Jan and Mike lived in New York City, working in the financial and real estate industries respectively. They resided in an $8 million apartment along with their two young children. Eventually, the couple was ready to leave their city lifestyle, build a new home, and settle in the suburbs in Connecticut. However, most of their portfolio was inherited, and if they wanted to generate cash from their portfolio to cover this new home, they very likely would face a significant tax bill.
Mike and Jan knew that they needed cash to fund the construction process, but they both maintained busy schedules and began to feel pressured to figure out a solution.
What type of loan would they need? Would they be getting a good rate? Would they have enough cash for their daily expenses? Or would they be forced to withdraw cash from their inheritance?
Following the recommendation of their Bordeaux advisor, Jan and Mike secured a construction loan to maintain their household and spending needs until completion of the building process. They then followed BWA’s recommendations and borrowed against their portfolio through a very low-cost margin loan. This enabled them to not only stay invested, but also to avoid paying capital gains tax on their holdings. Even with both loans, the timing of their cash flows remained inconsistent, thus potentially creating a short-term cash crunch. BWA mitigated this by building a “Cash Sources and Uses” spreadsheet to track cash sources and margin levels through each quarter. Cash flows needed to be managed precisely, and BWA was up to the task. The Bordeaux team understood the challenges of this client and their situation, thus changing their approach and execution to fit the client’s needs.
Wealthy but “cash poor” clients often face similar liquidity struggles. Their money is tied up in low-basis securities or other assets that are difficult to liquidate without incurring unwanted consequences. The challenge is to choose the best of several options to provide access to cash (margin loan, PAL credit line, etc.) and help the client manage through the liquidity crunch.
At Bordeaux Wealth Advisors, we prepare financial plans for our clients to assess their overall financial situation and needs. When clients come to Bordeaux Wealth Advisors with an aggressive construction plan while having very little available cash, BWA can help them secure the necessary funding for each step of the process, while also reducing stress levels for the client.
