Raising a construction deposit: Strategies for securing funding for your building project
Rethinking Real Estate Financing: How to Leverage Your Securities Portfolio
If you've got a securities portfolio and you're eyeing a new property, you might wonder if dissolving it's the way to go. While it's an option, it's not always the best choice. Here are other strategies to use your securities to finance your real estate dreams.
Owning a diversified securities portfolio is like having a quiet but powerful ally in your financial journey. It offers long-term returns that often outshine what you'd find in traditional savings accounts, even during low-interest rate times. The potential for returns on a well-managed portfolio can land between 6-8%. However, remember that investing in securities involves an element of risk since market trends are unpredictable.
Banking on Your Portfolio
"If your portfolio is performing well, it's natural not to want to part with your papers," says Thomas Saar, a real estate financing expert at Dr. Klein Financial Services. "And, it's not necessary to do so when buying a property. Instead, you can integrate the portfolio into the financing of the property. However, not every bank and not every portfolio accept this."
Sharing the existence of your securities portfolio with banks can improve your creditworthiness, potentially securing better loan terms. "However, it's crucial to remember that banks may apply discounts to the value of the portfolio when using it as collateral, usually around 40 to 50 percent," explains Saar. "For example, a portfolio worth €100,000 might only count as €50,000 to €60,000 as security."
Negotiating Terms With the Bank
Your securities portfolio can also be temporarily transferred to the bank to secure better loan conditions. "This allows the bank to benefit from the portfolio's growth and dividends while you continue to reap the benefits," says Saar. "But this works best with a well-diversified portfolio that the bank accepts."
communicating with banks is crucial if you plan to use your portfolio to repay your construction loan. "You'll need to be skilled at financial negotiations to make this happen," Saar advises. "Banks don't always proactively offer such options, so you'll need to actively negotiate."
Handling Securities Differently Among Institutions
When it comes to dealing with customer deposits, banks vary. "Some banks secure all access rights to prevent customers from making changes. Others require customers to transfer the entire or partial deposit as collateral, while others let the deposit continue as is," says Saar. "The ideal situation for the customer is for the deposit to remain untouched, but this must be negotiated with the bank individually."
In cases where the bank doesn't respond to the customer's request, you can still use the liquidated portfolio to acquire equity for real estate financing. "By selling part of your securities portfolio, you forfeit the potential returns and the risks associated with those investments, but you earn a stable interest rate," says Dirk Eilinghoff, real estate and interest rate expert at Finanztip advisory portal. "Additionally, the gained equity helps reduce the financing amount and associated interest and repayment burdens."
However, remember to consider the tax implications of selling your portfolio. profits from securities sales may be subject to a tax rate as high as 27.99%, including solidarity surcharge and church tax, especially in the context of a mortgage.
Using your securities portfolio to finance real estate transactions provides access to capital, flexibility, and potential tax benefits. However, it also involves market volatility risks, increased leverage, and financing costs. Consider these factors carefully before deciding to integrate your securities portfolio into your real estate financing plan.
Sources: ntv.de, Katja Fischer, dpa
- Real Estate Finance
- Property Investment
- Securities Market
- Diversified Portfolio
- Collateral
- Leverage
- Tax Implications
- When communicating with banks about real estate financing, it's important to note that your securities portfolio can improve your creditworthiness, potentially securing better loan terms, even though banks may apply discounts to the value of the portfolio when using it as collateral.
- If the bank doesn't respond to your request to use your liquidated securities portfolio to acquire equity for real estate financing, you can still earn a stable interest rate, reduce the financing amount and associated interest and repayment burdens, although there may be tax implications to consider, especially in the context of a mortgage.
