Apr
02
2024

Private Equity vs Venture Capital

By | Growing Wealth, invest, Investing | Comments Off on Private Equity vs Venture Capital

Venture capital and private equity funds are two different ways that companies, funds or individuals invest in other companies. While the two types of funds share some similarities, there are also key differences that you’ll want to be aware of. While many private equity and venture capital funds are privately held, some are open to individual investors.

A private equity fund might use its managerial, technological or other expertise to invest in one specific company, hoping to turn it around and improve its profitability. That would allow the fund to sell their investment for a healthy return. Venture capital firms often invest in early-stage companies or startups. They provide capital funds to these companies in exchange for a portion of the company’s equity.

Key Points

•   Private equity and venture capital are two ways that people, funds or companies invest in other companies.

•   Private equity funds often invest in a small number or even just one company at a time, usually a mature company.

•   Venture capital funds generally invest in many different companies that are early in their journey to profitability.

•   While many private equity and venture capital funds are privately held, there are some that are publicly traded and open to individual investors.

What Is Private Equity?

Private equity refers to investing in companies that are not publicly traded. Unlike investing in public equities (such as by purchasing index funds or shares of stock of companies listed on a public stock exchange), private equity investors put their money into privately-held companies.

While you might not think of private companies as having shares of stock in the same way that publicly-traded companies do, most incorporated companies do have shares of stock. A small company might only have a hundred or even less shares, all owned by the initial founders of the company.

A private company that is more established, on the other hand, might have hundreds of thousands or even millions of shares owned by a wide variety of people. The stock of private companies might be owned by the founders, employees or other private equity investors.

💡 Quick Tip: While investing directly in alternative assets often requires high minimum amounts, investing in alternative funds through a mutual fund or ETF generally involves a low minimum requirement, making them accessible to retail investors.

What Is Venture Capital?

Venture capital refers to investors and money that is invested into early-stage companies in the hope that they will generate an above-average return on investment. Venture capital investing usually refers to funds or individuals that give money to early-stage companies, but the investment can also be via managerial or technical expertise.

Venture capital money is often invested over a series of “rounds.” Initially there might be an “angel” round or “seed” round, and then Series A, B, C and so on. In each round, companies receive funding from venture capital investors in exchange for a percentage of the company’s stock, at an agreed-upon valuation.

Generally, the earlier the round of venture capital investment, the lower the valuation. This allows the earliest investors to potentially have the highest return on investment, since they also carry the largest amount of risk.

Venture capital and private equity may serve as examples of alternative investments for certain investors.

Key Differences Between Private Equity and Venture Capital

While private equity and venture capital both refer to companies or funds that invest in companies, there are a few key differences that you’ll want to be aware of:

Private Equity Venture Capital
Generally invests in already established companies Often invests in early-stage companies and/or startups
Often purchase entire companies and work to improve their profitability Purchase a portion of the companies they invest in
Generally invest more money and focus on fewer companies Firms tend to spread their money around — investing relatively fewer amounts of money in more investments

Advantages and Disadvantages

When you compare private equity vs. venture capital investing, there are a few similarities as well as advantages or disadvantages to investing in both.

In most cases, comparing the advantages and disadvantages of venture capital vs. private equity depends on your own specific situation or goal. What might be an advantage for one investor could be a disadvantage for an investor with a different risk tolerance or financial profile.

One potential advantage of investing in private equity is that private equity firms often concentrate their money in a small number of firms. This might allow the private equity investors to concentrate their expertise into improving the profitability of those companies. However, some might consider this a disadvantage, since you might lose some or most of your investment if the company is not able to turn things around.

Similarly, venture capital investors typically invest in a number of startups and early-stage companies. One advantage of investing in this manner is that you may see outsized returns if the company succeeds. However, a related disadvantage is that many companies in these early stages do not succeed, potentially wiping out your entire investment.

In that sense, it’s a high-risk, high-potentialy-reward area of investment.

Common Misconceptions

One common misconception about private equity vs. venture capital is that only investors with significant net worth can invest in these fields. While it is true that most actual private equity and venture capital investors are those with access to significant amounts of capital, there are also many private equity or venture capital funds that sell shares of the funds themselves to retail investors.

This may allow even regular individual investors to take part in investing in venture capital or private equity.

The Takeaway

Private equity and venture capital funds are two different ways that companies invest in other companies. While they share a lot of similarities, there are also some key differences. One big difference is that generally, private equity funds invest more money in fewer companies while venture capital funds often invest (relatively) smaller sums of money in many companies.

While most private equity and venture capital funds are privately held, there are some that are publicly traded and open to individual investors.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

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FAQ

Is private equity better than venture capital?

Private equity (PE) and venture capital (VC) are two forms of investing in other companies, and when comparing the difference between VC and PE, it isn’t really the case that one is better than the other. Instead, it will depend on your own specific financial situation and/or risk tolerance. You can also consider alternative investments to both private equity and venture capital.

Which is the riskier option?

Both private equity and venture capital carry some level of risk. In one manner of speaking, venture capital is riskier, since many of the early-stage companies that they invest in will not succeed. However, most venture capital funds mitigate that risk by investing in many different companies. One successful investment may pay off the losses of tens or even hundreds of unsuccessful venture capital investments.

Are there private equity or venture capital funds available to buy?

Many private equity and venture capital firms are targeted towards investors with significant assets and/or a high net worth. However, there are some funds that are publicly traded and thus available to individual investors. Make sure that you do your own research before investing in any one particular private equity or venture capital fund.

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SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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Mar
13
2024
What is the Greenshoe Option? Definition & How it Works

What is the Greenshoe Option? Definition & How it Works

By | Growing Wealth, invest, Investing | Comments Off on What is the Greenshoe Option? Definition & How it Works

The greenshoe option allows underwriters involved with IPOs to sell more shares than initially agreed upon: usually up to 15% more. That can occur if there is enough investor demand to purchase the shares.

Because IPO share prices can be volatile, the greenshoe option is an important tool that can help underwriters stabilize the price of a newly listed stock to protect both the company and investors.

Understanding the Greenshoe Option

Also called the over-allotment option, the greenshoe provision is part of an underwriting agreement between an underwriter and a company issuing stock as part of an IPO, or initial public offering. The greenshoe option is the only type of price stabilization allowed by the Securities and Exchange Commission (SEC).

The SEC allows this because it increases competitiveness and efficiency of IPO fundraising. It gives underwriters the ability to stabilize security prices by increasing the available supply. It is the responsibility of an underwriter to help sell shares, build a market for a new stock, and use the tools at their disposal to launch a successful initial public offering.

The greenshoe option got its name when the Green Shoe Manufacturing Company was issued the first over-allotment options in 1919.

💡 Quick Tip: Access to IPO shares before they trade on public exchanges has usually been available only to large institutional investors. That’s changing now, and some brokerages offer pre-listing IPO investing to qualified investors.

How Does a Greenshoe Option Work?

During the IPO process, stock issuers set limits on how many shares they will sell to investors during an IPO. With a greenshoe option, the IPO underwriter can sell up to 15% more shares than the set amount.

IPO underwriters want to sell as many shares as they can because they earn on commission as a percentage of IPO sales.

All of the details about an IPO sale and underwriter abilities appear in the prospectus filed by the issuing company before the sale. Not every company allows their investment banker to use the greenshoe option. For instance, if they only want to raise a specific amount of capital, they wouldn’t want to sell any more shares than necessary to raise that money.

There are two ways an underwriter can over allot sales:

At the IPO Price

If the IPO they are underwriting is doing well, investors are buying IPO shares and the price is going up, the underwriter can use the greenshoe option to purchase up to 15% more stock from the issuing company at the IPO price and sell that stock to investors at the higher market price for a profit.

A Break Issue

Conversely, if an IPO isn’t doing well, the underwriter can take a short position on up to 15% of the issued stock and buy back shares from the market to stabilize the price and cover their position.

The underwriter then returns those additional shares to the issuing company. This is known as a “break issue.” When an IPO isn’t performing well, this can reduce consumer confidence in the stock, and result in investors either selling their shares or refraining from buying them.

The greenshoe option helps the underwriter stabilize the stock price and reduce stock volatility.

Types of Greenshoe Options

There are three types of greenshoe options an underwriter might choose to use depending on what happens after an IPO launches. These options are:

Full Greenshoe

If the underwriter can’t buy back any shares before the stock price increases, this is known as a full greenshoe. In this case, the underwriter buys shares at the current offering price.

Partial Greenshoe

In a partial greenshoe scenario, the underwriter only buys back some of the stock inventory they started with in order to increase the share price.

Reverse Greenshoe

The third option for underwriters is to purchase shares from market investors and sell them back to the stock issuer if the share price has dipped below the original offering price. This is similar to a put option in stock trading.

Recommended: How Are IPO Prices Set?

Greenshoe Option Examples

Here’s an example of how a greenshoe option might work in real life.

Once the IPO company owners, underwriter, and clients determine the offering or initial price of the newly issued shares, they’re ready to be traded on the public market. Ideally, the share price will rise above offering, but if the shares fall below the offering price the underwriter can exercise the greenshoe option (assuming the company had approved it in the prospectus).

To control the price, the underwrite can short up to 15% more shares than were part of the original IPO offering.

Let’s say a company’s initial public offering is going to be 10 million shares. The underwriters can sell up to 15% over that amount, or 1.5 million more shares, thus giving underwriters the ability to increase or decrease the supply as needed — adding to liquidity and helping to control price stability.

What the Greenshoe Option Means for IPO Investors

The greenshoe option is an important tool for underwriters that can help with the success of an IPO and bring additional funds to the issuing company. It reduces risk for the issuing company as well as investors. It can maintain IPO investor confidence in a newly issued stock which helps to build a long-term group of shareholders.

Although buying IPO stocks can be very profitable, stock prices don’t always increase and sometimes they can be volatile. It’s important for investors to research a company, look at the IPO prospectus, understand what the stock lock-up period and greenshoe options are before deciding to buy.

The Takeaway

Buying shares in IPOs can be a great way to invest in companies right when they go public. Although IPO investing comes with some risks, and IPO stock can be volatile, investment banks and companies going public use tools such as the greenshoe option to minimize volatility.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.


Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

Photo credit: iStock/AzmanJaka

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation Procedures.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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Nov
19
2023
woman painting her ceiling

How to Pay for Emergency Home Repairs, So You Can Move on ASAP

By | Budgeting & Goals, Family Finances, Home Ownership, personal_loan | No Comments

If you’re a homeowner, you may know those “uh-oh” moments when the basement floods or the roof leaks. If you’re in that situation, you may well need a considerable amount of cash to pay for repairs ASAP.

In this guide, you’ll learn the ballpark prices for some of the most common home repairs so you are better prepared if an emergency strikes. You’ll also gain insight into some financing options so if you find yourself dealing with an unexpected and significant bill, you can decide which source of funding is best for your needs.

Key Points

•   Common emergency repair costs can be steep: roof replacement averages $9,217, mold remediation $5,000–$30,000, HVAC replacement $5,000–$12,000, and rewiring $2,500–$6,000.

•   Foundation fixes range from minor crack repairs ($250–$800) to waterproofing ($2,000–$7,000) or raising a house ($1,000–$3,000).

•   Paying with an emergency fund is ideal, with experts recommending saving 1%–3% of a home’s value for repairs.

•   Financing options include homeowners insurance, home equity loans/HELOCs, government or community assistance programs, and credit cards (best only with 0% interest promotions).

•   Personal loans can provide quick, unsecured funding without risking your home as collateral, making them a practical alternative for urgent repairs.

How Much Do Common Home Repairs Cost?

From the roof to foundation, there are a lot of things in and on a home that might need to be repaired. Among these features are things that might be emergency home repairs at some point, whether that means you’ve discovered black mold in the basement or a kitchen appliance has conked out. Here, learn about some of the most common home repair costs.


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

Roof

A home’s roof has a certain life expectancy, generally based on the material used. A roof made of asphalt shingles might last from 15 to 30 years, while concrete- or clay-tiled roof could last for more than 50 years.

Regular roof inspections are a good way to identify any minor problems, which may typically cost about $220, but can vary with your specific home and the region you live in. Minor repairs might include:

•   Gutter cleaning.

•   Patching leaks.

•   Replacing shingles.

•   Repairing flashing.

Issues found during a roof inspection might average $1,100. Replacing a roof, a major expense, may be necessary at some point in the life of a home. For an average-sized home, a completely new roof can cost $9,217 on average.

Foundation

Foundation issues can show up as cracks in a home’s walls, floors that are not level, gaps around windows, or doors that don’t close properly. Fixing these symptoms of a foundation issue won’t solve the underlying problem, but repairing the foundation at the earliest sign of the symptoms may mean a less costly foundation repair.

Hiring a structural engineer can be a good first step if there appear to be major foundation problems, as they won’t be trying to sell a product to fix any potential problems, so will likely be unbiased. A structural inspection typically costs about $600.

•   Cracks in a foundation that don’t affect the structure are minor repairs but are best not ignored, lest they lead to major issues. Potential cost: between $250 and $800.

•   A leaking foundation might be the cause of those cracks. Waterproofing a foundation, which may involve excavating around the foundation, installing tile drains, filling cracks, and then coating the structure with a sealant, can cost anywhere from $2,000 to $7,000.

•   A house with a settling or sinking foundation may have flooring that is warped or sloping, doors and windows that don’t open and close properly, or even exterior cracks, or other apparent issues. The cost generally depends on the type of repair. Raising a house using piers can cost between $1,000 and $3,000, while jacking might be between $600 and $1,600.

Water Damage

Water damage in a basement might be due to flooding from a storm or broken water line, for example, and is best fixed quickly so mold doesn’t grow and become another issue to take care of. In addition to being an unpleasant sight, standing water can cause structural or electrical issues in a home. Extraction of the water is generally the first step in this type of repair, followed by any necessary structural repairs.

•   For simple fixes, such as cleaning up after an overflowing toilet, the cost might be around $150.

•   Water damage restoration, though, is a bigger ticket item, averaging between $1,300 and $5,600, though it could go higher. If your entire home’s wood flooring is warped by water damage or basement flooding wrecks your electrical panel, that could spiral into five figures.

Recommended: How Much Does It Cost to Finish a Basement?

Mold

If the above water issues are not fixed in a timely manner, mold can grow on the surfaces, requiring additional necessary repairs. In addition to damaging any surface mold grows on, it’s also a serious health hazard, potentially causing allergic reactions, asthma attacks, and skin irritation.

Mold remediation costs average between $5,000 and $30,000 for a 2,000 square foot home. If the mold issue is localized (say, just in the attic or basement), your costs could be anywhere from $500 to $7,500 on average, depending on the specifics of your situation.

Pests and Rodents

Pests and rodents in a home can be more than just annoying. Infestations might cause major damage to a home if left untreated. One-time pest control costs around $450 on average. Ongoing services may cost $50 or more a month.

Attics can be inviting spaces to rodents like mice, rats, or squirrels, or other animals such as raccoons or bats. Eliminating the problem can cost $200 to $600 typically.

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HVAC

A home’s heating, ventilation, and air conditioning (HVAC) systems control the regulation and movement of air throughout the building. Like other components in a home, it’s wise to have an HVAC system inspected regularly to catch any problems before they become serious (as in, needing to pull together the cost of replacing an HVAC system). A standard tune-up for an HVAC system might cost between $150 and $450, with any potential repairs added to that. Some companies might offer ongoing maintenance plans, which could be a cost saver over time.

And what if the entire HVAC system needs replacing? Your price tag could be between $5,000 and $12,000 or higher. This could be a good opportunity to investigate any rebates available. For instance, if you buy an eco-conscious heat pump, you might find rebates as part of the Inflation Reduction Act.


💡 Quick Tip: Unsecured home improvement loans don’t use your house as collateral — a relief for many homeowners.

Electrical

Electrical issues in a house can vary from minor repairs, such as replacing an outlet, to wiring overhauls that may require professional help.

•   Hiring an electrician to replace a home’s outlets, light fixtures, and switches can cost around $280 on average. For someone who is confident in their DIY skills, this relatively simple job can be done for about $5 per outlet.

•   Replacing a circuit breaker or the entire electrical panel is something homeowners might leave to a professional. Costs will depend on the number of breakers being replaced or, in the case of replacing the electrical panel, how many amps. Panel replacement or upgrade can be anywhere from $2,000 to $6,000.

•   Rewiring a home can be quite expensive and include other repairs, such as plaster or drywall repair. To rewire an entire home, a homeowner might expect to pay between $2,500 and $6,000 for a three-bedroom house.

Ways To Finance an Emergency Home Repair

Even with regular inspections and maintenance, sometimes emergency home repairs are necessary. Some roof tiles may blow away, allowing rain in, or mold can take root in a damp basement. How to pay for home repairs (especially major ones) might involve using a variety of sources, depending on what is available and a person’s individual financial circumstances.

Homeowners Insurance

Homeowners insurance may be the first source most homeowners look to when needing to pay for emergency home repairs. The policy will stipulate what is covered, how much the company will pay, and any amount the homeowner might be responsible for, such as a deductible.

Some things a typical homeowners insurance policy might cover are costs to repair or rebuild after a disaster, replacement of personal belongings that were destroyed because of a disaster, or the costs of alternative housing while repairs are being made or a house is being rebuilt.

Emergency Fund

If there is a sufficient amount in an emergency fund, paying for an unexpected home repair with cash on hand is an option that won’t incur interest. How much to save in a home repair emergency fund will depend on the home’s size, age, and value. Older or more expensive homes might mean higher repair costs.

A typical recommendation is to save between 1% and 3% of a home’s value in a home repair emergency fund. So for a home valued at $500,000, this means having between $5,000 and $15,000 saved for emergency home repairs. This is a goal to work toward, but even having $1,000 in savings can be helpful.

If you do dip into your fund to fix your house, it can be like an emergency home repair loan, without any interest charged or monthly repayment schedule.

Home Equity

Homeowners who have built up equity in their homes may choose to use that equity to get money for home repairs. Using this type of financing, however, does come with some risk because the home is used as collateral. If the borrower defaults, the lender may seize the home as a way to repay the debt.

There are two types of loans that are based on a home’s equity: home equity loans and home equity lines of credit (HELOCs).

•   A home equity loan is a fixed-rate, lump-sum loan. It has a set repayment term, and the borrower makes regular, fixed payments consisting of principal and interest.

•   A HELOC also uses the equity a homeowner has built up, but the borrower does not receive a lump sum. Instead, they access the loan funds as needed until the loan term ends. Funds can be borrowed, repaid, and borrowed again, up to the limits of the loan.

HELOCs are variable-rate loans and consist of two periods: a draw period and a repayment period. The draw period is the time during which money can be borrowed, and might be 10 years. The repayment period is the time during which the loan is repaid and might last for 20 years. The combination of the two would make this example a 30-year HELOC.

Recommended: The Different Types Of Home Equity Loans

Assistance Programs

If emergency home repairs are required but the homeowner can’t afford to pay for them, assistance programs might be an option to look into.

•   Government loan or grant assistance. The U.S. Departments of Housing and Urban Development (HUD) , Agriculture (USDA), and Veterans Affairs (VA) offer grants and loans to eligible homeowners for home repairs and improvements.

•   Disaster relief. HUD offers several programs for homeowners affected by federally declared disaster areas. HUD partners with other federal and state agencies to provide relief in the form of mortgage assistance, relocation, food distribution, and other types of disaster relief.

•   Community Assistance Programs. Funding assistance may be able to be found by looking at local sources, such as county or city governments or charities. A good place to start a search is through HUD’s state listings .

Credit Card

Using a credit card to finance unexpected and urgent work on your home may seem like an easy fix. It can certainly be a quick way to pay for such repairs and a viable option if you’re thinking of how to pay for home repairs with no money withdrawn from your bank account. There are pros and cons to using a credit card for this purpose.

•   On the positive side: If the credit card is a zero-percent-interest card — and the balance can be paid in full before the promotional period ends — this can be a way to pay for an emergency home repair without paying interest.

•   As for disadvantages, credit cards are more likely to have high-interest rates, which can add a significant amount to the account balance if not paid off quickly.

•   Credit cards also come with borrowing limits. A major emergency home repair might max out this limit or even exceed it.

•   In addition, using all available credit can potentially have a negative effect on a borrower’s credit score. It can raise a person’s credit-utilization ratio. And if they are applying for a loan, it could raise their debt-to-income ratio, which might make getting a favorable loan rate a challenge.

Should I Get a Home Repair Loan?

Another option to pay for emergency home repairs might be a home improvement loan, which is a type of personal loan.

•   An unsecured personal loan does not use collateral, like a home equity loan or HELOC, so the borrower is not risking losing their home if they can’t repay the loan. The potential loan value is also not limited by the amount of equity in the home.

•   An unsecured personal loan may be funded more quickly than a home equity loan or HELOC. Because there is no collateral to determine a value for, this cuts out a potentially time-consuming step included in secured loans.

•   How can you use a personal loan? They can be tapped for a variety of reasons, not just emergency home repairs. If there are expected repairs, planned repairs, or home renovations that might make a home more livable, an unsecured loan can be a good option.

The Takeaway

It’s probably safe to say that nobody likes to think about emergencies. But it’s wise to be prepared in the event that one arises. When pricey home repairs are required, a personal loan may be the option that works best for your financial situation.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.


SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Aug
15
2023
How Does the Iron Butterfly Spread Work?

What Is an Iron Butterfly Option Strategy?

By | Growing Wealth, invest, Investing | Comments Off on What Is an Iron Butterfly Option Strategy?


Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

An iron butterfly spread is a type of options trade involving four separate options contracts. It’s a complicated and advanced options trade, meaning that many beginner investors will likely never use it — they may not have even heard of it.

Iron butterfly spreads can be used as a part of a larger options trading strategy, however, so long as investors understand the ins and outs of how it works, and most importantly, the risks involved.

What Is an Iron Butterfly?

An iron butterfly spread, sometimes called an “Iron Fly” or a “Butterfly Spread” is a trade involving four separate options contracts.

As a strategy that earns investors money when stocks or futures prices make moves within a defined range, it’s especially popular with traders who expect a decrease in implied volatility. To succeed with an iron butterfly spread, traders will try to forecast when option prices will likely decline, usually when the broader markets are in a holding pattern, or gradually moving upwards.

How Does an Iron Butterfly Trade Work?

An Iron Butterfly is a four-legged options spread, since an investor buys four options contracts, two calls and two puts. The call options allow the investor to buy a stock at a given price, and the put options allow the investor to sell a stock at a given price.

In the trade, the calls and puts have three strike prices, but the same expiration date.

In a put or call option, the strike price is the price an investor can sell the underlying security when it is exercised. With a call option, the strike price is the price at which the investor can buy the security. With a put, the strike price is the value at which they can sell the security.

The three strike prices consist of one in the middle, called the options straddle, and two other strike prices, called the strangle, positioned above and below that price. As a trade, the Iron Butterfly has the propensity to deliver profits when the option’s underlying stock hits its expiration date at the middle strike price.

Recommended: Popular Options Trading Terminology to Know

Example of an Iron Butterfly

For the strategy to work, the call and put options that sit on either side of the target stock price should be far enough apart that they can still make money regardless of the unexpected price movement of the stock between the time when the trade is executed, and the expiration of the options.

As an example, you’re an investor with a sense that a stock would reach $50 in the next month, and that it would be at least within a range of $10 above or below the target price. To make an Iron Butterfly trade, you’d buy a call and a put option with a strike price of $50. Then you’d buy a call option ten dollars higher, followed by a put option ten dollars lower than the target price, or saddle price, of $50.

The theory behind the Iron Butterfly strategy is that there’s a high likelihood that the eventual price of the stock targeted in the strategy will trade within a profitable range by the time the strike price of the options arrives.

Pros and Cons of Iron Butterfly Spreads

There is a limit to the maximum profit that an investor can earn by using the Iron Butterfly. That’s because of the cost of the options they have to buy to make money on their bet, as well as the cost of the options they purchase to protect themselves in the event that their hunch is wrong.

In the strategy, the most money the investor can make becomes possible when the underlying stock reaches the stock price at which they’ve purchased the saddle options. But even in this best-case scenario, at least half of the options expire worthless.

While this limited return may seem like a downside, it also comes with limited risk. As long as the stock rises or falls — at the time of the options’ expiration — between the target price and the strike prices of the outlying call and put options, then the trade will not lose money. But the closer it is to the target price, the more money it will make.

The biggest risk in an Iron Butterfly strategy is that the stock trades outside of the strangle, making all of the options worthless.

Recommended: What Is Your Risk Tolerance?

How to Sell out of an Iron Butterfly Spread

The investor will have at least one option that is in the money, and possibly two options that are in the money, when the options expire. They will exercise those options, and make money on the trade.

Traders realize that it’s unrealistic that any given trade will reach its expiration date exactly at the strike price, or straddle price, that they choose. But with a smart spread on the outer range of the call and put options in the trade, the strategy can deliver returns on the capital put at risk that are consistently in the 15-20% range.

What Is the Difference Between Iron Condor and Iron Butterfly?

An Iron Butterfly is similar to another option strategy known as an Iron Condor. The strategies differ in terms of their strike prices and premiums. In an Iron Condor the strike prices are different and in an Iron Butterfly they’re the same. The premiums are higher in an Iron Butterfly than an Iron Condor.


💡 Quick Tip: In order to profit from purchasing a stock, the price has to rise. But an options account offers more flexibility, and an options trader might gain if the price rises or falls. This is a high-risk strategy, and investors can lose money if the trade moves in the wrong direction.

The Takeaway

The Iron Butterfly is a trading strategy that investors use when they believe that a stock price will trade within a specific range. Rather than buying the stock itself, an Iron Butterfly involves purchasing four options based on the investor’s price prediction for a certain security.

Again, trading options is an advanced investment strategy that requires a good amount of background knowledge and market experience. It may not be a good idea for beginning investors to wade into options, or advanced moves like the Iron Butterfly. However, speaking with a financial professional may help get you prepared for trading options.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

Photo credit: iStock/ponla1975

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SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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04
2023

How to Stage a House: 8 Steps

By | Growing Wealth, Home Ownership, mortgage | Comments Off on How to Stage a House: 8 Steps

Selling your home? If so, you likely want to do everything in your power to make it look great and trigger solid offers ASAP. Staging your home can be one key contributing factor to achieving that.

When you stage your home, you optimize its look and design. This allows potential buyers to visualize the house as their own. It makes it look like a place they aspire to put down roots. (Yes, decluttering and removing some of your personal mementos may be involved.)

According to a National Association of Realtors® survey, 89% percent of buyers’ agents said staging a home made it easier for a buyer to visualize the property as a future home.

Want to learn more? Here’s a step-by-step guide to how you can stage your home.

8 Steps to Stage a House for Sellers

Follow these tips for staging your home and impressing prospective buyers.

1. Take Stock of Needed Fixes

If a house requires considerable repairs, a seller may face a lengthy negotiation process with buyers that results in concessions and contingencies. Any issues flagged by an inspection will also need to be addressed with prospective buyers.

Deciding whether to make these fixes beforehand will affect how a home is staged and perceived by buyers. Even relatively small issues like cracks in a ceiling and a dripping faucet can raise concerns and influence a buyer’s impression. That’s something to be wary of, especially in a hot housing market when many buyers want to snag a home quickly.

Taking care of these common home repairs before house staging can show buyers that you’ve maintained the property and keep their focus on its strengths.

💡 Quick Tip: Don’t overpay for your mortgage. Get your dream home or investment property and a great rate with SoFi Mortgage Loans.

2. Enhance Curb Appeal

Before buyers walk through the door, they’ll have already formed an impression from the home’s curb appeal, the attractiveness of a property from the sidewalk or street.

Buyers may even do a drive-by before setting up a showing to narrow down their search. Thus, sprucing up a home’s exterior, lawn, and landscaping is essential to any plan for how to stage a house. Even in winter, curb appeal matters.

Any eyesores, such as chipped paint, cracked windows, or clogged gutters could discourage buyers from taking a closer look. Power-washing any siding and applying a fresh coat of paint where needed are some possible quick improvements.

Thinning out lawn decor, replacing burned-out lights, and tidying up gardens and landscaping are also low-cost ways to increase curb appeal.

For many prospective buyers, their first look into your home will be digital. High-quality photos can be helpful in attracting buyers.

Staying on top of things like lawn care while the home is listed could make a difference in getting more showings and securing a higher offer. In fact, 98% of NAR members say they believe curb appeal is important to potential buyers.

3. Remove Clutter

While working on house staging, you may also be encumbered with the home-buying process or figuring out what to do with all your stuff after it’s sold. In either case, staging is an opportunity to jumpstart the moving process and declutter the house.

Removing clutter is a popular staging tactic to make the interior of a home appear more spacious. A home’s square footage can’t be fabricated, but curating a more open layout can give the impression of a larger space.

Begin by packing away items that you don’t use daily, like seasonal clothes, knickknacks, sports equipment, and other odds and ends. This is also a chance to identify anything you want to sell, donate, or dispose of.

Storage space of a home can also be a major selling point. Instead of loading up the basement, garage, and closets, sellers may want to consider asking family members or friends to store their belongings, hosting a garage sale, or renting a storage unit.

Recommended: How to Refresh Your Home Room by Room

4. Depersonalize the Space

Cutting back on personal items is an important step in staging a house. While decluttering the home, stowing away family photos and clothing is a good place to start. Removing subtler items like personal toiletries can further neutralize the space.

That lavender paint in one room and turtle-themed wallpaper in another? It might be best to create a more basic canvas.

The point is to show that the home is move-in ready and an open book for buyers to add their personal touches. With just the integral furniture and furnishings remaining, it’s easier for buyers to imagine themselves moving in and living there.

5. Do a Deep Cleaning

Once the decor and furnishings have been minimized, it’s time to get the house squeaky clean. While this is one of the more cost-effective ways to stage a house, it can take significant time and energy.

To streamline the process, consider starting with the highest surfaces and working your way down. Overhead fixtures like lighting and ceiling fans are often overlooked in regular cleaning routines, and thus accumulate lots of dust and grime. It’s likely that cleaning these hard-to-reach places will bring debris down on countertops and floors.

Bathrooms and kitchens are key rooms to focus on. Water stains and mildew in sinks, tubs, and showers are obviously a no-no. Making sure appliances sparkle and that countertops are spotless can give the kitchen a fresh new look.

💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show proof of prequalification to the real estate agent. With SoFi’s online application, it can take just minutes to get prequalified.

6. Define Every Space

While the kitchen, bathroom, master bedroom, and garage are straightforward in their purpose, some spaces in a home may not have an obvious use to prospective buyers.

Thinking about how to stage spare rooms and unconventional spaces is important. For example, staging such a space as a home office or workout room could appeal to a larger segment of buyers.

7. Stage Where It Matters Most

Not every room holds equal weight from the homebuyer’s perspective. Prioritize the living room, primary bedroom, kitchen, dining room, and yard; real estate agents say these are of most interest to buyers.

The kids’ rooms and basement? Spend less time and energy there.

Recommended: Home Appraisals: What You Need to Know

8. Don’t Forget Outdoor Space

While the front of a house determines curb appeal, the yard, porch, or patio space can sell buyers on the lifestyle they could enjoy there.

The backyard is a popular place for entertaining and socializing, especially for families with kids. Tidying up the yard and addressing any safety issues like a wobbly porch railing or broken fence could be easy fixes.

Setting up a focal point, such as an outdoor seating area, fire pit, or grill, can make the space more inviting. Even if it’s a limited yard or patio space, brightening it up with flowers and comfy outdoor furniture can change the perception from confined to cozy.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

How to stage a house? It can take time and energy, but emphasizing a home’s strengths and creating an inviting atmosphere can be done with some thorough cleaning, decluttering, and rearranging.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.


SoFi Mortgages: simple, smart, and so affordable.


*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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