Securing construction finance: Strategies to accumulate the required down payment
Use Your Securities Portfolio for Property Financing: Alternatives to Selling
Sick to death of the idea of dissolving your portfolio just to afford that dream house? Fear not, my friend, for there are other ways to harness the power of your stocks and bonds to finance your property.
When you've built a fine securities portfolio, it's only natural to want to hold onto it for the long haul. After all, it's your financial future we're talking about. But the question remains, when buying a property, should you liquidate your portfolio or use it as a tool for financing?
Face it, low savings interest rates have made stocks and other securities oh-so-alluring for investors seeking long-term returns. With a well-diversified portfolio, you could be looking at gains of 6-8%. Of course, there's always the risk of prices taking a nose-dive, but hey, no risk, no reward, right?
Spill the Beans to the Bank
"If your portfolio is racking up the gains, it's understandable that you want to hang onto those puppies," says Thomas Saar, a pro in real estate financing at financial services provider Dr. Klein. "And that's perfectly fine. You don't have to sell your stocks, except maybe with some banks and for certain portfolios."
Yup, that's right—your portfolio can be part of the financing plan, both actively and passively. So before you blurt out your intent to sell, let the bank know you have a portfolio, even if you don't plan to use it. "This gives the bank a better picture of your financial situation, which could earn you better credit terms," says Dirk Eilinghoff, real estate and interest rate guru at consumer advice portal Finanztip.
Discounts Ain't No Way Out
If you do decide to use your portfolio as collateral, the bank ain't gonna value it at face. "They'll be generating some of that attorney-style legalese you love, with discounts of 40-50% on the portfolio value," warns Thomas Saar. "So, for example, if your portfolio's worth 100,000 euros, the bank might only grant 50,000-60,000 euros in loan security, depending on your portfolio structure."
Bargaining Skills and a Math Sense Are Key
Wanna use your dividends or portfolio value to repay your construction loan? You'd best have a solid grasp of finance and a nose for deals, because the banks don't exactly send out scraps of paper with "Make Me An Offer" written on it. "Banks don't necessarily wine and dine customers with those kinds of offers, so you gotta haggle actively if you want to make it happen," says Thomas Saar.
Banks and Deposits: You're the Boss
Now, let's talk about that bank sec'tch; should you expect them to, I don't know, touch your deposits with a ten-foot pole or wrap 'em up in a lovely, pink, velvet bow? The answer, my friends, lies in the fine print... or rather, the lack thereof.
"Some banks wanna keep their hands all over your deposits so you don't start squirrelin' away funds elsewhere," says Thomas Saar. "Others want a piece of the action by demandin' you hand over the whole or a chunk of your deposit as collateral. Still, others are cool with you keeping your money as is." So as always, you do you.
Breakdown of the Real Estate Loan Process
If the bank ain't playin' ball, there's always the option of dissolving your portfolio for cash. This ain't exactly the dream scenario, but it'll get ya the equity you need for the property purchase.
But tread carefully—taxes on your profits could take a big bite out of your earnings, up to 27.99% with taxes, church tax, and solidarity surcharge. So consider using other financial resources, like plain old savings or a personal loan, to avoid the tax hit[2].
Source: ntv.de, Katja Fischer, dpa
Alternative Options to Dissolving Your Portfolio:
- Securities-Based Line of Credit (SBLOC): Instead of selling your portfolio, you can pony up your stocks and bonds as collateral for a line of credit. This allows you to borrow against the value of your assets, providing cash for your property purchase without giving up ownership of your investments.
- Margin Loan: Similar to an SBLOC, a margin loan lets you borrow using your securities as collateral. However, there's a risk involved, as the lender may require repayment or additional collateral if the value of your securities drops below a certain threshold.
- Collateralized Loans: Some lenders will let you use your securities as collateral for a loan tailored to property purchases, preserving your investment while still securing the debt.
In certain circumstances, a bank may choose to consider your securities portfolio as part of your financing plan, either actively or passively, giving a more comprehensive view of your financial situation and potentially securing better credit terms for you. However, it's important to note that banks often apply substantial discounts to the portfolio value when used as collateral, potentially limiting the amount of loan security available.
To make the most out of using your securities portfolio for property financing, it's essential to have a good understanding of personal-finance, real-estate, and investing principles, as well as strong bargaining skills. Alternatively, you could explore options like a securities-based line of credit, a margin loan, or a collateralized loan, which allow you to preserve your investments while securing the debt for property purchases.
