Back in May I wrote about the theoretical possibility of using a margin loan from a broker to buy a house.
Buying a house in Vietnam with a margin loan.
Financing a house works differently in every country I’ve lived in. Growing up in one country, it is easy to think that…
I’ve gone from the theoretical to the actual. Along the way, I couldn’t find anyone that actually explained in detail how the process works. A few scattered forums posts from people saying “yeah, I’ve used margin to buy property” but that was about it.
In my mind, the process should be simple & straightforward and look something like this:
- Open account online with Interactive Brokers. This should take, what, 24 hours max?
- Transfer shares to Interactive Brokers. This should take a few days, right?
- Then take a margin loan from Interactive Brokers and wire the money to Vietnam.
All up, it should be, like, a week start to finish, right? Start things on Monday. Ready to buy a house on Friday.
Okay, that’s not how it works in the real world. Here’s my actual timeline.
Which took over a month.
- Apply online. IB requires you to submit “proof of identity” (i.e. a passport scan or similar) and “proof of address” (like a bank statement). It says it will take 24–48 hours to process my application.
- After 2 days with no update, I discover there’s a bug(?) in their web form and my “proof of address” never actually got uploaded. Or was uploaded and then deleted. Or something? I resend all the documents via email.
- After another 2 days, they tell me that I submitted my Australian passport but need to also submit my US passport. The web instructions don’t say anything about that. I send them a copy of my US passport.
- Another day passes. They tell me that my bank statement comes from a bank in Vietnam. They don’t accept bank statements from Vietnam, because Vietnam is not a signatory of certain anti-money laundering conventions. I submit an Australian bank statement.
- Another day passes. They tell me that my bank statement lists a business address, not a residential address so they can’t accept it. I use my business address for all mail because…well, have you met the Vietnam postal service? So I don’t actually have a bank statement with my residential address on it. I check the list of acceptable documents — a driver’s license is acceptable! So I send them a scan of my Vietnamese driver’s license.
- Two days pass. They tell me that they don’t accept driver’s licenses that don’t have an expiration date. (Up until recently, driver’s licenses in Vietnam never expired.) It doesn’t say that anywhere, of course, so how was I to know? Why did it take 2 days? They actually replied after 1 day but some reason Google decided to start classifying IB’s replies as Spam so it sat in my spam folder for a day. At this point it has been close to 2 weeks since I started the process. I look (again) at what documents are acceptable. A lease is okay. Except the lease isn’t in my name. (A fairly common practice in Vietnam, where many landlords are wary of having a lease with a foreigner for some reason.) They accept “any government document with your address”. So I go to the local police station and have them write a certified letter of my address. Finally.
- The following Monday — a full 14 days from when I first started filling out the IB application form — my application is approved.
Admittedly, you are likely to have far fewer problems. I had problems because of dual-citizenship and living in a developing country. Hopefully your application process is smoother.
The next step was to get shares transferred. The way you do this in the US is with an ACATS transfer. Is it just me or does ACATS feel like it is completely lacking in security? As far as I can tell, you just provide your name and account number and that’s all it takes to transfer shares.
The ACATS transfer process takes a hugely variable amount of time. It depends on the processing speeds of the two brokers. I’ve read of some cases where it takes 3–4 weeks. I’ve read that the “average” is 5–8 days. I guess I was lucky because it only took 4 days for the shares to be transferred — by Thursday they were in my IB account.
At this point it had been 15 days since I began filling out the application. I had an account. The shares were in the account. I should be able to take the margin loan and transfer money out, right?
Wrong. Because there is a hold on ACATS transfers. For 10 business days, you can trade on them but you can’t do anything that is like a withdrawal. You definitely can’t withdraw cash as a margin loan.
If you pay attention, in the “fund transfer details” at IB they list “date available to trade” and “date available for withdrawal”. In my case, it said the “date available for withdrawal” was August 30th.
So I had to wait another 10 (business) days, which was another 12 calendar days. So we’re up to 27 days since I started the process.
I will add that it is not very clear anywhere on the IB site that withdrawing cash via a margin loan is affected by this ACATS hold. It required 2 separate conversations with their support before that was adequately explained.
August 30th rolls around. I should be able to withdraw the funds finally, right? The ACATS hold is over.
After another round of conversation with their support, it turns out the hold goes until August 31st. Why does the online system say “date available for withdrawal” of August 30th when it actually isn’t until the day after that?
Okay, so I have to wait one more day.
At this point I should add that phrases like “August 31st” and “tomorrow” aren’t as clear as most people think they are. When exactly is “August 31st”. Is that when I wake up in Saigon? Is that 9:30am in New York when the markets open? Is it midnight in London?
My account was technically in Hong Kong. I live in Vietnam. IB has offices in London, Chicago, Tokyo, Mumbai, New York, and several more places.
It turns out “August 31st” means “after midnight in New York City”.
At this point, it has been 28 days since I started the process.
Accounts are set up. Assets are transferred. ACATS holding periods are over. Now we’re (finally!) ready to transfer money, right?
Interactive Brokers has limits on how much you transfer. $200,000 a day. $600,000 over rolling weekly periods. Those are all very reasonable. But it is another thing to keep in mind if you’re working with a tight deadline. It could take you 2 or 3 days to submit all the transfers.
Then you need to wait for the wire transfer to actually happen. In my experience this can vary widely. Transfers from Europe to Singapore & Vietnam usually take 2–3 days (depending on how late in the day they are submitted). Transfers from Singapore to Vietnam often take just 24 hours; in some cases they happen the same day.
When I created the wire transfer, Interactive Brokers estimated it would take 6 days to arrive in Vietnam.
In one of the first pleasant surprises of the entire experience, the money actually arrived in Vietnam within just a few hours.
From start to finish the entire process took me 31 days. The most frustrating part was the lack of clarity about ACATS hold periods before the margin loan was available for withdrawal.
It was particularly frustrating because you could take a margin loan to trade you just couldn’t take a margin loan and withdraw the cash.
If you are considering using a margin loan to buy property…get everything set up in advance. One of the potential benefits of using a margin loan is that you can get the money nearly instantly. With a mortgage there can be days or weeks or bank paperwork. But that advantage is reduced if you instead have to spend weeks waiting for holding periods to be satisfied.
In my case, the entire process ended up pushing up uncomfortably close to the closing date. I actually would have missed our original closing date — luckily(?) Vietnamese government paperwork ended up taking longer than originally planned, which gave me enough time to finish sorting out the margin loan from Interactive Brokers.