr 11, 2013 10:58 PM Flag

      i have to say i like your sentiment. I had the same thought about agnc last year. since it is still at 32 it would have been a great call to leverage up the wazoo, i do like those monthly dividends

    • excitinggroundedprofessional excitinggroundedprofessional Apr 10, 2013 12:15 PM Flag

      Up to 1M is also subject to a big tax break, so borrowing cost is nil. Yes you could lose the house if the BDC folded.

      This poster is posing as a long "criminalmindscraft" using TWO ff's aka "criminalmindscrafft".
      Trying to discredit the posts of a dedicated and enthusiastic long.

      Irony here is this is NOT as risky as implied, and not the worst investing idea ever. Your doing the exact same thing a BDC does.

    • Some people really fit the stereotype of "retail investor"

    • You need to calculate as a loan constant to reflect the debt service requirement. Roughly, 100k = $420/mo mortgage payment (so its truly around 5%).

      So you buy roughly 9200 shares and you get $1000 per month in dividends. $1000 - $420 = $580 net. You have to hope those dividends are stable for the next 10 years... but if you are willing to accept the risk you might make some good coin over the 10 years.

    • LOL, the more I think about this the MORE I LOVE THIS IDEA!! Bravo

      • 1 Reply to criminalmindscraft
      • That's one of the things that contributed to the 'Real Estate Boom' and subsequent crash that wiped out a lot of homeowners. They used their homes in place of a savings and investing account. Burned a lot of people. Have to admit, in the 90's I was tempted. We have been free of any and all debt since 2008 and it feels great. And we still have enough income to invest from time to time. We both 'retired' in our 50's and our investments would provide us with more income than we really need, therefore trading stocks and investing has become a hobby. We have never taken any money out of any investments, just reinvesting and buying more. In 2012 I made over 400 trades. Right this minute I'm pretty happy with the 18 or 19 stocks we own. But did sell F last week and bought MCC, added to GE and bought KOG when it dropped below $8.35. I sleep so well, but doubt I would if we owed anyone money!

    • Mimic Nic,

      Guys this is not me , but I would do this I have in the past and made millions. If you can get 2% moey and earn 12 , I say no brainer

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