Making Money With No Money Down

Pie in the Sky

If you have been reading my blogs for the past 4 years and if you took my course on investing in bonds then you are ready to do what I have done since the 1970s. I remember when I had my radio show on WAMO FM in Pittsburgh in the Early 1980s, some people said that I talked about “Pie in the Sky.” Well that “Pie in the Sky” helped me buy 3 single family houses and 2 condos. 

Let’s not list the many cars that I bought. When I lived in Pittsburgh, Pa. in the 1970s and 1980s, I learned how to borrow money at a lower interest rate than what Corporate Junk Bonds were paying. I got so good at it that the banks got wind of what I was doing and gave me loans just so I can buy more bonds.

At the height of my investing with “no money down” or “no money of my own,” I had 20 banks’ lending me money at one time and from a large margin from my broker. I converted that money into a $1 Million bond portfolio. After subtracting the loan interest money from the money interest of the bonds plus bond appreciation, I was making $27,000 per year. At that time from Westinghouse Corporation as a Programmer Analyst, I was only making $26,000 per year. So for a decade, I made good money on the banks money. 

Then the banking rules changes. The government and the media started a campaign to stop people from buying junk bonds and the brokerage firms stopped lending to bond investors on margin. That shut down my business.

I am going to show you how to do what I did on a small scale with short term, a 14 year plan, as well as a 20 year plan, since interest rate conditions are favorable again. These plans come in two parts.  

Short Term Plan

You have to buy a bond that gives high interest, higher than the interest you are paying (for a loan) for your investment. You can get the lowest interest on borrowed money by keeping a good credit score.  My credit score is 786. Use this link to see what your credit rating is today!  https://www.creditkarma.com/

You can also use a margin account to borrow money for your investments as well as to buy things such as a car, furniture, or anything else. A margin account is a brokerage account in which the broker lends the customer cash to purchase securities. The loan in the account is collateralized by the securities and cash. If the value of the stocks or bonds drops sufficiently, the account holder will be required to deposit more cash or sell a portion of the securities.

For example;

Venezuela 8.5% of 10/8/2014 is a Standard and Poor’s “B” rated bond, recently selling for $997.80 per $1,000 bond. “Year to Date” Interest is 8.744% meaning that you will receive $80.15 per bond for the life of the bond. 

If you take out a $5,000 loan at 3.5%, you make 5.244% on the investment with no money of your own. That is 5 bonds giving $80.15 times 5 bonds = $400.75 gross profit. You borrowed $5,000 times 3.5% interest = $160.42 expenses. Keep in mind, you are borrowing the money for 11 months because the bonds mature in 11 months. You net in 11 months $240.33. You have not put up a dime of your own money to get this. You can make more money if you do this in a margin account and buy more bonds on margin. The more money you put into this, the more money you net.

All you have to do is pay the minimum payment on your loan. You can do this by paying on the loan yourself or by taking out two lines of credit and paying on each switching off paying on each line from the other.  

What are the risks?

This is a short term investment. That means that you have Business risk. Your inflation and interest rate risk is nearly zero because of the short time frame. You have no market risk because the bond matures in less than a year. Here is why you can’t use bond mutual funds with this because mutual funds do not mature.

Longer Term No Money Down Investments

Venezuela 9.25% of 9/15/2027 is a Standard and Poor’s “B” rated bond, recently selling for $749.90 per $1,000 bond. This is a 13 year investment with a “year to date” return of 13.233% per year.

Venezuela 9.375% of 1/13/2034 is a Standard and Poor’s “B” rated bond, recently selling for $707.85 per $1,000 bond. This is a 20 year investment with a “year to date” return of 13.66% per year.

If you can do simple math, you can figure out how much in gross interest, you can make over time with these two bonds above. But since the investment goes out well over a year, you have more risk. If you make payments on your loan supporting your investment, your risk of making a net profit will be more after every payment. You will have a business risk because in the year 2020 for example, how do you know that the nation of Venezuela will still be paying? 

That is a risk that you will be taking. If you want to sell out of the bonds before maturity, you have no guarantee that the bonds will be selling at or higher than when you bought them. That is your market risk. In my opinion, inflation will not go over 13% so I think that Interest rate and inflation risk will be low.    

In Conclusion

Investing with no money down has worked for me over the past 30 years. Can it work for you?