Raising a construction deposit: strategies for securing the necessary funds
Rethinking Real Estate Financing: Maximizing your Securities Portfolio for Property Investment
For many investors, the allure of a burgeoning securities portfolio is its long-term potential. However, the question often arises: Should I cash in my papers for a property purchase, or can I utilize my portfolio differently?
In today's low savings interest rate climate, securities offer an appealing alternative for investors seeking higher, long-term returns. With a well-diversified portfolio, returns of up to 6-8% are possible. However, these results are not guaranteed, as the market can be unpredictable.
Banking on Security
"If a portfolio is performing well, it's understandable to hold onto those papers," says Thomas Saar, a real estate financing expert at financial services provider Dr. Klein. "And that's often unnecessary. You don't have to sell just to buy a property. However, this isn't an option with every bank or every portfolio."
Securities portfolios can be incorporated into the financing strategy, both actively and passively, whether you're building a new home or purchasing an existing property. To ensure the best possible terms, it's essential to communicate with your bank about your securities portfolio, even if you're not planning to use it initially.
Temporary Transfers Offer Advantages
"Many investors are unaware that a securities portfolio can be temporarily transferred to the bank to secure better financing," explains Thomas Saar. "This arrangement serves as security for the bank, and the investor continues to benefit from the portfolio's gains and dividends."
Typically, banks apply discounts to the pledged portfolio's value, as they are risk-averse and cannot predict future market developments. However, this provides a valuable opportunity to secure financing without selling your securities.
Negotiating the Best Deal
For those considering using their securities portfolio for repayment purposes, a solid grasp of financial matters and negotiation skills are crucial. "Banks don't necessarily approach customers with offers to use their portfolios for repayment," says Thomas Saar. "You have to negotiate actively to strike the best deal."
Banking Differences
"Each institution handles customer deposits differently," says Thomas Saar. "Some insist on gaining all access rights to prevent changes, while others want part or all of the deposit as collateral or prefer to let things stay as they are. It's essential to negotiate these terms with your bank to find the best solution for you."
Other Options
If your bank isn't receptive, consider alternative financing solutions. **"Selling a deposit to secure a mortgage is uncommon in retail banking," says Dirk Eilinghoff, a real estate and interest rate expert at the consumer advice portal Finanztip. However, you can still use your deposit by liquidating it and obtaining equity for financing."
Remember that taxes may apply if you liquidate your deposit, with up to 27.99% in Abgeltungssteuer, including solidarity surcharge and church tax, being deducted from any profits.
Enlightening Insights
- Securities-Backed Lines of Credit (SBLOCs): This credit facility allows investors to borrow against the value of their securities without selling them.
- Alternative Lending Platforms: These platforms offer loans secured by various assets, including securities, circumventing the need to liquidate investments entirely.
- Reallocating Investments: Portfolio reallocation might involve shifting parts of your portfolio into private real estate or private credit funds, offering real estate exposure and financing potential while preserving other holdings.
Source: ntv.de, Katja Fischer, dpa* Mortgages* Real Estate* Real Estate Prices* Interest Rates* Apartment Ownership* Investment
[1] Sullivan, J. (2021, August 17). Real Estate Investment Trusts (REITs) vs. Private Real Estate Investment: What You Need to Know. Forbes. Retrieved October 27, 2022, from https://www.forbes.com/advisor/investing/reit-vs-private-real-estate/
[2] Wells Fargo Private Bank. (n.d.). Private Real Estate Investments. Wells Fargo Private Bank. Retrieved October 27, 2022, from https://www.wellsfargoprivatebank.com/investing/real-estate-investments
[3] Australian Securities & Investments Commission. (2019, June 11). Choosing a managed fund. Money Smart. Australian Securities & Investments Commission. Retrieved October 27, 2022, from https://www.moneysmart.gov.au/investing/managed-funds/choosing-a-managed-fund
[4] Townsend, J. (2018, November 29). The Pros and Cons of REITs: Should You Invest in Real Estate Investment Trusts? The Motley Fool. Retrieved October 27, 2022, from https://www.fool.com/investing/2018/11/29/the-pros-and-cons-of-reits-should-you-invest-in.aspx
[5] Crowe, S. (2018, October 06). Online Lending Marketplaces Use AI to Make More Loans. The Wall Street Journal. Retrieved October 27, 2022, from https://www.wsj.com/articles/online-lending-marketplaces-use-ai-to-make-more-loans-1538677000
In the context of rethinking real estate financing, an investor could leverage their securities portfolio for property investment by temporarily transferring the portfolio to secure better financing terms, or by using it as a basis for securities-backed lines of credit (SBLOCs). Additionally, investors may consider communication with their employers regarding community policy and personal-finance to explore potential employment policy adjustments that could impact their financial situation, thereby enabling them to invest in property.
