00525 Reverse Mortgages vs. Investment-Type Home Equity Loans: Retirement Asset Allocation in an Era of Capital Monopoly; Are Rentals Becoming an Exploitation Trap? What to Watch Out for When Renting.

I. Main Theme

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The core theme of this session is how to unlock the value of real estate through financial instruments, converting fixed assets into liquid capital for investment, thereby achieving exponential wealth growth. The instructor details two methods, “reverse mortgages” and “investment-type home equity loans,” and emphasizes that in Taiwan’s low-interest-rate environment, borrowing to invest is a powerful lever for ordinary people to accumulate wealth. At the same time, the course reiterates that future wealth gaps will be primarily determined by the choice of investment vehicles, with those investing in high-tech indexes (like the Nasdaq-100) pulling far ahead of those investing in traditional broad market indexes.

II. Briefing Content

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Reverse Mortgages and Investment-Type Home Equity Loans: Powerful Tools to Mobilize Assets

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• Background: A friend working in bank lending suggested that the instructor share the concept of “reverse mortgages,” which is an excellent option for many retirees who have insufficient funds but own a mortgage-free home.
• Risks of “Investment-Type Home Equity Loans”: For retirees without a stable source of income, applying for an “investment-type home equity loan” is highly risky.
  • Example: Suppose you borrow TWD 10 million at a 2.4% annual interest rate, requiring TWD 240,000 in annual interest payments. However, according to our investment principles, you can only safely withdraw 2% of this TWD 10 million asset annually (which is TWD 200,000). Since the interest expense exceeds the usable amount, it results in negative cash flow, which is very risky.
• Advantages of “Reverse Mortgages”:
  • Target Audience: Individuals who are retired, have no income, are unable to qualify for an investment-type home equity loan, but own a mortgage-free property and have insufficient investment capital to support their retirement.
  • Core Benefit: Through a reverse mortgage, you can receive a stable monthly cash flow for living expenses, while your original investment principal of several million or ten million TWD can remain untouched to continue compounding in the market. This is equivalent to “borrowing money to live, while letting your own assets continue to grow.”
  • Information from Taiwanese Banks: The instructor provided information from institutions like Bank of Taiwan for “reverse mortgages,” with interest rates around 2.2% to 2.6% and loan terms typically up to 30 years.
• Conditions for Investment-Type Home Equity Loans:
  • Interest Rate: The current rate for a general investment-type home equity loan is about 2.59%.
  • Restrictions: There are requirements on the age of the property and the loan term (e.g., building age + loan term < 60). This could limit young people who buy older, second-hand homes from accessing this service in the future.

Real Estate Anti-Fraud Awareness

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• Background: There have been many recent cases in the country where seniors’ properties were scammed. Fraud groups often target properties that do not have a mortgage lien.
• Preventive Measures:
  1. Do Not Cancel the Mortgage Lien: Even if the mortgage is fully paid off, it is recommended not to go to the land administration office to cancel the bank’s mortgage lien. Keeping this registered lien adds a layer of security.
  2. Apply for Two Services: Children can take their parents to the household registration office to apply for “Advance Notice Registration” (to prevent the property from being arbitrarily transferred or sold) and the “Real-time Land Registry Alert” service (which sends an immediate notification if there are any changes to the property’s land registry data).

The Reality of Renting and Living Costs

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• Case Sharing: A friend renting a townhouse in the US encountered many problems, such as poor sanitation, high hidden fees (trash disposal fee $80, sewage fee $80), inability to choose utility providers, and non-transparent bills (a fixed charge of over $300 per month), causing the actual monthly expenses to be far higher than the rent.
• Instructor’s View: High living costs are a common phenomenon in the United States. Taking himself as an example, his monthly HOA fees plus utilities, internet, etc., amount to over $1,100 before even buying food. He reminds everyone to carefully inspect the property condition and contract terms and to clarify all fees before signing a lease.

Core Investment Concepts and Mindset

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• Future Wealth Will Be More Concentrated: Artificial intelligence and digital finance will accelerate the concentration of wealth in the hands of a few companies and individuals. In the future, it could be that 0.1% of the population controls 80% of the wealth.
• Choosing the Right Vehicle is Crucial: Between investing and not investing, your assets will differ by two zeros. For those who invest in indexes, the assets of those who choose the wrong indexes (like VT, VOO, SPY) versus the right one (QQQ) will also differ by two zeros in the future. People investing in high-dividend stocks or SPY may become relatively poor in the future.
• The Purpose of Asset Allocation: The quality of an asset allocation and rebalancing strategy is not determined by the strategy itself, but by future market conditions. Since we cannot predict the future, the primary purpose of asset allocation is to give you peace of mind, enabling you to endure the worst market periods (like a continuous ten-year decline), rather than pursuing the highest short-term performance.
• On Educating Children: When facing a child’s problem, analyze whether it’s a lack of “ability” or a lack of “willingness.” A lack of ability requires “teaching,” while a lack of willingness requires “encouragement.” Plant good seeds and nurture them with love, companionship, and positive energy.
• Become a Capitalist, Free from Money Worries: By understanding investment and becoming a capitalist, you can free yourself and the next generation from the fear and anxiety of money, achieve generational wealth, and possess the right to be happy.

III. Q&A Session

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Yuefeng

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• Sharing: Seniors in Taiwan are in a pitiful situation now because landlords, fearing that an elderly person might pass away in the property and turn it into a “stigmatized property” affecting its value, are unwilling to rent to them.
  • James’s Comment: This is actually an excuse by landlords; legally, a natural death does not constitute a stigmatized property. The fundamental problem is poverty. If you become wealthy, you won’t have housing problems. The lack of investment and financial literacy education in Taiwan makes it difficult for many people to accumulate wealth.
• Question 1: I bought 00662 at a high point of 93 earlier this year. Even though the US QQQ has reached a new high, my 00662 has not yet broken even because the Taiwan dollar has appreciated. I feel anxious. Should I use a sub-brokerage account to buy the US stock QQQ directly?
  • James’s Response: This is a normal phenomenon caused by exchange rates. If you convert the price of QQQ at its peak back then using the higher exchange rate at the time (e.g., 33), you would find that its value in TWD also hasn’t reached a new high. It’s essentially the same, so there’s no need to worry about exchange rates. If you’re in Taiwan, just buy 00662 with TWD. Buy whenever you have money, and don’t worry about exchange rates or short-term market fluctuations.
• Question 2: I have a USD-denominated insurance policy with a 3.5% annualized return that I want to cancel, but I’m worried about the unfavorable exchange rate for converting it back to TWD now. This money is for my child. Should I allocate it as 50% 00662 and 50% 00670L (a leveraged ETF)?
  • James’s Response: A 3.5% return is too low; you should cancel it decisively. Don’t worry about the short-term exchange rate, because after you convert to TWD and buy 00662, the nature of the asset reverts to a USD asset. For a 30-year investment for your child, the simplest and safest way is to buy 100% 00662 and hold it for the long term. If you must include leverage, you can, but you must understand its risks and rebalance properly. Otherwise, simply holding 00662 is better.

Weizhong

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• Sharing: He has been following the instructor for nearly two years, and his assets have doubled. He uses a 4-3-3 allocation, holding 30% in cash (about 10 years of living expenses), which makes him completely indifferent to market ups and downs and gives him great peace of mind. He also shared a real-life case of his 72-year-old elder who applied for a “reverse mortgage”: for a TWD 7 million house, they can receive TWD 17,000 per month for 23 years. He believes this allows the elder to age with dignity and also frees up the children’s funds. The filial piety money saved by the children can be invested to create even greater wealth.
  • James’s Comment: This is an excellent sharing. This is the essence of a “reverse mortgage.” If the children invest the saved TWD 17,000 per month, at a 12% annualized rate of return, it will grow to over TWD 52 million in 30 years. This is equivalent to using a TWD 7 million loan from the bank to create tens of millions in additional wealth—a very smart financial move.

Huayin

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• Sharing: Fubon Bank has a 20-year revolving investment-type home equity loan product. She thinks it’s better for young people than a reverse mortgage and suggests everyone look into it.
• Question 1: There is no capital gains tax in Taiwan. In retirement, will it still be necessary to live off funds from a stock-pledged loan? Can I just sell the bond portion of my asset allocation for expenses?
  • James’s Response: You don’t have to use a pledged loan, but your wealth will grow much slower. He gives an example: with TWD 50 million in assets, if you sell 2% each year to live on (assuming a 10% rate of return), it will grow to TWD 2.2 billion in 40 years. If you live off a pledged loan and leave the principal untouched (assuming a 12% rate of return), it will grow to TWD 4.6 billion in 40 years—more than double the amount. The risk of pledging is controllable, but the return is enormous.
• Question 2: If I want to withdraw 3% annually, but my total assets are not yet large, should I switch to the less volatile SPY?
  • James’s Response: No need. You can achieve this by adjusting the Beta of your asset allocation, for example, by using a 70-30 or 4-2-4 allocation while still holding QQQ, and you can still safely withdraw 3%.

Puling

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• Sharing 1: She discovered that an older colleague’s retirement account balance was only one-third of hers. The reason was that the colleague chose a very conservative investment model, which fell less but also grew much less. This made her deeply realize the importance of choosing the right investment vehicle.
• Sharing 2: She was most shocked to learn about the Pledge Asset Line (PAL) from the instructor and immediately opened one. She believes people should not be afraid of PAL. Compared to taking on a huge mortgage with a small down payment, PAL is a small loan based on a substantial asset foundation, making it much less risky. She compares PAL to a “future employer”—whenever you need money, you just go and get it. It’s very convenient.
  • James’s Comment: An excellent sharing. This is the core of financial operations. In Taiwan, with such low interest rates, anyone with property must get an investment-type home equity loan or a reverse mortgage. Not borrowing this cheap money is a huge waste. You can only become truly wealthy if you know how to borrow money safely.

Lana

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• Sharing: She only discovered the channel this Chinese New Year and immediately took action: paid off her investment-type home equity loan, sold her long-term government bonds, VT, and SPY, and converted everything into 00662. After this session, she decided to immediately research applying for a “reverse mortgage.”
• Question: She has a “mental block” about selling her 0050 (Taiwan 50 ETF). She feels that as a Taiwanese person, not holding 0050 means she lacks a “sense of participation,” and she feels very conflicted.
  • James’s Response: Emotional matters cannot be measured in money. But from a financial perspective, you should deal with it as soon as possible. He suggests she first go and set up the reverse mortgage. As for pledged loans, she can start by trying a small amount, like pledging TWD 1 million to borrow TWD 100,000 for a trip, just to experience it and gradually develop the habit of “borrowing for consumption, letting the principal grow.”

Ni

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• Question: He just secured a TWD 7.5 million investment-type home equity loan and invested TWD 6 million in 00662. He wants to keep his monthly interest payment around TWD 10,000 and is struggling with a decision: should he use the entire TWD 6 million as his investment base for a 7-3 allocation, or use only TWD 4 million for the allocation and leave the remaining TWD 2 million untouched in the loan account to reduce interest?
  • James’s Response: All loan interest should be paid from your salary. The invested TWD 6 million should be managed as a single portfolio. Given that he is still young, he should adopt a more aggressive allocation, such as 5-2-3 or 4-3-3. The cash portion of the allocation (e.g., 30%, which is TWD 1.8 million) should be invested in a high-yield money market fund (like 00865B, with an annualized return of about 4.5%), not left in the non-interest-bearing loan account.

Ola

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• Question 1: When rebalancing, if the market drops and I need to add to my leveraged ETF position, should the cash come from the cash position within my brokerage account or be transferred from an external bank account?
  • James’s Response: The cash comes from the cash portion of your entire investment portfolio. Ideally, the leveraged fund is in a tax-advantaged account (like an IRA), and the cash for re-buying should also come from the cash position within that same account.
• Question 2: I can start accessing my 401K next year and plan to roll it into an IRA. At that time, living expenses and taxes might strain my cash flow. Should I use a PAL to cover these? What if a major market crash exhausts my PAL limit?
  • James’s Response: This is why you keep 30% cash. If a market crash occurs and your brokerage account (where the PAL is) faces a margin call, you should transfer cash (e.g., by selling SWVXX) from your tax-advantaged account like an IRA to the brokerage account as collateral, not transfer stocks. SWVXX has a very high pledge rate (96%), which can effectively boost your collateral value and borrowing capacity. The asset allocation and Beta of your entire investment portfolio (brokerage + IRA) should be calculated and viewed as a whole.

Cry

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• Question: For a 40-year-old, is it better to spend weekends working a part-time job to earn more money for investment and retire earlier, or to spend more time with family and reading?
  • James’s Response: Without a doubt, spending time with family is more important. If you earn money slowly, you will definitely become very wealthy. The little extra you earn now you probably won’t be able to spend it all in the future. But the time spent with family (especially parents and children) is gone forever once it passes.

Meng

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• Question: With a US salary income, how can I apply for a loan in Taiwan?
  • James’s Response: You can create a cash flow record. The specific method is: regularly remit a sum of money (e.g., USD 10,000) from the US to Bank A’s account in Taiwan. Then, make a fixed monthly transfer from Bank A to Bank B’s account (e.g., TWD 7,000 or 10,000). After doing this for a period, Bank B will see that you have a stable “monthly income” record and will be willing to offer you a loan.

Pinrou

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• Question: After retiring, if I still have an outstanding mortgage, should I pay it off all at once?
  • James’s Response: This depends on your cash flow situation. If the 2%-3% annual withdrawal from your investment assets is sufficient to cover your living expenses and the monthly mortgage payment, then there’s no need to pay off the mortgage early; you can treat it as part of your living expenses. However, if the withdrawn money isn’t even enough to live on, you should consider selling some assets to pay off the mortgage or converting the house into a “reverse mortgage” to improve your cash flow.

Message Board

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• Question: Can one invest in high-dividend covered call strategy ETFs like SPYI and QYLD?
  • James’s Response: Absolutely not. The principal of these products will continuously erode. They do not fit our definition of “cash,” are extremely risky, and should not be touched.
• Question: How can one buy QQQ in mainland China?
  • James’s Response: You can buy exchange-traded funds that track the Nasdaq-100, such as 513100, 513300, or 160213.

IV. Highlighted Views

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In the future, it could be that 0.1% of the population will control 80% of the world’s wealth… If you buy VT, VOO, SPY, these people will become poor in the future… Those of you who buy QQQ will have two more zeros in your assets than those people. – James

This view points out the trend of extreme wealth polarization and emphasizes that choosing a high-growth tech index (QQQ) over traditional broad-market indexes is the key determinant of future wealth magnitude.

Our performance is not determined by our asset allocation and rebalancing method; it’s determined by what the future market will be, which we don’t know. Therefore, the main purpose of our asset allocation is to find a state that gives you peace of mind, allowing you to get through the worst of markets. – James

This view clarifies the fundamental purpose of asset allocation—it’s for risk management and the investor’s psychological comfort, enabling them to stay in the market for the long haul, rather than for predicting and chasing the highest short-term returns.

I just think of the PAL (Pledge Asset Line) as your future employer. Whenever a month is up or anytime you want to get money, you just go to your PAL to get it. – Student Puling

This is a very vivid metaphor that explains the complex financial tool of “pledged loans” as a source of cash flow as convenient as receiving a salary, greatly lowering the barrier to understanding.

Not selling is your ancestor. – James

With a humorous and colloquial phrase, the instructor emphasizes the extreme importance of long-term holding and avoiding the sale of assets, subverting the traditional wisdom that “knowing when to sell makes you a master.”

You have to get into the habit of borrowing money. – James

This view challenges the traditional “debt-free is worry-free” concept, emphasizing that in a low-interest-rate environment, learning to use leverage safely and intelligently by borrowing to invest is a crucial habit for accelerating wealth accumulation.

I was born in Taiwan, and if I don’t own 0050, it feels like I’m not participating. I’m just very conflicted internally. – Student Lana

This sentence genuinely reflects the “home bias” and emotional factors that influence many investors’ decisions, serving as a very typical and relatable “mental block.”

V. Summary

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This session reinforces the core investment philosophy of CLEC while introducing more specific wealth-growth strategies. Through the cases of “reverse mortgages” and “investment-type home equity loans,” the instructor vividly demonstrated how to unlock seemingly “dormant” real estate and turn it into fuel for wealth growth. The course not only provided operational guidance but, more importantly, continued to shape the investor’s mindset: to break the fear of debt and understand the power of leverage; to abandon focus on short-term fluctuations and concentrate on choosing the right long-term track; and to recognize that the essence of wealth is cognition. Only by continuously improving financial literacy can one stand invincible in the future tide of wealth.