27 Apr Using CashMap’s Line of Credit for Investing – Part 1
If you don’t have any debt or you’re in no hurry to pay off your low interest mortgage, can CashMap’s Line of Credit Strategy be used for investing? Absolutely! I’ve created a different set of algorithms to create some impressive outcomes.
Recap of Our Example
Your take home pay is $5,025 each month and it’s deposited on the first of each month. You have $1,000 left after you pay all your bills. This is your positive cash flow. You’ve saved four months of expenses totaling $16,100. Instead of saving $300 each month, you are using these dollars as an additional mortgage payment. This is thirty percent of your positive cash flow. You have a $285,430 4.0 percent mortgage that you’ve had since September 2013. The monthly principal and payment of $1,362.69 is due on the 1st; however you have a 15-day grace period. You have a $50,000 IRA account with an investment brokerage firm and a line of credit that equals 50 percent of your account’s value. The interest rate on the line of credit is 4.0 percent.
Your primary goal is to keep your cash working for you 24/7. You believe that over the next twenty years, the dollars that you invest will give you a return of six percent.
By using your line of credit and investing 100 percent of your positive cash flow (This is your $1,000) over the next twenty years, your account’s value will be $660,827. Over the twenty-year period, you will have paid just $6,843 interest. What would have happened if you hadn’t used your line of credit? Your account’s value would be $627,551, $33,276 less. The $6,843 interest yielded you a 486.25 percent return. Practically, you probably wouldn’t have emptied your entire checking account every month for twenty years.
What would have happened if you had earned just a one percent return? Your account value would be $338,939 and you would still be ahead of the traditional investing approach by $12,312. The interest cost would still be $6,843 giving you a 180 percent return on your interest cost.
When a line of credit is used for investing, my goal is to find the sweet spot ensuring that you will always outperform the returns using the traditional direct investment method. I can’t guarantee your investment return; however, I can create the right withdrawal amounts to achieve an optimal outcome.
In my next post, I’ll walk you through the steps that I used to achieve these results.
Ready to start your journey towards financial freedom? Get started today!
Thanks for joining me. I’d love to hear from you. Please send your questions, topics or suggestions to firstname.lastname@example.org. You can also follow me on twitter at cash_map.