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Capital Gains: Using the portfolio as potential cashflow

What about a track record

To count capital gains activity for recurring cashflow many, if not most, financial institutions will want to see a track record. But not all.

A lesson learned from lenders to High Net Worth/High Income Clients

What if your borrower has a million-dollar portfolio? Does it really matter that s/he has not tapped it in the last few years? In fact, is it a plus that during the recession s/he did not have to tap it?

Here is the way some lenders look at a significant portfolio:

  • Consider first discounting the portfolio value significantly, perhaps 30% to 50%.
  • Assume a very conservative rate of return, perhaps 1% to 2%.
  • Amortize potential liquidation of the portfolio value after discounting over 20 or 30 years.
  • Include the potential yearly cashflow from portfolio liquidation in your cashflow calculation or as a quantifiable compensating factor.

Guidelines Rule!

Look to your financial institution’s guidelines to decide what you can use and how. Often when your guidelines do not allow you to count an income source formally you can still use it in your write-up.

What less traditional sources of income are you using to qualify your borrower in this post-recession environment?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.