Two of the top struggles that real estate investors face when building momentum in their business is finding the deals, and then once they’ve found them – funding the deals. When it comes to funding your real estate investments, there are broadly known options such as hard money lending, conventional loans, etc. There is also an option to use a Line of Credit (LOC) which is a revolving loan that can be used for any purpose.
There are two types of LOCs: secured and unsecured. A secured line of credit is guaranteed by some collateral, while the other is not guaranteed by any asset. An example of this is a credit card. Not surprisingly, the unsecured LOC will come with higher interest rates.
How Using a Securities-Based Line of Credit Allowed Me to Leverage Stock While Avoiding Capital Gains Taxes
I was fortunate to have amassed a significant stock portfolio over the past several years. While it was fun to open my E*Trade account (or, depending on the day, sometimes not so fun), I knew that these funds were not a bird-in-the-hand until I sold the shares. Furthermore, in order to convert them to a liquid asset I would be subject to steep capital gains taxes. I suddenly understood the phrase, “more money, more problems”, but it was a problem that I was grateful to have.
As I explored ways to diversify my portfolio to include cash flowing assets such as real estate, I simultaneously learned of an opportunity to lend money at 10% to a growing real estate investor endeavoring on his first BRRRR (his name was Doug, you may know him). I wanted in! My initial plan was to sell a portion of my stock to use as a real estate investment fund for opportunities such as this. However, I wasn’t thrilled about the tax implications and I wasn’t even certain that I wanted to divest myself of the high-gains stocks that I had accrued. After consulting with some trusted mentors, I discovered that it may be possible to obtain a revolving loan using a portion of my stock as collateral.

After a Google search and a call with my account representative, I learned that in order to qualify with E*Trade (which was acquired by Morgan Stanley back in 2020), you need to have an eligible brokerage account with $50,000 or more in combined collateral value. The rates were favorable and would vary depending on collateral and LOC amount (between 1.9%-5% variable APR). So, I pledged a portion of stock which was essentially “frozen” as collateral and gained access to a LOC at 3.2%. Just days later, I wired the funds for the BRRRR loan and began earning net 6.8% interest on money that otherwise would have been a number on a screen.
Over the course of the private loan, I made my monthly interest payments on the Line of Credit. Once the BRRRR was complete with a refinance and my loan was repaid, I wired the initial loan amount back to the Line of Credit and kept the interest earned in my savings account. Since this first private loan, my LOC interest rate has been lowered to under 2%, giving me further up-side.
My mind was blown. No capital gains taxes, no loss of future gains on stocks that I believed in, and I was earning solid interest.
Using a Securities-Backed Line of Credit can be a powerful way to create flexibility and liquidity from otherwise non-liquid funds without incurring capital gains taxes on a stock sale or altering your stock investment strategy.
You can use your Line of Credit for a variety of purposes at a low interest rate- whether it be private lending, funding a renovation, or another venture that you choose. Before you call up your account representative, it’s important to note that even though funds I leverage from my LOC are used without paying taxes, I DO pay taxes on the interest earned by lending the money out. Nevertheless, I was able to use my money to make more money while minimizing my taxes. It must also be said that it doesn’t come without risks. Rates are low right now, but it is a variable rate and you should be prepared for it to increase over time. If your pledged collateral’s value declines below the minimum threshold, you may be required to provide additional funds or pledge more securities. The bank providing your LOC could even liquidate your pledged funds. Ultimately, a Line of Credit is a full-recourse loan, so you will want to do your due diligence and be sure that you are not over-leveraging yourself.
You can research more about E*Trade’s available Line of Credit here, or consult with your brokerage advisor to learn if this strategy is right for you.
Thanks for the read! We’d love to know what you think! Is this a strategy that you use? You can connect with me at tess@honorandequity.com or by visiting our instagram page, @honorandequity.
Great article Tess! I want to turn back time and go back and have a do-over with investing.