Securing Construction Financing: Strategies for Acquiring Initial Capital
How to Capitalize on Your Portfolio for Real Estate: A Fresh Look
Ever thought of using your securities portfolio to fund your dream property? Here's how you can do it without selling a single share.
Property ownership is a major life milestone, and when it's time to make the leap, you might consider dissolving your securities portfolio for cash. But that's not your only option. By being strategic, you can utilize your portfolio as leverage to secure a mortgage and keep your investments growing.
Stocks and Securities: The Hidden Benefit
In today's low-interest-rate climate, securities are a popular alternative for savers. With potential returns above traditional savings accounts, a well-diversified portfolio could net returns between 6% to 8%. However, as with any investment, there's always a risk involved. No one can predict whether the market will rise or fall.
Leveraging Your Securities:
"If your portfolio is performing well, it's understandable you'd want to hold onto it," says Thomas Saar, a mortgage financing expert at Dr. Klein. "And you can, without selling a single share. With the right bank, you can integrate your portfolio into your financing concept as security, both actively and passively."
Here are three ways to incorporate your securities into your real estate financing:
- Securities-Backed Loans or Lines of Credit: Many financial institutions offer loans or lines of credit secured by a portfolio of securities. The lender places a lien on the portfolio, allowing you to unlock liquidity for your real estate purchase without selling the investments. Loan-to-value (LTV) ratios typically range from 50% to 70%, depending on the portfolio's composition and risk profile.
- Portfolio Margin Loans: Investors with sufficient experience in financial matters may opt for portfolio margin loans, which offer higher leverage against their securities. Be mindful of risk controls, as fluctuations in your securities' value can impact your financial standing.
- Cross-Collateralization or Structured Loans: Creating a loan structure that ties together your securities portfolio and real estate assets can help leverage the equity in your securities for real estate acquisitions.
Benefits and Considerations:
- Retain Ownership and Capital Growth: By maintaining ownership of your securities, you continue to gain exposure to long-term growth and dividends.
- Liquidity without Taxable Events: Using securities as collateral avoids triggering capital gains taxes that would occur with portfolio dissolution.
- Credit Risk and Market Risk: Banks may require a margin or haircut to protect against declines in the collateral's value. Investors face the risk of margin calls or having to post additional collateral in the event of a market downturn.
- Interest Costs and Loan Terms: Consider the cost of borrowing against your portfolio, as it varies by lender and loan type.
Strategic Real Estate Financing:
This approach complements existing real estate financing strategies such as cash-out refinancing or DSCR loans, which leverage existing real estate equity or income to grow your portfolio without selling assets. By utilizing securities-backed lending, you can capitalize on both real estate and financial investments, ultimately bolstering your financial holdings.
In conclusion, a securities portfolio can be used as collateral to secure real estate financing, allowing you to maintain ownership and continue to benefit from potential growth and dividends. By being strategic and taking advantage of the right loan products, you can unlock liquidity for real estate investments while preserving your securities holdings.
[1] Fitzgerald, C. (2021, March 11). The Pros and Cons of Using Dividend Reinvestment Plans to Buy Real Estate. Investopedia. Retrieved July 05, 2023, from https://www.investopedia.com/articles/personal-finance/091415/pros-and-cons-using-dividend-reinvestment-plans-buy-real-estate.asp
[2] Howell, S. (2021, January 19). Real Estate Investment Trusts (REITs) vs. Bonds - Profiling the Two Great Income Generators. Investopedia. Retrieved July 05, 2023, from https://www.investopedia.com/articles/investing/041415/real-estate-investment-trusts-reits-vs-bonds-profiling-two-great-income.asp
[5] Starks, J. (2020, May 01). A Guide to Real Estate Investment Trusts for Beginners (REITs Explained). the Motley Fool. Retrieved July 05, 2023, from https://www.fool.com/investing/2020/05/01/a-guide-to-real-estate-investment-trusts-for-beginners-reits-explained.aspx
- In the context of Capitalizing on Your Portfolio for Real Estate, community policy and business should consider embracing securities-backed loans or lines of credit as an additional financing option for prospective homebuyers, allowing them to unlock liquidity without selling their investments.
- Individuals can use the financing strategy of integrating their securities portfolio into their employment policy for securing a mortgage, providing an avenue for investing in real estate while maintaining exposure to potential growth and dividends in their securities.
