Securing construction financing: strategies for amassing required funds for a deposit
Let's Explore Creative Ways to Use Your Securities Account for Property Investments
So you own a securities account and are eyeing a property investment. Should you sell or hold on to your securities? There are other ways to integrate your securities account into real estate financing, but not all banks and accounts are created equal. Here's a lowdown on the different methods.
Don't Say Goodbye to Your Securities Just Yet
If your securities account is performing, it's tempting to sell the papers. But that's not always necessary. With the right bank and securities account, you can keep it and still finance your property project.
However, it's essential to open up about your securities account to your bank, even if you don't intend to use it. This can boost your creditworthiness, potentially leading to better loan terms.
Temporary Collateral for Better Banking Terms
You might not know it, but your securities account can serve as security for better financing conditions. Basically, you pledge it to the bank, which serves as security for them, and you continue to benefit from any price gains and dividends. However, the bank won't recognize the entire value as security but will apply discounts, often up to 50%.
Negotiate, Negotiate, Negotiate
Your securities account can also actively contribute to repaying your construction loan. You can use dividends or redeem the debt with the securities account value after a specific period. But this requires negotiation skills and financial acumen, as banks don't always make such proposals.
Banks and Deposits – Each is Different
Banks handle customer deposits differently. Some might secure all access rights or want you to transfer part of the deposit as collateral. Others prefer the deposit to remain as is, but it's important to discuss terms individually with your bank.
Mortgage, Real Estate, and Exchange Your Deposit
If your bank isn't keen on incorporating your deposit into a traditional mortgage, you can still exchange it for equity to finance your property purchase. However, remember that taxes might be due on any gains.
Alternative Approaches to Securities Account Use
Here are some alternative ways to use your securities account for property investments:
Securities-Based Line of Credit (SBLOC): Borrow against the value of your securities, retain your investments, and avoid triggering capital gains taxes. However, it's important to note that the collateral value must support the loan amount, and you can still manage or rebalance your portfolio.
Selling Securities: Liquidate some or all of the securities in your account for cash to finance a property. However, this can lead to capital gains taxes and disrupt your long-term investment goals.
Mortgage-Backed Securities (MBS): Indirectly participate in the real estate financing ecosystem by investing in MBS. While not a direct method for personal property purchases, it supports the mortgage market.
Real Estate Investment through Specialized Accounts: Invest in real estate or related securities via specialized accounts for liquidity, giving you exposure to the real estate market through securities.
[Sources: 1, 2, 3, 4, 5]
Now that you know the alternatives, remember to weigh your options carefully before deciding on your next step. Happy investing!
- To optimize your personal-finance strategy, consider discussing your securities policy and potential investing in real-estate with your financial institution, as employing a Securities-Based Line of Credit (SBLOC) or investing in Mortgage-Backed Securities (MBS) could provide alternative methods for property investments.
- In light of your securities account, it's essential to review the community policy and employment policy of your bank regarding finance and investing, as understanding their terms and conditions might impact your ability to use your securities account for property investments or improve your creditworthiness.
