stub8535
Member of DD Central
personal opinions only. Not qualified to advise on investment products.
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Post by stub8535 on Jan 3, 2017 15:50:33 GMT
Hi
I have been looking at the sm and notice many loans listed at a premium. They are of varying length. One even 4.5% premium.
Is there any advantage to listings parts that are unlikely to sell due to the premium?
Is it someone trying to lay a convincing trail to prove trade for tax purposes? Is it someone preparing to adjust their taxation by creating a nice" loss" by getting a lesser taxed connected individual to purchase?
Any thoughts?
If they are not correct to share publicly please pm me.
Thanks
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Post by jackpease on Jan 3, 2017 16:15:03 GMT
Hi I have been looking at the sm and notice many loans listed at a premium. They are of varying length. One even 4.5% premium. Is there any advantage to listings parts that are unlikely to sell due to the premium? Is it someone trying to lay a convincing trail to prove trade for tax purposes? Is it someone preparing to adjust their taxation by creating a nice" loss" by getting a lesser taxed connected individual to purchase? Any thoughts? If they are not correct to share publicly please pm me. Thanks I think they may sell - it may simply be that there's been so little about recently that buyers are desperate and have bloated balances due to lack of new loans - and also that if someone has held a loan for years and it is nearer the end it of course becomes less risky so commands a premium. In the end a (say) 12% loan sold at a large premium may still be better value than an 8% loan at low premium. Jack P
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elliotn
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Post by elliotn on Jan 3, 2017 16:44:32 GMT
It's because FS allow them to dump their loans on the SM and still cop all the interest, so it's a risk free strategy; they can always drop the rate later if they're actually serious about selling.
I would NEVER buy at a premium, try your best to ignore them (plenty of decent Discounts on there).
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stub8535
Member of DD Central
personal opinions only. Not qualified to advise on investment products.
Posts: 1,447
Likes: 945
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Post by stub8535 on Jan 3, 2017 18:31:58 GMT
I m not silly enough to buy a loan tht would only yield 4.8% effective rate due to the markup. I do trade at the other end of the tabe and with certain types of collateral at my chosen minimum discount based on the time to go.
With talk of taxation and the need to prove one is a trader and not just carrying on an adventure in trade so that you can be taxxed as a trader rather than as an investor I wondered if this was a sign of this going on. Loans at a premium do sell. I have done so but myy max markup was .8% on a highly sought after loan.
There is a seperate thread about taxation. This one is about whether people know of a strategy being played.
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mikes1531
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Post by mikes1531 on Jan 3, 2017 21:54:33 GMT
In the end a (say) 12% loan sold at a large premium may still be better value than an 8% loan at low premium. I can't argue with the above, but it's important to keep in mind that a premium/discount is an absolute value, not an annual rate. So a 1% premium will knock 2% off the return rate of a loan if the loan still has six months to run, and that's the smallest impact possible for a FS loan since they never are more than 6-month loans. If a loan is down to three months left, a 1% premium will knock 4% off the return, and 6% if the loan has just two months to go. Discounts have a similar impact boosting returns, which is why a small discount on a loan with less than two months to run produces an attractive looking return, though it won't look nearly as nice if you're a taxpayer.
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