So what do you do if you want to buy overseas property perhaps to live in, perhaps to retire to, or to generate rent from to supplement your other income? You don’t want to empty your bank accounts of your savings or sell your portfolio holdings, and vendor or developer finance is not an option. Well, before you abandon the idea completely, it is perhaps worth looking at your asset column for alternative ways of freeing up capital that you can put to work elsewhere.
Home equity loans Releasing equity (the difference between an outstanding mortgage if any and the current value) from your existing overseas property is a well documented method of raising cash via a traditional re-mortgage facility. This is worth looking into if you have some equity as well as easy access to a friendly lender who is not allergic to Expatriates ! If however, you do not own a property with equity, then there are other ways to access capital.
Asset backed lending from offshore portfolio structures Many expatriates and / or retirees living overseas will already have an offshore investment structure or Portfolio Bond that has over the years with ad hoc top ups and investment returns, risen to a valuation of USD1m or more. In many cases, that can be used as security to provide access to a cash loan, secured by the portfolio itself.
A lending ratio of 50% loan to value would, in this example, release $500,000 cash lent to the investor on a rolling term basis. The underlying assets in the portfolio would have to be of a low risk nature at outset to qualify, and then be conservatively managed going forward, but even so can still provide a return higher than the interest cost of the loan in the current environment .
There are risks involved if the portfolio valuation were to fall below a certain limit which could in theory lead to a margin call from the lender, so a word of caution here is to avoid holding cross currency loans and risky stocks or funds inside the portfolio.
That said, the days of lending against highly aggressive portfolios are largely in the past now as we enter a new world of cautious lending strategies being adopted by banks. Many will now only look to be lending against low to moderate risk assets such as blue chip stocks, investment grade bonds, government gilts, and professionally managed unit trusts.
One of the main benefits of asset backed lending of course is that the security that you put up for the loan remains invested even after the loan proceeds have been released to you – whether that be the portfolio or the first property. If your loan is costing 5% a year in interest, and your portfolio is conservatively managed yet still returns 8% pa, then this can be a very viable option.
An experienced investment professional should be able to properly structure your portfolio prior to submission of a loan application to maximize the chances of success.
With proper ongoing monitoring and a full understanding of the risks involved and how to mitigate them, this can be a very powerful tool for individuals seeking cash funding for new ventures or who would like to buy a property in Thailand with cash. Jerry Dingley and Tim Whiteley have a combined 50 years experience as IFA’s both onshore UK and Asia Pacific advising international investors and expatriates.
Now with a regional presence in Asia, they specialize in Wealth Protection, Offshore Trusts, Inheritance Planning, and creating investment solutions for High Net Worth individuals around the world. They can be contacted for more information at firstname.lastname@example.org