Raising Capital for Building Projects: Strategies for Securing Funds for Your Down Payment
Financing Your Dream Home: Leveraging Your Securities Portfolio
Looking to buy a property? If you've got a securities portfolio, you might be wondering if liquidating it is the best move. But fret not! There are other ways to utilize your investments in property financing. Here's a lowdown on your options.
Securities like stocks are popular during low-interest savings periods. They offer long-term returns that surpass those of time or fixed deposits, with realistic returns ranging between 6-8%. However, remember, investing always involves risk.
Sharing is Caring, Even with Your Bank
"Don't sell your performing portfolio just yet," says Thomas Saar, a real estate financing expert. "You don't have to. It's possible to use it for a construction project without dissolving it. But not all banks and not all portfolios allow this."
In fact, Dirk Eilinghoff, a real estate and interest rate expert, suggests telling your bank about your portfolio, even if you don't plan on using it. "This boosts the customer's creditworthiness, potentially securing better credit terms," he says.
Dropping Anchor with Your Portfolio
Your portfolio can be temporarily transferred to the bank to seal better financing conditions. "This usually requires a well-filled, diversified portfolio for the bank to accept," explains Saar. "However, banks often apply significant discounts to the portfolio value, so customers shouldn't expect the entire value to be recognized as security."
Active Finance Game
Your portfolio can also be used to repay the construction loan. "For example, the customer can use the dividends for financing or redeem the remaining debt with the portfolio value after 10 or 20 years," explains Saar. However, you'll need some financial acumen and negotiation skills to tackle this.
Banking on Your Savings
Banks manage customer deposits differently. "Some secure all access rights to prevent changes, others want customers to transfer the deposit as collateral, and yet others let the deposit remain as is," says Saar. "It's ideal for the customer to keep the deposit unaltered, but negotiations with the bank are necessary."
From Savings to Equity
If the bank doesn't respond to your request, consider selling your deposit for equity. "This relieves the investment risk in favor of a guaranteed interest rate," says Eilinghoff. However, remember, taxes may be due on the profits.
References: ntv.de (Katja Fischer, dpa)
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Additional Insights:
- Rental Income-Backed Loans (DSCR Loans) - Using the property's rental income to qualify for a loan, rather than the borrower's personal income.
- Real Estate Crowdfunding and Syndications - Pooling capital to invest in large-scale real estate projects, offering risk sharing across properties and markets.
- Mortgage-Backed Securities (MBS) - Indirectly financing property acquisitions or reaping mortgage payments by investing in securities that represent claims on pools of mortgage loans.
- Property Tax Lien Investing - Investing in property tax liens, buying the rights to collect outstanding property taxes, secured by the property itself.
The use of securities portfolios in property financing isn't limited to direct methods. Through rental income-backed loans, real estate crowdfunding, mortgage-backed securities, and tax lien investing, investors can diversify their property financing portfolios and engage with properties indirectly. Banks depend on customer deposits for funding property financing loans and manage these loans based on property income and risk characteristics.
While considering finances for your dream home, don't forget the potential of your securities portfolio. Not only can you discuss your portfolio with your bank to boost your creditworthiness, but you can also temporarily transfer it to the bank to secure better financing conditions. Additionally, investing in real estate crowdfunding, mortgage-backed securities, or property tax lien investing can offer indirect means of property financing, allowing for diversification and engagement with various properties and markets.
